Every business has a purpose that helps defines its financial incentives. In this paper, I want to outline how this principle informs the behaviors of the various for profit segments of the digital advertising industry, and specifically their unique financial incentives.

While I recognize there are non-financial purposes of all players which, in turn, contribute to a positive and beneficial internet experience for users, the financial incentives often conflict with one another.

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PUBLISHERS:

Sell as much advertising as possible by selling ad-space for as much as possible AND increasing the quantity of available ad-space.

The overarching purpose of most publishers is to produce engaging content that attracts, retains and grows a loyal audience that values the messaging of the publisher and contributes to the overall community of the site/app. The financial incentive of a publisher is to sell as much advertising as possible. This is done by either selling the existing ad-space for as much as possible or by creating more ad-opportunities; or commonly, BOTH.

What I want to dive in to here, is how they maximize the dollars generated per existing ad-opportunity.

The traditional way of selling media was to have a sales person or team that reached out to agencies and other media-buyers and convince them to put their media buys through their property. These sales or deals were done on what we refer to now as a “fixed deal”. This deal outlined the flight dates of the campaign, the number of impressions required, and the rate structure (ie. CPM) paid for the ad-space.

As publishers increasingly move towards monetizing through programmatic channels, there is less need for these direct sales teams and related infrastructure.

But because of the fewer number of people as well as the introduction of a complex and often misunderstood technology, the awareness and knowledge of the team becomes the key differentiating factor in performance. I cannot stress how shocking it has been for me, someone whose career path in this industry began with the existence of programmatic, to meet and work with publishers who monetize programmatically and have limited awareness of how the technology work, and the potential impact on their business.

The root cause of the problem is not specific to one person or one company but the nature of how we work as a people. We think that once we have enough years under our belt or have achieved what we consider sufficient, we think it’s okay to stop learning. I believe that the day we stop learning, is the day we become obsolete.

The cause of modern inefficiencies and under-performance by publisher sales/ops teams is largely a lack of knowledge and understanding of the tools and resources that are available to publishers. More often than not, this deficit is reinforced by a lack of training resources or access.

Knowledge is power and our goal is to level the playing field by equipping everyone with the same tools so that the environment becomes truly competitive.

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BRANDS and ADVERTISERS:

Derive maximum value from dollars spent.

To avoid any confusion, when I refer to advertisers, I am referring to companies that spend money to promote their products or services. It is because advertisers are spending more money programmatically that the publishers have shifted to monetizing through those channels.

Let’s be clear: Advertisers Control The Ecosystem! It’s just a matter of how involved they want to, choose to, and are capable of being.

And so far, since the advent and adoption of programmatic, they have been the hands-off CEO that only gets involved when they see a dip in the revenue numbers or profit margin. They have not been guiding the process along the way or contributing to the improvement of the technology to the extent that the power of their dollars would otherwise indicate.

If advertisers truly want to be in control of how their marketing dollars are spent, they must truly be involved in the discussions with the parties that control the critical parts of the ecosystem. Attending the yearly meeting of the ANA or the AAAA is NOT ENOUGH. They must meet with the publishers, the ad-tech vendors, and the agencies together. It MUST be an open discussion where everyone is held accountable and must answer questions from the other sides of the industry. We cannot silo ourselves to have our regular discussions within our own segments of the advertising realm.

The problem, at least on a surface level, seems to be that even though estimates of cost of ad-fraud to the brands of the world is estimated between $10-$15 Billion, the total number spent on marketing/advertising is almost $570 Billion.(1) This means that holistically, advertising is only suffering a loss of 1.7%-2.6%. Looking only at the percentage, it is understandable how CMO’s of major brands have not felt the pressure to band together and tackle the problem. When you’re busy worrying about TV, radio, magazine, newspaper, billboard, and branding spend, it becomes difficult to consider programmatic ad-fraud a significant enough issue to dedicate lots of resources and time to prevention.

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AGENCIES:

To continue to be the intermediary between brand budgets and media buying venues; they must make the execution of media-buying more efficient so that they can increase their margins.

Even if an agency is aware of the level of bad or fraudulent traffic in a source that they are buying media from, they often do not have a financial incentive to alter their behavior as often they are compensated on a percentage of their media spend for their clients. Changing trends in how media buying is compensated is definitely changing this, but it continues to occur.

The agency world is already altering their model because as advertisers are trying to curb their spend, the agencies are having trouble maintaining margins and meeting revenue projections. Many holding company agencies outsourced programmatic media buying to an ATD ( agency-trading-desk) which continue to be challenged by visibility and compensation challenges.

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AD-TECH VENDORS:

EXCHANGES:

Process and serve as many impressions as possible.

Just like stock exchanges, ad-exchanges are for-profit businesses that make money on the number of transactions that occur in their platform. Rather than trading fees, ad-exchanges charge ad-serving fees for holding the real-time auction; and rather than facilitating the sale of corporate shares, they facilitate the buying and selling of ad-impressions that disappear after the transaction is complete.

Most of the ad-exchanges have taken big steps to ensure that they take care of both buyers and sellers, by implementing creative ad-quality audits to protect publishers and implementing intricate domain tracking to ensure traffic quality for advertisers. But this is the tough thing position that exchanges are put in in terms of what functionalities to implement and prioritize; they serve the interests of both buyers and sellers, which often conflict. Although most exchanges have taken great measures to protect both sides, even these engineering feats are funded by the revenues from ad-serving. The more impressions that are handled by the exchange, the more money they make. Even though they take some steps to eliminate bad traffic, exchanges have a financial incentive to transact as many impressions as possible. This conflict of interest is a tough place for the executives of these companies to be in because they are being pulled in two opposite directions.

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FRAUD DETECTION COMPANIES:

The existence of fraudulent web traffic.

Fraud/bot detection companies are created and run by extremely brilliant engineers and technical minds. The amount of research and calculation that goes into creating effective bot detection software is unfathomable to most of us that are not adept in coding and programming. They invested the time and money into creating these detection softwares because there was a market for it due to the high amounts of fraudulent web traffic in the online advertising world. The mission was and is still to keep advertisers safe from wasting their marketing budgets on advertising that would never have an ROI. The risk to advertisers was high enough that it is completely justifiable to spend significant resources monthly to protect themselves from bad traffic. (Resources that would otherwise be spent on marketing.)

As time went on, several fraud detection vendors have emerged, all with different (the degree is debatable) metrics of what qualifies traffic or even whether a specific impression should be delegated as suspicious or fraudulent. If a publisher uses BotDetector-A to filter their traffic, but their main SSP uses BotDetector-B, and the ATD or DSP uses BotDetector-C, this can result in problems for the publisher as well as the SSP. Even though the supply side players are making efforts in time and money to ensure their traffic quality in the market is clean, they are using a different standard than the buyer who can reprimand them and even blacklist the publisher in certain cases.

On top of the incongruence in standards for what constitutes bad traffic, there is an elephant in the room. This elephant comes in the form of a bot detection company’s financial incentive in the existence of fraudulent traffic. They would not have had a reason to build a business if there was not a rising amount of bot traffic inflicting losses to advertisers, and they do not have a reason to be necessary to the market if the amount of bot traffic were to eventually decrease to only 1% of the entire web.

There is no assertion being made that the detection companies are complacent, but we as players in the industry have to be aware of this simple but evasive truth.

Reach out to us at www.DharMethod.com or info@DharMethod.com for more information.

References:

1 — (http://www.emarketer.com/Article/Total-Media-Ad-Spending-Growth-Slows-Worldwide/1012981)