Widening Discrepancies: The Industry’s Dirt Under The Rug

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

Today’s column is written by James Curran, CEO and founder at Staq.

When it comes to discrepancies in digital advertising, publishers bear the brunt of the cost. It’s a fact that is so ingrained in the standard processes used to buy and sell media that publishers have no choice but to accept the situation and try to make the best of it.

In the standard terms and conditions set out by the IAB, any discrepancy that is less than 10% is essentially water under the bridge, but 10% of a $137 billion global industry is nothing to sweep under the rug. Yet, it’s only after discrepancies climb into the double digits that advertisers and publishers need to work out a compromise.

When there are large discrepancies, it’s the advertiser’s ad server that is the ad server of record, so the publisher starts off on lower footing automatically. The advertiser has the choice to either demand a make-good or pay the reported amount from their ad server, plus 10%. In addition to standing to lose the revenue at stake in the discrepancy, the publisher is expected to manage all of the reporting and reconciliation, costing countless man-hours every month.

Further complicating the issue, the seller is expected to not overdeliver to the buyer, since any additional inventory delivered is seen as a bonus to the buyer. Publishers can even be penalized for going 10% in overdelivery.

Publishers as a group are not innocent. But it’s the publishers that sell quality, in-view inventory that have taken on most of the burden because of unscrupulous lower-quality publishers selling fraudulent inventory. Advertisers would not demand the ad server of record, force delivery caps or require minimum viewability if fraud were not as prevalent as it is.

Programmatic Increases Discrepancies

While programmatic buying happens in real time, reconciliation and billing are hardly programmatic. The process is just as manual as with direct deals. Some publishers account for their programmatic partner’s discrepancy in their allocations, which is a tedious and inexact process because every ad server in the chain of exchanges counts impressions, views, clicks and conversions a little differently.

Other issues: Websites cache ads, rich media creatives load slowly or different geomapping schemas don’t overlap. In the world of programmatic advertising where a split second matters, even a discrepancy in the clocks between two technologies can create millions of dollars in lost revenue.

With the rise of viewability and proof of human traffic, the work involved in minimizing discrepancies has become even more complicated. New systems are needed in the ad tech stack for the seller to manage pacing and inventory allocation against the buyer’s requests, and the new costs get pushed down the publisher.

New Channels, New Problems

The IAB published a 2013 white paper to discuss the various causes behind mobile advertising discrepancy rates. There are two unsettling statistics in the report. First, is the consensus of respondents that an acceptable discrepancy rate for mobile advertising is between 10% and 20%.

The second scary statistic, however, makes the idea of compromise seem relatively remote. Only 54% of survey respondents indicate that agencies are willing to work with the publisher to investigate discrepancies before defaulting to a make-good request. The sad part is that the IAB noted this statistic as a sign that relations between advertisers – read: agencies – and publishers were improving.

Less Discrepancy Starts With More Transparency

Publishers have taken on this subservient role in digital advertising but can become equal players by demanding a billing audit on their stats if they can prove human traffic and viewability with certification by a third party. While there is more inventory than there are ad dollars, there is not more premium inventory, and so it must be the premium publishers who lead the charge.

Digital Content Next (DCN), formerly the Online Publishers Association, is one of the few groups that brings premium publishers together but doesn’t have a lot of bargaining power in the face of the big agencies and brands. In the absence of a powerful advocate, publishers have adopted new technologies to streamline their headaches as much as possible, rather than focus on better guidelines and policies. And publishers who have embraced technology are enjoying more profitability, according to a study by Operative and DCN.

Mike Lewis, Ad-Juster’s co-founder, has called for more fair discrepancy practices since 2009. He suggested a clearinghouse system similar to the one used by the financial markets. In this case, an independent auditing system, which would have enough data to see patterns in discrepancies across technologies, buyers and sellers, could create a normalized standard and reporting that could split the difference down the middle. The industry could save hundreds of millions of dollars just in the hours saved in daily operations and at the end of each month.

This is a great idea, but it’s unlikely to happen any time soon, unfortunately. In order for a clearinghouse to be adopted, publishers must work together to agree upon a standard and convince entities like the IAB that such a recommendation is a good idea, not to mention the advertisers and agencies themselves. As a start, publishers should push for ad servers, supply-side platforms, demand-side platforms and the like to disclose their reporting methodology and work together to estimate the monthly discrepancy rates of each vendor. This way, end-of-month haggling would no longer be focused on the publisher, but rather on standard data from the ecosystem itself.

Follow James Curran (@james_curran), Staq (@STAQ) and AdExchanger (@adexchanger) on Twitter.

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