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Will the Media Industry Find Its Way?

27 Apr

agencies as media ownersThere was a time when ad agencies represented an advertiser’s interest when interacting with media sellers to secure time and or space for the conveyance of the advertiser’s messaging. The media supply chain was uncluttered, machine-to-machine buying was not even a distant thought and the roles of the various players were understood by all parties.

As the media industry has evolved, the complexities of the supply chain and the clarity of “what” each intermediary does, what they are responsible for and what they earn have sown confusion, limited advertiser transparency and eroded stakeholder trust.

One of the key drivers of supply chain complexity, and all that comes with it, has been the rapid growth of digital media in general and specifically the expansion of programmatic buying. Thus, there may be no better barometer of this dynamic than the “Marketing Technology Landscape” prepared annually by Scott Brinker. Mr. Brinker’s landscape chart incorporates the logos of each available advertising, marketing and search solution. This year’s version contains logos for over 6,800 solutions, up from 150 in 2011. That is a staggering number of ad tech and mar tech solutions vying for a slice of an advertiser’s digital media dollar.

In spite of the dramatic increase in the number of marketing technology solutions and the exponential increase in the level of data available to inform practitioners media decisions, the industry is still grappling with issues that negatively impact media performance. Issues that include ongoing limitations in attribution modeling, difficulties with omnichannel measurement, a lack of standardization in assessing audience delivery and continued concerns regarding ad viewability, fraud, ad blocking and privacy.

Many would agree that the current state of affairs is not healthy for the global media industry which totaled $500 billion in 2017 (source: MAGNA Global Advertising Forecast, December, 2017).

Marketers, who are under increasing pressure to improve performance, are clearly not satisfied with the status quo within the media supply chain, which many describe as “murky” and “inefficient.” These marketers are committed to seeking out new partners, processes, tools and solutions that can improve working media and increase the chance that each dollar they invest in media has the opportunity to positively impact business outcomes.

Media agencies, for their part are increasingly being challenged to improve both transparency and the cost effectiveness of their clients’ media spend. Sadly, many agencies have taken the stance that there is a cost to be paid for improved transparency, enhanced viewability and brand safety and believe that these costs should be borne by the advertiser. Advertisers rightly disagree with this position.

Let’s be clear. When agencies strayed from a singular focus on their fiduciary responsibility to their clients, they did so at their own risk. Their pursuit of principal based media buys, non-disclosed relationships with other commercial entities in the media supply chain (including their own affiliates) and the myriad of unauthorized, non-transparent revenue generation practices employed by some agencies netted them significant profit gains… in the short-term.

However, as advertisers became aware of these practices and began to understand the negative impact on their business this created a crisis in confidence among advertisers and lessened the level trust that they had in their agency partners. In turn, this has created opportunities for management and technology consultants to make inroads with CMO’s as it relates to their media business and incented many advertisers to begin looking at taking control over portions of their media business, including bringing work in-house.

These trends coupled with the corresponding reduction in non-sanctioned revenue opportunities resulting from greater levels of advertiser transparency have constrained agency margins. How agencies positon themselves for the future in light of the evolving competitive set, while rethinking their service offerings and charging practices remains to be seen, but will be of critical importance.

As for the ad tech sector, there will surely be a shakeout that will result in a reduction in the number of vendors (over 6,200 in 2018) providing solutions. This will be driven in part by consolidation due to the convergence of ad tech and mar tech solutions and the dominance of large players, such as Google, Facebook and Amazon. In addition, the emergence of consumer privacy protection regulatory actions and the eventual emergence of blockchain technology within the media market has the potential for significant disruption.

Clearly, there are uncertainties and challenges facing the media industry and the myriad of supply chain participants. That said, while continued change will be the norm and course corrections required, there will be winners that are able to navigate these turbulent times and position their organizations for future success.

“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” ~ Charles Darwin

 

Advertisers Beware: Agency Margin Optimization Efforts

19 Apr

Traffic LightIt was with great interest that I read an article on Digiday dealing with “key issues” facing ad agencies and, ostensibly, the “agency model” ranging from transparency to in-housing.

Masked behind the author’s perspective that transparency comes at a high cost was the reality that marketers remain at risk to the predatory non-transparent revenue practices applied by certain agencies.

Why? With marketers demanding more transparent ad buying practices and transitioning certain tasks and or ownership of elements of the tech stack in-house, agency gross margins are under pressure. In turn, this has created an environment where agencies attempt to make up for the margin shortfall from clients that don’t actively monitor agency contract compliance, financial management or media performance.

Of note, one anonymous agency executive went so far as to suggest that some agencies use a “traffic-light system to determine how knowledgeable the procurement teams at clients are.” This guidepost allows the agencies to assess how much margin they can make on a given account.

