AdTech Supply Side: A Complex System where Mystery is Creating Margins

In a follow up to our piece ‘Are you paying the AdTech Tax’,Opens a new window as part of our adtech focusOpens a new window month (March), we are diving deeper into the reasons why advertisers and publishers are so near and yet so far and the real cost of the adtech tax, with TrustX CEO David Kohl.

(TrustX is a non-profit, collaborative programmatic marketplace that aims to bring buyers and sellers of adverting inventory closer)

David starts by agreeing with our observation that adtech Opens a new window is a complex space, and that the distance between the advertiser and the publisher – between demand and supply – needs to be reduced, but says the answer is not an arbitrary move out of the current stack. According to him, the real reason why there are so many players in this complex ecosystem (offering dubious incremental value) is “the effect of venture-backed digital media adtech companies, each building businesses ‘along the way’ over the last 10 years, claiming to do something – optimize, reduce, track, measure, analyze – and the ecosystem turned into an adtech stack full of shiny new objects.” The outcome?

The quest to get a dollar of media budget to the right consumer at the right time was lost, efforts got duplicated and cost more, but the additional value was negligible.

So, right. We have established that this is a fragmented, complex ecosystemOpens a new window where not all the players are actually needed or adding value. Where should the buck stop? TrustX believes that its the responsibility of the principals – the advertiser and the publisher- to understand where that money is going and reduce dramatically the number of places that money is being spent.

Here is where you pay the adtech tax

“If a marketer has a dollar and its only turning into 30 cents of media and 70 cents is getting eaten up by something else, even if that ‘something else’ in the middle does a great job of targeting (or whatever), [the advertiser] is still losing 70 cents of the advertising dollar that the consumer never sees.”

 In adtech, intermediaries need to demonstrate their value, but buyers need to demand a demonstration of value as well. Otherwise, they are indeed going to pay the advertising tax

Here’s how – according to David – to improve clarity on how the advertising dollar can be better used:

Step 1.Transparency: I need to know where my money is being spent on the advertising path

Step 2. Rationalize every one of the ‘hops’ on the path between advertiser and publisher, and audit the value that it brings in getting the media to work

Step 3. Measure the ROI for each ‘hop’ and start working on cutting out the fat

But won’t cutting out hops mean cutting down on reach?

Considering that this entire ecosystem mushroomed to (a) offer scale (b) consolidate the (fragmented) long tail (c) allow more reach, how likely are marketers – already under tremendous pressure to deliver reach and response (leads) –  to cut out players that could potentially drive both reach and scale?

David questions my assumption that the long tail (of publishers) is necessary to deliver higher reach. “I don’t agree. I think there is a false pretense in the market that I must place my ads in these unknown and often potentially dangerous publisher sites, redistributors or exchanges etc. in order to get reach – I would argue that is fundamentally wrong.”

So, he’s talking about a quality versus quantity model. TrustX, for example, has only 35 ‘premium’ publishers signed up (though not all of them offer their inventory exclusively on TrustX and are available on other exchanges as well). David, however, believes that Marketers need to refocus on quality of reach at scale instead of quantity of reach at scale.

“You can still get scale – with limited publishers – whether you are looking for awareness or conversions. We offer sufficient enough scale in a quality environment” and cites the additional benefits of a 100% viewability-based payment model (there is no cost for ads that don’t get seen), and serving ads only on brand-safe sites.

He does caution though, that simply restructuring the number of publishers an advertiser targets would not sufficiently improve the cost of the programmatic advertising campaign. The supply chain is fundamentally the problem. “If the publisher had one thing they did, I’d say ‘start by looking at all the hops between you and the publisher before you start to look at the number of publishers – because that’s where the money escapes.” The working media value (TrustX calls it ‘media buying power’ – how much media can you buy with a dollar of budget) – is dramatically diminished by the number of companies between a publisher and the advertiser – irrespective of who the publisher is.

With all the pressure to drive leads, it seems high risk for a marketer to turn their back on a potential universe of prospects that hang around in niche, local or micro-influential sites. But it is also precisely these fears that middlemen in the ecosystem prey on.

Knowing that advertisers would rather go wide (throw in the DMP and you’re even safer), lets players in the ecosystem tap the adtech tax. Publishers aren’t helping by making indiscriminate amounts of inventory (at the cost of UX) available to every exchange and SSP under the sun. Finally, the complicated, tiered, obscure bidding system where AdEx still gets the last bid muddies the waters further.

So, we are back to square one – how do the advertiser and publishers get more dollars of the budget turned into ‘working media’? In addition to reassessing the ‘hops’ along the path at both demand and supply side, Diego Sanchez, the CEO of AdTelligent (a supply-side platformOpens a new window ) and I discussed the possibility of a unified auction in a previous conversationOpens a new window . David says there is no possible way with the current complexity (of the bidding model) – for that to happen.

We have to get out of this multi-layered auction – it is not good for the buyer and it eliminates the sellers’ ability to actually reduce the distance between them and the buyer

Until the truly unified auction becomes a reality, the only way a buyer can break out of this cycle is to deal with one exchange that offers transparency though perhaps – in certain cases – it may come at the cost of reach. As for sellers, the only way for them to break out of this cycle is if they go exclusively to one SSP or directly to the buyer. (Which we haven’t seen happen even with TrustX, so clearly not all publishers are ready). And with TrustX using Adx as the server anyway (“because it’s the ad server and there is no way to divorce them” says David), the obscurity may reduce but the problem is going to persist.

But it’s a start and we would like to trust in their intentions.

Our take: Initiatives like TrustX is essentially the big publishers trying to create a new model that benefits themselves but also helps clean up the space and drive improved transparency for the greater good.

As for marketers completely giving up the lure of the long tail reach in favor of ‘quality reach at scale’ (possibly more expensive but with better outcomes) – I suspect that may be as hard (and as likely!) as it would be for publishers to give up ad units and inventory (essentially dollars in the hand) in favor of creating a better UX for the audience.Opens a new window   Alas.

That said, we do think advertisers should come together to insist Google give up the last look advantage, and we do think marketers should stop the somewhat lazy dependence on intrusive display and rationalize their media plan to include other engagement formats. Leveraging the data-driven programmatic approach to mindfully choose each platform for its inherent strengths, (drive cumulative reach – albeit with the inconvenience of operational differences and varying rates of ROI) could be an additional way to improve advertising outcomes. For example, premium publishers lend themselves best to display, social media may be better for influencer marketing campaigns, affiliate marketing works with the long tail of small publishers and so on. That’s exactly the kind of scenario begging for the adtech – martech convergenceOpens a new window . But that is a discussion for another feature. Watch this space!