Home The Sell Sider Is Chumbox Economics Feeding The Industry’s MFA Problem?

Is Chumbox Economics Feeding The Industry’s MFA Problem?

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Ruben Schreurs, Chief Strategy Officer at Ebiquity

In 2022, according to company filings, customers spent a whopping $2.4 billion buying clicks from Taboola ($1.4 billion) and Outbrain ($1 billion).

In the same period, the two firms paid publishers $1.6 billion for placing their infamous “chumboxes” on their websites. Both Taboola and Outbrain refer to these costs as Traffic Acquisition Costs (TAC). Taboola was good for $830 million in TAC, compared to Outbrain’s $750 million.

Not all of the TAC money paid by Taboola and Outbrain went to publishers and media partners, as it also includes costs for programmatic supply partners. But, for the sake of argument, let’s say these two companies pay about $1.6 billion per year to publishers. That’s a lot of money, which could explain why people in the industry commonly refer to the companies as a “necessary evil.”

On the surface, it makes sense for publishers to take this money. But are these arrangements helping divert ad spend toward the “Made for Advertising” (MFA) industry?

A suspicious profit

The ANA’s most recent report estimates that $10 billion in ad spend went to MFA sites this year. That is $10 billion not invested with “legitimate” publishers, but instead siphoned away to operators of ad arbitrage networks. For this arbitrage to work, these networks need traffic, which is what they use companies like Outbrain and Taboola for, among other sources.

If you can pay an ad network $0.01 for a click to your website, then generate $0.02 in advertising revenue from real brand advertisers, that’s a juicy profit margin. You just need to get away with the scheme by making it difficult for advertisers to find out what you’re really doing.

However, brand advertisers have finite budgets, so the advertising industry is essentially a zero-sum game. This means if one party manages to earn more in a year, there must be other parties that earn less as a result.

Could publishers be feeding the beast that slowly kills them for a quick buck by running chumboxes on their websites?

Granted, the chumbox operators pay publishers $1.6 billion per year. But if those deals contribute to $10 billion per year in lost ad revenues, is that really such a good bargain after all?

Of course, the responsibility for the MFA problem doesn’t just fall exclusively – or even mostly – on Outbrain and Taboola. Here are a few important disclaimers:

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  • MFA sites do not buy traffic only through Taboola and Outbrain. They could use nonpublic companies that offer similar solutions, like MGID, but they also purchase traffic through social platforms and other networks.

In a recent episode of the Marketecture podcast, Jounce Media’s Chris Kane suggested Facebook is – by far – the biggest source of paid traffic for MFA operators. 

So, even if the chumboxes are diverting traffic – and, as a consequence, ad dollars – from legit publishers to MFA sites, they aren’t the only ones doing so. And it’s likely the case that the contribution of Taboola and Outbrain to MFA monetization is much lower than that of Facebook.

  • The ANA estimates that the global MFA industry generates $10 billion in annual ad revenue, but the actual figure could be much lower or higher. Any discrepancy in the real numbers would change the cost/benefit dynamics of publishers working with chumboxes.
  • If all MFA websites were magically deactivated tomorrow, that would not result in all of the MFA revenue being redirected exclusively to the genuine publishers that currently run chumboxes.

In short, there’s a lot we don’t know about how native ad platforms like Taboola and Outbrain contribute to MFA monetization. It’s entirely possible that I’m being unfair to the chumboxes.

But it’s about time the industry has a public discussion about how publishers’ native ad deals could actually be hurting their own bottom lines. I would love to be educated on this and would welcome constructive discourse on the topic.

The Sell Sider” is a column written by the sell side of the digital media community.

Follow Ebiquity and AdExchanger on LinkedIn.

For more articles featuring Ruben Schreurs, click here.

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