This certainly reinforces the reality of the old adage; “Where there is mystery, there is margin” and signals the importance for all marketers to get up to speed on both the potential benefits and the pitfalls related to their digital and other advertising investments. For client organizations, most of which do not have the bandwidth or subject matter expertise in-house, engaging an independent contract compliance or media performance auditor or consultant could greatly help to mitigate risks in this area.

In spite of the potential for efficiencies that fueled the rise of programmatic media buying, what we have all come to realize is that the costs related to algorithmic, machine-to-machine buying have far outweighed these efficiencies. One dynamic, which drives costs is the number of agent firms involved in a typical programmatic digital media buy and the fees that each charge for their role. Below is an overview of typical fees or mark-ups that are charged by those on the demand-side of a programmatic transaction.

Digital Dollar

Source: Industry Experts

As is readily apparent, the dollar dissipation that occurs between the advertiser’s initial investment and the money that actually ends up with the publisher is significant. Industry studies have consistently shown that less than forty cents of each digital dollar invested makes its way to the publisher.

To combat this trend, rightly or wrongly, marketers have focused on reducing the number of intermediaries and the fees charged by each, with the goal of improving working media ratios and ultimately the performance of their digital campaigns. Thus, the agency margin squeeze.

That said, the agency practice described in the aforementioned Digiday.com article of taking advantage of unsuspecting, less knowledgeable clients to make up for the margin lost on those that have moved to transparent buying models, is neither appropriate nor sustainable. Agencies conducting themselves in this manner may want to reflect on the words of the renowned physicist, Stephen Hawking:

Intelligence is the ability to adapt to change.”

This is particularly true given the competitive inroads being made by the management consultant and tech consultancies that are focusing on the digital media segment of the market. The best path forward for agencies is to actively engage their clients in an open dialog about mutually beneficial remuneration methodologies.

In our opinion, it is right and just to eliminate the potential for media arbitrage, non-disclosed fees, no charge media weight and volume-based rebates that often accrue to agencies, and much of the time without the advertiser’s knowledge. Further, we also don’t believe that clients are obligated to make up the gap in lost agency revenue tied to transparency reforms. That said, we are fully supportive of an agency’s right to earn a fair and reasonable profit and to have the potential for incremental gains tied to extraordinary performance.

Near-term, the best way to balance an advertiser’s quest for transparency and an agency’s ability to generate a reasonable profit will likely be a compensation schema that incorporates a base fee using a direct-labor or cost-plus methodology with an outcome-based performance incentive. This approach is particularly apropos for advertisers that are leaning toward a managed-service model. With this approach, ownership of the tech stack and or tech platform licensing agreements transition from agency to advertiser; and the agency is then engaged to oversee the digital planning, buying and ad operations chores associated with programmatic media.

Try This Quick Programmatic Digital “Transparency” Test

26 Feb

exam resultsIf you’re like most marketers, your organization is spending considerably more of its media budget on programmatic digital media today than it did last year and certainly more than it did five years ago. The question is, “Are you getting value for that shift in media spend?

While agencies and ad tech firms have clearly benefited from the rapid growth of programmatic digital media many marketers have seen their working media levels languish due to the third-party costs and intermediary fees associated with programmatic media.

As marketers know all too well, every dollar invested programmatically is subject to what has been referred to as the “tech tax,” which according to David Kohl, CEO and President of TrustX this can account for over fifty cents of every dollar invested. In his article; “The High Cost of Low CPMs” written for AdExchanger, Mr. Kohl points out that “whether or not the ad reaches its target audience and whether or not it is served into the viewable window or below the fold, DSPs, SSPs, data providers, viewability and verification providers, tag managers, re-targeters and others all take their few cents.”

The question to be asked is; “To what extent is this happening to my organization?” Fortunately, there is a quick, three-step method for testing your risk profile when it comes to programmatic digital media.

Step 1 – Ask your accounts payable department to provide you with a few examples of the digital media invoices that comprise the billing from your digital media agency partners. Check if they have a description of the services provided and the type and level of media inventory purchased. The objective of this exercise is to determine whether the invoices are highly descriptive or general in nature and if a non-media reviewer would be able to ascertain the breakdown of “what” was actually provided for the amount being billed.

Step 2 – Review the third-party vendor invoices that accompany the billing from your agency. If supporting vendor documentation is not provided, ask your agency to provide detail for a handful of invoices. This detail should include the invoices from the actual media sellers, not the agency’s trading desk or an affiliate. Apply the same filter to your review of these invoices as you did for the agency’s billing, with regard to the adequacy of the descriptions breaking out the media purchased and all of the attendant costs (i.e. net media expense, agency campaign management fees, ad tech and data fees, etc.).

