Why the SaaS model is right for programmatic

Bid caching and bid stacking practices have sparked a debate on the supply side, with several platforms recently signing a joint letter on guiding principles for the programmatic marketplace. This is a conversation the industry has found itself in before. It was only two years ago when the Association of National Advertisers released their scathing report that had advertisers and agencies taking the issue of transparency around the media buying process a lot more seriously. The recent launch of FBI investigations into undisclosed rebates and incentives brings about more doubt and consternation. Trust within the advertising and marketing industry is clearly eroding, and it needs to be brought back.

This overall lack of trust has ultimately driven many advertisers to bring their programmatic media buying in-house and reevaluate their partnerships on all levels. In a 2017 survey by the ANA, 35 percent of advertisers said they expanded their in-house programmatic capabilities—more than double from the same survey in 2016. More than ever, advertisers want more control, transparency and freedom with how their digital ad spending is managed.

Today, less than $0.50 of every programmatic media dollar goes toward working media. Before an ad reaches a consumer, there are dozens of potential intermediaries taking a cut – ranging from demand-side platforms (DSPs) to supply-side platforms (SSPs), data management platforms (DMPs), identity resolution partners, verification companies, media agencies and others. In a clear example of poor supply chain dynamics, The Guardian tested the process by purchasing programmatic ads on its website, they found they only received 30 percent of their own ad spend.

Fewer dollars going to working media means less ROI for the advertiser, and when you add the lack of trust and transparency within the industry, the situation is ripe to be disrupted. Current technology fees are based on a percentage of media spend which does not motivate cost-efficient buying and does not benefit advertisers for scaled spending. It’s time for the market to move to the next phase for the programmatic market.

It’s time for the ad tech industry to adopt and fully embrace the SaaS model for programmatic media buying platforms.

Cost-effective buying efficiencies

A SaaS-based model makes sense for the advertiser, the programmatic partner (DSP) and the publisher. By charging a simple subscription fee for the programmatic buying platform, cost-efficient buying and scale spending efficiencies emerge.

Let’s take a look at the current landscape. A brand invests $10 million one month on programmatic advertising. In the current percent of spend model, the brand would be paying about 10 percent of that, or $1 million on DSP technology fees alone. And that percentage of spend doesn’t go down with increased spending. If the brand increases spend to $20 million the next month, they would pay $2 million in DSP fees. A SaaS model provides major savings for the client because the advertiser would be paying a low, fixed monthly fee for the use of the programmatic buying technology. As the advertiser scales their ad budgets, all things being equal, the monthly subscription fee remains the same. In an economy where brands and agencies are trying to cut budgets and show cost-savings to their finance teams, this can mean huge savings for companies.

The advertiser benefits are clear. With fixed subscription pricing, there are exponential savings when running campaigns at scale. There is also consistency and transparency with how much the advertiser is spending on programmatic fees, and a positive impact on ROI with more dollars are going towards working media.

Predictable revenue with subscription models

For the technology partners in the expanding programmatic ecosystem, a subscription model promises both growth and more predictable revenue. This has been proven out many times over as subscription businesses grew revenue almost 8 times faster than S&P 500 company revenues and about 5 times faster than U.S retail sales in a five year period. A SaaS model generates a predictable revenue stream and leads to less customer churn which expands the ability to reinvest in the platform.

While there are some barriers to entry with a SaaS-based model, such as billing and business structure, a subscription model will benefit everyone in the programmatic ecosystem, except those wanting to embrace an inefficient and costly percent of spend approach. It’s time to adopt a new business model and focus on creating a more cost-effective and transparent programmatic media supply chain.