By Kym Insana, President & founder, AlwaysOn Digital
Programmatic platforms are once again under fire for a lack of transparency into where budget goes within their black box systems. The biggest scuffle so far this year is between The Trade Desk and Publicis following an eye-opening audit.
Transparency is definitely an issue for ad buyers, especially amid the current economic uncertainty and a consumer base that splinters across media channels more and more each year. But it appears the current blowup might be more a case of a holding company and a technology platform fighting over who gets the margin, rather than making a tangible difference in advertisers’ budgets.
No matter what you call it – the tech tax, hidden fees, or dark arts – the truth remains the same. More money is going towards fees, and fees don’t perform. As the head of a small consultancy that manages programmatic campaigns, the hardest part of my job isn’t the execution; it’s explaining pricing structures to clients.
With that in mind, it’s worthwhile to look at how programmatic pricing often works, and the different scenarios that decision makers can explore as they navigate this transparency dialog.
The truth about markup
Transparency has been a major talking point in the programmatic landscape for years, and if one truth has emerged, it’s that there will always be a markup on campaigns. That’s fairly obvious: someone has to get paid in order to keep this industry alive. After years of exploration around, fraud, viewability, curation, header bidding and supply-path optimization, the question is no longer if there’s a markup. Buyers now need to know who is profiting, and how much of the budget goes towards fees compared to media.
In the most obvious example, a major holding company may spend tremendous amounts buying media through the dominant programmatic platform. If the holding company no longer recommends that platform, what do they recommend instead? Is it a trading platform that is owned and operated by the holding company itself? That’s better for holding company revenue, but the advertiser benefits aren’t immediately clear. Fees are fees, regardless of which entity takes them.
Advertisers’ goal shouldn’t be to move fees around, but to find better performance for that same budget. This can be done in a few ways. The most obvious is to find a platform that delivers better performance for the same cost. The other is to reduce the amount of budget that goes to fees and increase the amount of money going towards working media. This leads to the same outcome: greater performance for the same price. It just removes some of the guesswork before the campaign starts.
Sticker shock vs. working media
Big agencies and holding companies aren’t the only entities that tack on backend costs. Basic DSP functions are so commoditized that an agency of any size could stand one up and plug into demand. So even an agency serving mid-tier clients can obfuscate how much of an advertisers’ budget might go towards working media.
Here’s how that might look in practice. An agency promises a client a 5 percent agency fee and promises to run all media execution through their own DSP. That sounds appealing, so the brand signs on. When the campaign runs, the agency can then charge additional DSP fees. In some cases, the agency could claim a 50 percent or greater margin on the actual media costs and bill the client as “DSP fees.”
I have seen brands sign on for deals like this where less than 40% of a campaign budget goes toward the actual media. For a $1 million campaign, we’re talking about less than $400,000 spent on actual ad inventory. The brand saw a low upfront price, but ultimately lost a substantial portion of its budget to fees.
Now contrast this with an agency that charges a flat 20 percent of media fee for the entire campaign, with the promise of no additional makeup. That’s a substantially larger upfront cost, which many buyers might blanch at, but the early agreement is that 80 percent goes to media.
What happens when a brand spends twice as much on working media within the same exact campaign budget? Key performance metrics naturally go up. It’s almost impossible not to improve outcomes and ROI because more money is going towards putting messages in front of actual consumers.
Of course, these examples simplify a more complex problem. Campaigns frequently carry additional data costs to improve targeting and drive outcomes. The trick isn’t for brands to completely avoid these costs, but to better understand their size and necessity.
Again, there is no world in which brands don’t pay some sort of price for executing a programmatic campaign. At the same time, the new transparency conversation shouldn’t be on whether there are fees, but who’s charging them, along with where and when they come out of the overall budget. Fees can pay for execution, but they don’t perform. Advertisers need to investigate to ensure as much of the budget is going towards working media as possible.