Step 3 – Evaluate both sets of invoices, agency and vendor, for an itemized list of the fees being charged such as:

  • Agency campaign management fees
  • Data fees
  • Pre-bid decision making/ targeting fees
  • Ad tech/ DSP fees
  • Publisher discrepancy fees
  • Ad verification fees
  • Bid clearing fees
  • Ad serving fees

If you find that invoice descriptions are less specific than you would like or that third-party vendor invoices don’t contain an itemized list of fees being charged, it is time to have a conversation with your agency partners.

The first topic to be discussed is establishing your position and preference for “How” your programmatic media buys are to be structured when your agency goes to market on your behalf. If it is transparency that you seek, they should be executing your programmatic buys on a “cost-disclosed” rather than a “non-disclosed” basis. This is the only way that you will be able to identify the net costs being assessed for the media inventory purchased and to calculate what percentage of your buys are going toward working media. Fraud and viewability concerns aside, advertisers have found that after fees are subtracted, they’re lucky if 50¢ of a dollar spent on programmatic digital media actually makes it to the publisher to fund the media that your consumers see.

Once you and your agency have agreed on the desired level of disclosure, conversation must necessarily turn to the need for updating client-agency agreements, statements-of-work and each of the media control documents utilized by the agency (i.e. media authorization form, electronic RFI templates, digital insertion orders, etc.). In spite of the ad industry’s efforts to reform what remains a murky digital media supply chain fraught with bad actors, questionable practices and a lack of transparency, advertisers remain at risk. Therefore, it is imperative to ensure all parties are held accountable that they employ the appropriate descriptive invoice detail, reporting requirements and itemized cost breakdowns mandated by the advertiser.

Testing the current state of your programmatic buys’ level of transparency is a necessary first step to stripping away the opacity that can surround digital media buying. In turn, the results of this self-examination will assist advertisers in both safeguarding and improving the return on their digital media investments. In the words of David Ogilvy:

“Never stop testing, and your advertising will never stop improving.”

4 Questions That Can Impact Your Digital Buys

15 Nov

four

According to eMarketer, in 2017 advertisers will spend 38.3% of their ad budgets on digital media – in excess of $223 billion on a worldwide basis. Yet, in spite of the significant share-of-wallet represented by digital media, there is generally little introspection on the part of the advertiser.

Looking beyond the “Big 3” [ad fraud, safe brand environment and viewability concerns], the lack of introspection begins much closer to home. Simply, in our experience, client-agency Agreements do not adequately address digital media planning / placement roles, responsibilities, accountability or remuneration details.

Standard media Agreement language does not adequately cover digital media needs – specific rules and financial models need to be included in Agreement language that covering each potential intermediary involved in the buy process and to guarantee transparent reporting is provided to the advertiser. It is our experience that Agreement language gaps related to “controls” can be much costlier to advertisers than the aggregate negative impact of the Big 3.

And, regardless of Agreement language completeness, a compounding factor is that too few advertisers monitor their agencies compliance to these very important Agreement requirements.

To assess whether or not your organization is at risk, consider the following four questions:

  1. Can you identify each related parties or affiliate that your ad agency has deployed on your business to manage your digital spend?
  2. Does your Agreement include comprehensive compensation terms pertaining to related parties, affiliates and third-party intermediaries, that handle your digital ad spend?
  3. Is your agency acting as a Principal when buying any of your digital media?
  4. What line of sight do you have into your ACTUAL media placements and costs?

If you answered “No” to any of the questions, then there is a high likelihood that your digital media budget is not even close to being optimized. Why? Because the percentage of your digital media spend that pays for actual media is likely much lower than it should be, which is detrimental to the goal of effectively using media to drive brand growth.

Dollars that marketers are investing to drive demand are simply not making their way to the marketplace. Often a high percentage of an advertiser’s digital media spend is stripped off by agencies, in-house trading desks and intermediaries who have been entrusted to manage those media buys. A recent study conducted by AD/FIN and Ebiquity on behalf of the Association of National Advertisers (ANA) estimated that fees claimed by digital agencies and ad tech intermediaries, which it dubbed the programmatic “technology tax” could exceed 60% of an advertiser’s media budget. This suggests that less than 40 cents of an advertiser’s investment is actually spent on consumer media.

A good place to begin is to ask your agency to identify any and all related parties that play a role when it comes to the planning, placement and distribution of your digital media investment. This includes trading desk operations, affiliates specializing in certain types of digital media (i.e. social, mobile) and third-party intermediaries being utilized by the agency (i.e. DSPs, Exchanges, Ad Networks, etc.). The goal is to then assess whether or not the agency and or its holding company has a financial interest in these organizations or are earning financial incentives for media activity booked through those entities.

