Home Social Media Little Known Fact: Facebook PMDs Must Disclose Arbitrage

Little Known Fact: Facebook PMDs Must Disclose Arbitrage

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facebook-arbMarking up cheap Facebook inventory has been a lucrative business for a range of companies in its Preferred Marketing Developer (PMD) ecosystem. And Facebook is fine with that practice, just so long as it’s clear to advertisers just how big of a cut their partners are taking.

But do advertisers know, and do they care?

To support price transparency Facebook has, for about the last year, had a policy in place requiring third parties selling ads on its platform to disclose on request what they paid for that media.

Facebook lays out the policy in its Ads API guidelines this way:

“You must disclose to your clients the actual amount that you spent on Facebook advertising based on the auction pricing, including the actual Facebook metrics (e.g. CPC, CPM rate) and the amount you charged as fees. We reserve the right to disclose this information to your client upon their request. We may require documentation from you to ensure your compliance with this policy.”

It’s a unique demand, equivalent to a large mall requiring retailers to disclose their wholesale costs to customers who ask. And it appears to go beyond what other large digital platform companies demand of their marketing partners.

It’s not clear to what extent advertisers and agencies are aware of the policy.

Two PMDs I spoke with recently – Brand Networks and TellApart – said advertisers by and large have not inquired about the transparency requirement, but they would welcome such interest.

“I think it is a huge difference from a policy perspective,” said Rob Leathern, chief product officer at Brand Networks. “It is a very different approach, but most advertisers still don’t know they can get this level of transparency.”

Would it bother them if they knew? For some it might. One Facebook advertiser was recently upset to learn that $21,000 in media spend placed through a Facebook partner was found to consist of $9,000 in media costs and a $12,000 fee, according to a source who spoke with the marketer.

Another possibility is that the advertiser might care about media costs, but for some agencies, ad tech margins are the last thing on their minds. “They want to shuffle spend through the door,” said one executive at a PMD company.

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For others, transparency is key. Digital agency Essence handles much of its media buying in-house. Chief Strategist Andrew Shebbeare says programmatic buying has helped digital marketing evolve into a meritocracy, adding “Meritocracy only works with transparency.”

He continued, “A policy of separating media cost from markup is good for brands and the whole ecosystem. Platform and service businesses should be compensated fairly for the value they add, but opaque ‘all in’ pricing encourages them to take credit for value they are not creating – for example the value of a brand’s first party data. When you look beneath the surface, you often find that low-performance tonnage is being cross-subsidized by supernormal margins on higher-performance line items. When you blend performance through opaque pricing, you are missing out on a large slice of the programmatic opportunity.”

Neo@Ogilvy, the digital marketing arm of Ogilvy, has taken advantage of the policy. Like Essence, it buys media on behalf of its clients through an internal team and does not mark up costs. In the rare cases when it uses managed services, it binds partners to disclose the actual rates they pay and believes media costs should matter to clients.

Aside from providing more visibility into performance, Facebook’s price requirement may also serve to control prices. Even if advertisers don’t often request price info, the possibility that they might could put a leash on runaway margins.

“The message could be, ‘Hey, don’t overcharge your client,” said TellApart CEO Josh McFarland. “Maybe there’s a little bit of that specter, just keeping everybody honest.”

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