Programmatic

ICYMI: The True Cost of Programmatic Advertising

Pinterest LinkedIn Tumblr

Last year, The Guardian devised an ingenious experiment to find the RoI on their ad spend. They purchased their own inventory and kept close tabs to compare the money that they spent (as an advertiser on The Guardian) and the money that they received (as media seller, The Guardian).

They found that for every dollar spent, they received barely over 30 cents.

There are so many different players taking a little cut here, a little cut there – and sometimes a very big cut. A lot of the money that [advertisers] think they are giving to premium publishers is not actually getting to us.

— Hamish Nicklin, Chief revenue officer, Guardian

This culminated in Guardian suing Rubicon Project early this year for not revealing buy-side fees imposed on their inventory.

The Association of National Advertisers (ANA), in May 2017, published The Programmatic Fog report, revealing campaign level analysis of 6.6 billion impressions across:

  • 400 completed campaigns,
  • Open and private marketplaces,
  • Seven global advertisers (who collectively own thirty major brands in auto, banking, beauty, CPG, fashion, and travel niches between them)

Their conclusions about programmatic advertising were not as alarming as Guardian’s, but still revealed significant revenue leakage across the entire supply chain, (i.e. Advertiser > Agency > Trading Desk > DSP > Exchange > SSP > Publisher.)

  • The overall ratio of “inventory” to “data / transaction” spend was found to be 58/42 percent on average, with both demand-side and supply-side fees included.
  • 58 percent was the mid-point; the computed range turned out to be 54–61 percent.

In other words, on average: 58 cents of each dollar ultimately purchased media inventory and 42 cents were consumed by supply chain data and transaction fees.

Image Source: Programmatic Fog Report (ANA)

After removing estimated supply-side fee (to focus specifically on costs that advertisers spend knowingly), the ratio of “inventory” spend to “data / transaction” spend turned out to be 72/28 percent.

Image Source: Programmatic Fog Report (ANA)

ANA notes that more than 95 percent of analysed impressions were NOT bought via an agency trading desk. This significantly reduced the “data / transaction” costs associated with programmatic buys.

Tl;dr

Programmatic advertising allows for audience-based media buying at scale, but at a cost.

For publishers (who can manage it), this is why direct ad sales are lucrative.

For advertisers, the heavy and (often undisclosed) costs are part of the reason why the biggest global advertisers are trying to move programmatic in-house.