Why should an advertiser care whether or not their agency is tapping affiliates or focusing on select intermediaries to handle their digital media? Because each of those parties are charging fees, commissions or mark-ups for services provided, most of which are not readily detectable. This raises the question of whether or not the advertiser is even aware charges are being levied against data, technology, campaign management fees, bid management fees and other transactional activities. Are such fees appropriate? Duplicative? Competitive? All good questions to be addressed.

When it comes to how an agency may have structured an advertiser’s digital media buys, there is ample room for concern. Is the affiliate is engaged in Principal-based buying (media arbitrage)?  Is digital media being placed on a non-disclosed basis, versus a “cost-disclosed” basis where the advertiser has knowledge of the actual media costs being charged by the digital media owner?

Evaluating your organization’s “risk” when it comes to digital media is important, particularly in light of the findings of the Association of National Advertiser’s (ANA) “Media Transparency” study released in 2016, which identified agency practices regarding non-transparent revenue generation that reduces an advertiser’s working media investment.

The best place to start is a review of your current client-agency Agreements, to ensure that the appropriate language safeguards are incorporated into the agreement in a clear, non-ambivalent manner. Once in place, monitoring your agency and its affiliates compliance to those contract terms and financial management standards is imperative if you want to assure compliance, while significantly boosting performance.  

“Today, knowledge has power. It controls access to opportunity and advancement.” ~ Peter Drucker                                                                                                                    

Interested in learning more about safeguarding your digital media investment? Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

Media Agency Estimated Billing Should Be Eliminated

24 Oct

accountspayableLet me start by saying that Advertising Agencies are not banks and should never be asked to settle vendor obligations, made on behalf of clients, with their own funds. That said, the long-standing practice of “estimated billing” is a relic of a bygone era and one which should be abandoned.

In a day and age where the electronic transfer of funds is commonplace and where most media owners invoice agencies based upon “actual” activity, following the month of service, the notion of an advertiser being billed upfront on an estimated basis is no longer necessary for the vast majority of media being purchased. From an advertiser’s perspective, this antiquated system results in burdensome levels of paperwork, drives up accounts payable processing costs, needlessly extends the invoice reconciliation process, restricts client use of funds, results in lost interest income opportunities for the advertiser and perhaps one of the less apparent benefits, eliminating the apprehension/reliance on an agency to accurately track and timely reconcile such estimated billing.

Can anyone cite a single benefit that accrues to an advertiser from this approach? If an advertiser were to purchase inventory directly from the media seller they would pay based upon actual costs, so why should it be any different when purchasing media via a client-agent relationship?

The move to final billing has but one drawback, to one stakeholder… the loss of agency float income on pre-billed activity. While conceptually we don’t believe that it is appropriate for an agent to make money on the use of client funds, we do understand that eliminating this non-transparent source of revenue would have a negative impact on an agency’s bottom-line. This, however, should not be the concern of the advertiser community, as this was never the intent of the estimated billing process to begin with. After all, it is the advertiser’s money and as such, they should be the only stakeholder to benefit from access to and the use of those funds.

Transitioning to actual billing makes good sense from both a treasury management and a transparency accountability perspective. It is more efficient, can reduce payment processing costs and can potentially improve days payable outstanding performance for the media seller.

As it is, advertisers generally have little to no insight into the time gap between remittance of their funds to their agency and in turn the time it takes for the agency to reconcile media activity and remit payment to an advertiser’s third-party media vendors. If client-side CFO’s were aware, there would certainly be significant interest in reforming the estimated billing system and the stewardship of an advertiser’s media advertising investment.

When it comes to financial management within the advertising sector, we have always been cognizant of the words of Robert Sarnoff, past president of NBC and RCA in the mid-twentieth century:

“Finance is the art of passing currency from hand to hand until it finally disappears.” 

Interested in learning more about improved financial management practices across your marketing agency network? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this topic.

Lawsuits Expose the Seemly Underbelly of Programmatic Digital

25 Sep

fraudsterAt the rate things are progressing in digital media and programmatic trading, the tenuous relationships between advertisers, agencies, ad tech providers, exchanges and publishers are about to come unglued.

While many in the ad industry have had their doubts about programmatic digital, this sector has grown unabated for the last several years. According to eMarketer in 2014 advertisers invested 28.3% of their ad budget in digital media. Their projection is that this will grow to 44.9% in 2020, likely topping $100 billion in total spend. eMarketer estimates that 80% of U.S. digital display activity in 2017 will be transacted programmatically. 

Interestingly, since 2014 the industry has become much more attuned to the risks encountered by advertisers when it comes to optimizing (or should we say safeguarding) their digital media investment. Yet in spite of the findings regarding unsavory practices emanating from the ANA’s seminal 2016 study on “Media Transparency” advertisers continue to pour an increasing share of their advertising spend into this media channel.

