The findings of the ANA Programmatic Media Supply Chain Transparency Study that we analyzed in SPN #77 have practically kept me up at night since it was published.
For those that need a quick refresher, the ANA study answered the question as to whether the high transaction and data costs of programmatic media are justified by consequently enhanced advertising exposure.
The answer was emphatically no.
It estimated that only 36% of the money spent by advertisers (you and me) on Open Web inventory bought programmatically is meaningfully seen by someone. That ‘someone’ may not even be the intended audience, but let’s not get too choosy at this point.
The study also showed that on average publishers receive 71% of the money spent by advertisers, although this figure doesn’t include agency commissions and fees. After this, there’s a further loss of effectiveness through viewability below acceptable thresholds, invalid traffic (including fraud) and the perceived lack of validity of Made-for-Advertising websites.
Which begs the question, is the programmatic channel (really “industry” at this point) unique in its obscurity and as the ANA says “information asymmetry” or do other channels have similar vibes and uncomfortable issues that aren’t being explored?
Paying a Premium
Interestingly, much less public research seems to have been done about other channels but some fascinating tidbits exist online.
No recent – trustworthy – Google Ads Display Network research covers the entire ecosystem from Advertiser spending on campaigns to Impressions and Viewability by the end user. But pulling anecdotes, the directional average CPM on Google Display Network for advertisers seems to be around $3.1.
On the other hand, the average AdSense CPM that publishers get paid – or RPM, Revenue per Mille – is around $1.6 in the US. That’s 52% of what advertisers pay – for a whooping “cost of the supply chain” of 48%!
Google Ads Display Network claims to resemble a similar auction model as the wider programmatic “real-time bidding” industry but Google monopolized every step of the journey – from “DSP” (Google Ads) to “AdExchange” (some other internal product, part of AdSense) to “SSP” (AdSense) – making finding any more detailed information impossible.
Tracking the “cost of the supply chain” for Google Search Ads is even more convoluted. No publisher on the other end of the spectrum reports their revenue, so any amateur calculation hits a wall of non-disclosure.
However, read this quote from a recent interview that surfaced as a part of the DOJ v. Google case: “Google changed its advertising auction formula in 2017, raising prices by 15%.” I read it as:
- This isn’t be the first time Google has raised prices – with every raise effectively increasing their bottom line since no COGS (cost of goods sold) increase alongside prices.
- If prices can be raised by 15% at a time, and a price raise can hardly be more than 20% of Google’s “pre-raise” profit, the profit margin must be at least 75%. Any margin over a 20% raise would be too visible in financial reporting, prompting questions by Wall Street analysts.
- Facebook, TikTok, Twitter, and others that sell their inventory – instead of being intermediaries – are likely to be in a similar realm.
Outside of Digital Channels
TV profit margins for media companies used to be around 23% – before factoring in agency costs, the cost of tools to buy the media and other parts of the funnel.
If we dug deep enough, similar patterns will likely be found for email, direct mail, OOH, etc. As advertisers we’re getting the short end of the stick and paying a significant premium on the price of the “real” inventory.
Pair this with “real viewability” concerns and faulty, overly optimistic attribution that is over-reporting results for every tactic in favor of producing a beautiful narrative – it’s fair to say that on average only 20% – 30% of your budget produces meaningful impressions across every channel you are spending money on. Programmatic, with its 36%, is not the worst after all.
Help!
Here are a few tactics to mitigate the asymmetry and give Orgs full value on their money spent.
1. Stop the focus on cheap CPM deals
In chasing a lower cost of ad inventory instead of conversion rate, we’re subjecting ourselves to increasing the share of “waste” in our marketing dollars. Put another way, our obsession with low costs has helped produce the current state-of-affairs.
The issue with CPM is it’s always an “average” – across impressions, providers, or websites. Having CPM as a metric you look at kicks off a vicious cycle of watering down more expensive, quality impressions by adding cheap, useless inventory into the mix.
A much more helpful metric to add to your marketing measurables would be the “spend conversion” or the cost of the supply chain i.e. how many cents on the dollar you spend make it to the latest possible entity – the publisher.
How do you work it out?
While not available in some channels – see Google Search Ads section above – this “journey of a dollar” is traceable in channels where the Seller and Publisher are different entities. Your agency is 100% able to produce these numbers – they get recorded as a part of every auction instance. Seek this information out.
Your Orgs Program Efficiency is essentially how many cents on the donor’s dollar gets to the final recipient (as impact / goods provided etc). “Spend conversion” is the same – if a nonprofit pays $1 for its marketing, how many cents on that dollar are meaningfully spent on making an impact on the “viewer” instead of being lost across numerous intermediaries?
2. Prioritize understanding of what costs you money.
Some intermediary tech stacks or service providers are unavoidable – you can’t place ads on TikTok without using TikTok’s buying platform, and if your donors are present there, it’s worth it.
Some others, not so much. For example, having your programmatic campaigns include two AdExchanges – while both have access to some of the same websites – can initiate your bidding against yourself, artificially inflating the price.
Perform a one-time cost analysis across your most important channels to understand what “route” your dollar goes through before paying for the impression in front of a potential donor. It’ll likely uncover lots of savings.
3. I’m a massive fan of hold-out tests to prove the value of marketing.
Ultimately the best measure of truly incremental impressions that move hearts and minds of potential and current donors alike is holding out on specific channels or elements in the supply chain and measuring the results.
4. Ask the right questions of your partners.
My favorite example of this is the mobile vs. desktop impression sharing convo while striking a direct deal with a publisher, and discovering their lower CPM is only achieved by having a disproportionate share of Mobile impressions in the mix. Contractually limiting the “spend conversion” upfront resolves lots of friction.
In nearly every case, Agencies and tech firms are far better qualified to understand the intricacies of most tools and platforms. Of course, their financial incentives sometimes differ from your Orgs – hence the importance of structuring your relationship around performance metrics – but when asked, most can provide answers that help understand where your money is going. But you have to ask.
5. Some questions to ponder internally and others to ask your partners.
- How many websites are being used for an average campaign?
- When did we last update our media agency contract?
- Do we/they have a process in place to accurately measure general ad quality and price in order to assess value?
- When is our agency acting as a Principal and what are the trade-offs of that for us?
- Are we staffed appropriately internally to be active stewards of our media investments?
Wrapping Up
The call to action is this: reevaluate your advertising strategies with a critical eye, and ask pertinent questions about the efficiency and effectiveness of your spending. We need to work toward fostering an advertising ecosystem that values transparency, efficiency, and tangible results, benefiting advertisers, publishers, and donor audiences alike.