The pendulum swings: Balancing transparency with efficiency and ROI

The issue of transparency has taken center stage in the ad tech world, and for good reason. For too long, the industry has seriously lacked it.

Advertisers have led the charge by cutting spending to entities that refuse to shine a light into their black boxes. P&G’s Marc Pritchard was first to publicly demand viewability and fee structure transparency — a strong message from the largest digital advertiser on digital advertising’s largest stage. Many others have since followed suit.

These days, the focus has turned largely to agencies and the duopoly of Facebook and Google, but they are hardly alone in falling short of the industry’s rising standards. Data aggregators, too, often neglect to provide insight into third-party data used for targeting.

Their so-called “custom solutions” are often little more than a few data points strung together to create a rudimentary lookalike profile, but they are sold as sophisticated segments on par with Facebook’s. Advertisers then get billed for bundled services without knowing what’s included, paying a premium for technology and processes that did not advance their objectives.

The underlying structure of ad tech solutions can leave advertisers susceptible to inefficiencies, especially when vendors and advertisers are misaligned in how that structure was built. For example, an audience claiming to be custom to a brand may be in reality little more than a few generic data points that make up a faceless persona, leading the campaign to serve impressions to millions of people who may never buy.

There are plenty of data points and technology solutions available in the market that are capable of sussing out these unlikely buyers, making this problem an avoidable one that brands no longer need to tolerate.

If the industry wants to solve the transparency issue in all of its manifestations, it requires participation from every provider in the supply chain — not just agencies, Facebook and Google. Especially as the landscape faces significant consolidation, the threat of competition from inside and outside of the walled gardens will require DMPs, DSPs and data providers to actively participate in the industry cleanup.

Warning: Pendulum swing coming

In 2017, major programmatic platforms took calls for transparency to heart. Platforms vowed to disclose fee structures and called for renewed attention to auction dynamics. In early November, Rubicon Project completely axed its buy-side fees, cutting its take rate in half. The move came after The Guardian reportedly sued Rubicon Project for “the recovery of non-disclosed buyer fees” relating to Guardian inventory.

These steps toward a more transparent ad tech landscape are essential. An industry that lacks the trust of its constituents also lacks the ability to survive long-term. Ad tech is currently witnessing the start of a pendulum swing from opacity to transparency.

How far the transparency pendulum swings will depend heavily on the type of transparency in question. Calls for transparency fall into a few camps. One is the service side, needing to better understand advertising inefficiencies, such as ad fraud, viewability and phony “custom” solutions.

Another, the pricing side, includes the desire for insight into the fees, markups and bundles levied by ad tech vendors and other intermediaries. (Meanwhile, the European General Data Protection Regulation, going into effect in May, is driving greater transparency for consumers in the EU, who will need to understand and consent to every use of their personal data for ad targeting.)

Advertisers need to understand how much inherent or improper inefficiencies, such as ad fraud, viewability and customization, actually affect campaign performance. Only by specifically quantifying those losses will advertisers gain a clear understanding of service value.

Fees, markups and bundles

Separate from the service-side debates is the call for greater transparency into pricing structures. Everyone is looking more closely at the cut each party along the line is taking.

The area of fee transparency will be the most interesting one to watch, as it relates to the current swing of the pendulum. The call for disclosure is understandable. But it’s also the area where transparency is less likely to result in changes with regard to the way advertisers spend media dollars, though the discovery of malicious deception in the industry could increase the likelihood such disclosures.

Overall performance is still the name of the game when it comes to media buys. The proportion of an ad dollar that goes to a vendor versus a publisher has little to no effect on the message’s ultimate impact on the consumer. And if the right message gets in front of the right person, then that dollar is money well spent.

In this regard, one can draw a parallel to many other industries. Take retail, for instance. Customers have very little sense of how much of their buying dollar goes to a store versus a product’s original manufacturer. That ratio can vary wildly according to many factors.

What really matters to advertisers

But customers do not concern themselves with such details. What matters to them is that they perceive they are getting a good value for the overall price. The same holds true for advertisers and their media dollars. If marketers keep buying the product and the overall return is a good one, they’ll continue to spend those ad dollars.

In the end, what matters most is to arrive at a level of transparency that reinstates trust in the digital ecosystem, which will require all players to operate with more transparency. After years of revelations of fraud and abuse, the ad tech industry might need to watch the pendulum swing quite far in the other direction, but the industry will be stronger for having made the journey.