However, not all advertisers are continuing to embrace digital media quite as readily as they once did. A handful of progressives, namely Procter & Gamble, have begun to rethink the share of wallet being allocated to digital media and programmatic trading. Marc Pritchard, P&G’s Chief Marketing Officer, has been very outspoken in summing up his company’s position quite succinctly; “The reality is that in 2017 the bloom came off the rose for digital media. We had substantial waste in a fraudulent media supply chain. As little as 25% of the money spent in digital media actually made it to consumers.”

Given Mr. Pritchard’s comments it has been quite intriguing to monitor the legal developments in two high profile lawsuits that have recently been filed.

In the first case, Uber is suing Fetch Media, its digital agency suggesting that it had “squandered” tens of millions of dollars to “purchase non-existent, non-viewable and/ or fraudulent advertising” on its behalf. Uber has further alleged that the agency “nurtured an environment of obfuscation and fraud for its own personal benefit” and that of its parent company, Dentsu Aegis Network. To be fair, Fetch Media has denied what it says are “unsubstantiated” claims by Uber which it claims is designed to draw attention away from their “failure to pay suppliers.”  Allegations include that the agency acted as agent for Uber in some markets and executed principal-based buys in others and that they earned and retained undisclosed rebates tied to Uber’s media spend.

The second case involves RhythmOne, a technology enabled media company and its partner dataxu, a programmatic buy-side platform/ applications provider. RhythmOne originally filed suit regarding $1.9 million worth of unpaid invoices. Dataxu filed a counterclaim alleging that RhythmOne “used a fake auction to consistently overcharge” them and suggested that RhythmOne also “procured inventory from other exchanges, and then marked it up,” both violations of their partnership agreement. As an aside, for the $1.9 million in payments that dataxu admittedly and intentionally withheld from RhythmOne, going back to January, 2017, it is likely that dataxu’s clients had been billed and remitted payment to them. Which raises questions as to how and when their clients will be made whole.

Of note, both of these lawsuits delve into a range of topical issues that pose risks to most programmatic digital advertisers:

  • Agencies executing principal-based buys, rather than acting as agent for the advertiser.
  • The retention of undisclosed rebates tied to an agency’s use of advertiser funds.
  • Non-transparent fees and mark-ups being tacked on to the actual cost of media inventory by multiple middlemen (i.e. agencies, DSPs, exchanges).

These are issues that advertisers should familiarize themselves with and address through the development of a comprehensive client/ agency contract. In addition, advertisers must vigilantly monitor supplier compliance with the terms of those agreements to insure full transparency and, importantly, accountability when it comes to the stewardship of their digital media investment.

As these two cases highlight it is dam difficult for an advertiser to accurately assess the value of digital inventory that is being proffered on their behalf by their agency and adtech partners. Beyond establishing what percentage of an advertiser’s digital dollar actually goes toward media inventory, these separate, but related legal actions demonstrate that it is not just a lack of transparency that advertisers must worry about, but a lack of ethics. When it comes to programmatic digital media the American artist, John Knoll, may have said it best;

“Any tool can be used for good or bad. It’s really the ethics of the artist using it.”

There are steps that advertisers can take to both safeguard and optimize their digital media investment. If you are interested in learning more, contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Will AI Render Media Agencies Obsolete?

11 Sep

artificial_intelligenceArtificial intelligence (AI) is already reshaping how advertising is developed, planned and placed. The marketing applications being envisioned and adopted by agencies, consultancies, publishers and advertisers are nothing short of remarkable.

From the onset of “Big Data” it stood to reason that the concept of predictive analysis, the act of mining diverse sets of data to generate recommendations wouldn’t be far behind. Layer on natural language processing, which converts text into structured data, and it is clear to see that “deep learning” is on the verge of revolutionizing the ad industry. As it stands, algorithms are currently optimizing bids for media buying, utilizing custom and syndicated data to match audience desires (or at least experiences) with available inventory.

Effective, efficient, automated methodologies for sorting through vast volumes of data to evaluate and establish patterns that reflect customer behavior for use in segmenting audiences and customizing message construction and delivery holds obvious promise.

So, what does this mean for media agencies? Will they be at the forefront of automation technology? Or will they be swept away by the consultancies and ad tech providers that are already investing here?

