Publishers And The Hidden ‘Ad Tech Tax’

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

Today’s column is written by Scott Gatz, CEO and founder at Q.Digital.

I recently read about a study finding that only 40% of digital ad spend actually goes to working media. The rest is eaten up by agency fees and the tech that agencies use to buy digital media.

But this study didn’t take into account the “tech tax” that publishers must pay in order to service clients. We have to pay invisible fees each and every day to stay in business and compete with other publishers.

Even as direct-sold CPMs are decreasing, agencies ask publishers to pay serving fees, viewability-tracking fees, brand safety-tracking fees and even brand lift study fees.

So many metrics, so many added taxes we gotta pay.

So Many Questions

I’m not sure whether advertisers know the trade-offs up-and-coming publishers make to service their increasingly specific needs. If I want to add a data management platform (DMP) to my mix, for example, I face several questions. Do I take the cost out of my marketing budget? If so, I’m trading between better targeting the audience I have versus growing the reach I can provide.

Other questions: Is it better to hire an additional political reporter or launch an initiative to improve viewability? Do I build a new user first-party data collection tool or add a new feature to improve stickiness and engagement? Is there any way to build my own solution for a fraction of the cost of a well-known and well-trusted DMP?

The Struggle Is Real

Beyond the fees listed above, there are hidden costs and trade-offs that publishers weigh to provide robust offerings. Each fee means evaluating the cost vs. benefit, finding solutions or losing more revenue.

There are several tricky issues on the brains of today’s publishers. There is viewability waste, for example. We don’t know beforehand if an ad will be viewed or not, so a healthy percentage of impressions – anywhere from 20% to 50% – go unpaid. Result: The money a publisher may have made in the past is now – poof! – gone.

There’s also viewability tracking. Should we pay MOAT, Integral Ad Science or DV to give us insights into our own viewability stats so that we can decrease our viewability waste and make our partners happier? Result: more money out the door for reporting.

Don’t forget the long-standing issue of agencies and publishers reporting different numbers, even when we are all on DoubleClick. Say goodbye to another 5% to 10% of hoped-for revenue. Result: slimmer margins.

To DMP or not to DMP? There are some great DMP choices on the market with first-party data targeting. A DMP becomes a strategic initiative balanced against other strategic priorities. Does the revenue justify it in the next few months? In a year? Two? Result: The average price for a good DMP starts in the high five figures, plus staffing to get it running well.

Another challenge: third-party data targeting. Everyone wants to target users on advanced criteria. We can buy the data to do this, too. Result: less money.

Finally, there is audience extension. Once we refine the targets so much, we might not have the reach. Result: Let’s go out and buy those users elsewhere (cutting our profit further).

Quality Costs

As a publisher, I am not in this alone. As CPMs shrink and demands grow, all publishers are forced to raise CPMs and educate agencies and clients on the costs of their demands. In the spreadsheet-based world of media buying, that doesn’t often line up with their “target CPM” way of thinking. It seems that some folks forget to layer in these hidden costs that quality publishers absorb.

Marketers would do well to remember that they have much higher-quality impressions – that is, more viewable, more data-targeted – than even a year ago. It’s a vast improvement in reaching the right customers. Brands and agencies should not expect this increase in value to be free. It’s only natural that CPMs should go up.

To help educate agencies, publishers should add and label incremental CPMs for viewability, third-party data targeting and even for first-party data targeting. Publishers should start to get agencies used to seeing these added to line items.

Since publishers love clarity, marketers and agencies should be clear about what their goals are. Is it more important to have a smaller but much more targeted audience, which is therefore more expensive, or is it more important to hit the “best CPM” across previous campaigns?

While I understand it’s the cost of doing business, only the biggest publishers can “do it all.” Everyone else must find a way to juggle the needs of marketers and their audience.

Follow Scott Gatz (@sgatz), Q.Digital (@WeAreQDigital) and AdExchanger (@adexchanger) on Twitter.

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1 Comment

  1. Most publishers follow the rest of the industry off the cliff of programmatic, DMPs, view ability vendors etc. In most cases this will continue to lead to lower CPMs and a smaller slice of the decreasing pie.

    A few publishers will take a different path as premium players that avoid programmatic channels. They are the ones with a future.