If media agencies desire to remain in control as the industry evolves, there are real challenges that they will have to address to remain viable:

  • Re-establish role as “trusted advisor” with the advertiser community. Recent concerns over transparency, unsavory revenue generation practices and a failure to pro-actively safeguard advertisers’ media investments from fraud and from running in inappropriate environments have created serious client/ agency relationship concerns.
  • Attract, train and retain top-level talent to re-staff media planning and buying departments. The focus will need to be on bridging the gap between developing, and applying automation technology and providing high-level consulting support focused on brand growth to their clients. Presently, media agencies are not effectively competing for talent, whether in the context of compensation and or personal and career development options being offered by their non-traditional competitors.
  • Provide a framework for addressing the compensation conundrum. Whether this is in the form of cost-based or performance-based fees tied to project outcomes, commissions or hybrid remuneration systems, tomorrow’s successful media agencies will need to establish clear, compelling compensation systems. These systems will need to reflect value propositions that will differentiate them from an expanded base of competitors, while offsetting (to some extent) non-transparent sources of revenue that many media shops have come to rely on in recent years.

This will not be an easy path for media agencies, particularly for those that are hampered by legacy systems, processes and management perspectives that may limit their ability to more broadly envision and ultimately, assist client organizations addressing their needs and expectations.

Either way, the race is on, as management consulting firms are acquiring various marketing and digital media specialist firms and as media agencies raid the consultancies for personnel to build out their strategic consulting capabilities. The key question will likely be, “Which business model holds the greatest promise, in the eyes of the Chief Marketing Officer, for improving brand performance?

 

 

 

Increase Your Digital Coverage by 40% In One-Easy-Step

1 Aug

simpleisgoodConfucius once said that “Life is really simple, but we insist on making it complicated.”

Perhaps the same can be said of digital media buying. Too often it seems as though the onset and rapid growth of programmatic buying has created more problems than solutions. An expanded media supply chain with multiple layers of costs, increased levels of fraud, brand safety concerns, visibility challenges, a lack of transparency and perhaps most troubling, eroding levels of trust between advertisers and their agencies.

Growing pains? Perhaps. But something needs to change and this author would like to suggest one potential solution… abandon programmatic digital media buying altogether. Seriously? Why not?

Consider the following and the concept won’t seem so far-fetched:

  • In 2015, advertisers spent $60 billion on digital media, with close to two-thirds of that going to Google and Facebook (source: Pivotal Research).
  • According to the advertising trade group, Digital Content, today this duopoly is garnering 90% of every new dollar spent on digital media.
  • What happened to the magical pursuit of the long-tail and the notion of smaller bets being safer? Economics. The fact is that the notion of the long-tail simply didn’t work as researchers and economists found that having less of more is a better, more statistically sound pursuit. To wit, Google’s and Facebook’s market share.
  • Today, programmatic digital display advertising accounts for 80% of display ad spending, which will top $33 billion in 2017 (source: eMarketer).
  • Between 2012 – 2016 programmatic advertising grew 71% per year, on average (source: Zenith).
  • In 2018, programmatic will grow an additional 30%+ to $64 billion, with the U.S. representing 62% of global programmatic expenditures (source: Zenith).

Come again. Two publishers are getting $.90 of every incremental digital dollar spent and programmatic digital media buying accounts for 80%+ of digital media spend. What are we missing? Is there an algorithm that specializes in sending RFPs and insertion orders to Google and Facebook in such a manner that the outcome yields a 40% or better efficiency gain?

As we all know, there have been numerous industry studies, including those sponsored by the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA), which have suggested that at least 40% of every digital media dollar spent goes to cover programmatic digital media buying’s transactional costs (third-party expenses and agency fees), with only $.48 – $.60 of that expenditure going to publishers.

So, for an advertiser spending $40 million on programmatic digital media, if the law of averages holds true, $16 million will go to cover transactional costs and agency fees. That means that of the advertiser’s original spend, they will actually get $24 million worth of media. While we know that programmatic media can yield efficiencies, can it overcome that type of transactional deficit?

If that same advertiser eschewed programmatic digital and decided to rely on a digital direct media investment strategy, what would it cost them?

Assume that they hired ten seasoned digital media planning and investment professionals for $150,000 each (salary, bonus, benefits), they would spend $1.5 million on direct labor costs. Further, in order to afford their team maximum flexibility, let’s say that the advertiser allocated an additional $1 million annually for access to ad tech tools and research subscriptions to facilitate their Team’s planning and placement efforts. This would bring their total outlay to $2.5 million per annum.

If they were spending $40 million in total, this means that the team would be able to purchase $37.5 million worth of digital media. Don’t forget that placing digital buys direct will greatly reduce fraud levels that can eat up another 8% – 12% of every digital ad dollar, while also greatly improving brand safety guideline adherence. Compare that to the $24 million in inventory purchased programmatically.

So how efficient is programmatic?

Sadly, most advertisers can’t even address this question, because their buys are structured on a non-disclosed, rather than a cost-disclosed basis. Even if they had line of sight into what the third-party costs (i.e. media, data, tech) and agency fees being charged were, they wouldn’t have a clue as to the fees/ charges that sell-side suppliers were levying, further eroding working media levels.

A simplistic solution? Perhaps. But the fact that the industry continues to drink the programmatic “Kool-Aid” without any significant progress toward resolving the dilutive effect that programmatic transactional costs, agency fees and fraud have on an advertiser’s investment seems a tad irresponsible.

Ask yourself. What would you do if it were your money?

 

 

What if You Discovered That Your Digital Dollar Netted You a Dime’s Worth of Digital Media?

12 Feb

dreamstime_xs_2601647In 2014, the World Federation of Advertisers conducted a study which demonstrated that “only fifty-four cents of every media dollar in programmatic digital media buying” goes to the publisher, with the balance being divvied up by agency trading desks, DSPs and ad networks.

Fast forward to the spring of 2016 and a study by Technology Business Research (TBR) suggested that “only 40% of digital buys are going to working media.” TBR reported that 29% went to fund agency services and 31% to cover the cost of technology used to process those buys.

Where does the money go? For programmatic digital media, the advertiser’s dollar is spread across the following agents and platforms:

  • Agency campaign management fees
  • Technology fees (DMP, DSP, Adserving)
  • Data/Audience Targeting fees
  • Ad blocking pre/post
  • Verification (target delivery, ad fraud, brand safety)
  • Pre-bid & post-bid evaluation fees

It should be noted that the fees paid to the above providers are exclusive of fees and mark-ups added by SSPs, exchanges or publishers that are blind to both ad agencies and advertisers. What? That is correct. Given the complex nature of the digital ecosystem, impression level costs can be easily camouflaged by DSPs and SSPs. Thus, most advertisers (and their agencies) do not have a line-of-sight into true working media levels…even if they employ a cost-disclosed programmatic buying model (which is rare).

Take for example the fact that a large preponderance of programmatic digital media is placed on a real-time bidding or RTB basis, and a majority of that, is executed using a second-price auction methodology. With second-price auctions, the portion of the transaction that occurs between a buyer’s bid and when the clearing price is executed without advertiser or agency visibility, thus allowing exchanges to apply clearing or bid management fees and mark-ups as they see fit. So for example, if two advertisers place a bid for inventory, one at $20 per thousand and the other at $15 per thousand, the advertiser who placed the higher bid of $20 would win, but the “sale price” would be only one-cent more than the next highest bid, or $15.01. However, advertisers are charged the “cleared price,” (could be as high as $20 in this example) which is determined after the exchange applies clearing or bid management fees. How much you ask? Only the exchanges know and this is information not readily shared.

Earlier this month Digiday ran an article entitled, “We Go Straight to the Publisher: Advertisers Beware of SSPs Arbitraging Media” which profiled a practice used by supply-side platforms (SSPs) that “misrepresent themselves.” How? By “reselling inventory and misstating which publishers they represent.” The net effect of this practice allow the exchanges an opportunity to “repackage and resell inventory” that they don’t actually have access to for publishers that they don’t have a relationship with.

Let’s look beyond programmatic digital media. Consider the findings from a Morgan Stanley analyst, reported in a New York Times article in early 2016 that stated that, “In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook.” What is significant here is that until very recently, these two entities have self-reported their performance, failing to embrace independent, industry accredited resources to verify their audience delivery numbers.  

The pitfalls of publisher self-reporting came to light this past fall when Facebook was found to have vastly overstated video viewing metric to advertisers for a period of two years between 60% and 80%.  

By the time one factors in the impact of fraud and non-human viewing, and or inventory that doesn’t adhere to digital media buying guidelines and viewability standards, it’s easy to understand the real risk to advertisers and the further dilution of their digital working media investment.

Advertisers have every right to wonder what exactly is going on with their digital media spend, why the process is so opaque and why the pace of industry progress to remedy these concerns has seemingly been so slow. Sadly, in spite of the leadership efforts of the Association of National Advertisers (ANA), The World Federation of Advertisers (WFA), The ISBA, The Association of Canadian Advertisers and the Interactive Advertising Bureau (IAB) there is still much work to be done.

The question that we have continually raised is, “With advertisers continuing to allocate an ever increasing level of their media share-of-wallet to digital, where is the impetus for change?” After all, in spite of all of the known risks and the lack of transparency, the inflow of ad dollars has been nothing short of spectacular. According to eMarketer, digital media spend in the U.S. alone for 2016 eclipsed $72 billion and accounted for 37% of total media spending.

There are steps that advertisers can take to both safeguard and optimize their digital media investment. Interested in learn more? Contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation. After all, as Warren Buffett once said:

“Risk comes from not knowing what you’re doing.”

Advertisers: Buying Guidelines Matter

25 Jan

compliance-rulesAdvertisers and their media agency partners spend countless hours, invest significant energy and apply a wealth of creativity in crafting their initial media plans and updating those plans to address internal issues, marketplace opportunities and or competitor moves over the course of a budget year.

The question is: “Do advertisers and their media agency partners spend enough time ensuring that those plans are actually executed to their fullest during the investment phase of the media buying cycle?”

In our experience, the direct answer is “No.” The hand-off from media planning to media buying and the accompanying media process controls, forms and reporting are often inadequate as is the level of oversight applied on a post plan approval basis.

Advertisers, if you’re wondering whether or not this is the case with your organization, it may be worth reviewing the following processes, forms and reports for their thoroughness and the extent to which they are reviewed and monitored over the course of a media campaign:

  • Buying Guidelines – When was the last time you reviewed your organization’s buying guidelines? Did you approve them? Are they current? Are they comprehensive enough to safeguard your interests and optimize your message reach? Have they been created for each media channel purchased or for TV only? How are these guidelines communicated to media sellers? Does your agency monitor and or report on buying guideline adherence? What are the consequences to the agency and or the media sellers if these guidelines are not complied with? Too often we find that this important communication bridge between media planning and media buying has not been satisfactorily completed or is so lacking in detail and or coverage across media that it is ineffectual. This is a critical mistake. Buying guidelines represent the explicit instructions from the agency planning team to their associates in buying and ultimately to the media sellers for how the client-approved plan is to be executed, stewarded and its performance assessed. Shortfalls in this area negatively impact media delivery and marketing ROI in a very direct manner.
  • Request for Proposals (RFPs) – Whether sent manually or digitally by the agency to media sellers, this process is often fraught with shortcomings. These include insufficient time afforded publishers to effectively respond to the RFP requests; and not enough information provided on the advertiser and or their specific goals to facilitate the publisher to tailor their proposal to the advertiser’s needs. From an advertiser’s perspective, often times these documents fail to ask for feedback on important issues such as whether or not digital publishers employ third-party vendors for website traffic sourcing. In other instances, RFPs fail to communicate critical performance standards such as viewability standards for digital media or in establishing the advertiser’s position on whether or not they will pay for non-human or fraudulent traffic. It would be a worthwhile practice for Advertisers to periodically review the level of detail contained in their media agency’s RFP templates and review completed RFPs to understand the basis for why certain RFPs were accepted or acted upon and others rejected.
  • Insertion Orders & Buy Confirmation Letters – The primary focus with these important control documents is to establish the specific tenets of the deal (i.e. audience delivery, performance guidelines, basis for evaluating performance, make good policies, etc.). Unfortunately, in our media agency compliance audit practice, we regularly discover incomplete documentation in this area that fails to establish enforceable delivery thresholds or basic qualitative standards to safeguard an advertiser’s media investment. In this era of “Big Data,” it is important for agencies to assert their clients’ data access and ownership rights. This relates generally to the audience modeling and transactional data generated as part of their media investment, and in the case of programmatic media buys, specifically to items such as winning bid log files and the associated meta data from all suppliers, including DSPs. Ensuring these types of data access and ownership rights are essential for advertisers if they want to have a clear line-of-sight into impression level pricing prior to the addition of the myriad number of fees and mark-ups charged by third-party suppliers. These documents also present an excellent opportunity for agencies to reinforce the agreed upon advertiser data protection guidelines such as how an advertiser’s data will be siloed, how long it will be stored and the extent to which the suppliers will limit other advertisers and third-parties access to such data.
  • Post-Buy Performance Reporting – There are three primary concerns in this area, aside from whether or not performance reporting is even being conducted. First, how are media buys monitored and stewarded while underway? What is the agency doing to monitor campaign delivery and to optimize performance in-flight? Second, is the agency monitoring performance across all media? More often than not we find agencies conducting television post-buys or digital media performance analysis, but totally ignoring other media elements altogether. Third, are the post-performance reports provided in a timely manner and include the level of detail necessary to hold media sellers accountable and provide meaningful insights that shape future media plans and buys?

Without a solid media stewardship process that incorporates sound control documents, continuous monitoring and comprehensive post-performance analysis, even the most thoughtful and compelling media plans will fall short of their potential. Advertisers could well benefit from conducting periodic reviews of their media agencies approach and performance during this phase of the media investment cycle. In the words of W.B. Sebald, twentieth-century German academic and author:

“Tiny details imperceptible to us decide everything!”

 Interested in learning more about the role of media buying guidelines and controls in safeguarding your media investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation on this topic. 

 

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