How To Save Our Dysfunctional Digital Ad Marketplace

By Gary Ragusa, February 15, 2017

If you’re hoping new technologies like server side header bidding or 5G wireless networks will fix many of the problems inherent with ad tech today, don’t hold your breath. Ad quality, ad blocking, illegitimate traffic, and inadequate data are among top concerns digital media buyers have when allocating budgets to digital platforms, according to a recent survey[1]. These are not just problems in of themselves, but also symptoms, caused by an inherent lack of standards, and signs of a dysfunctional marketplace that’s poisoning the digital ad ecosystem and limiting its potential. If we don’t address the fundamental problems and re-instill confidence in the marketplace soon, the future of ad tech may not be as bright as once projected.

Symptoms of A Dysfunctional Ecosystem

Ad quality is finally top of mind after the 2016 US Presidential Election was allegedly influenced by “fake news” disseminated through platforms like Facebook, Google and others. Although fake news are not ads, they are often distributed as native ads on the same platforms. Together with clickbait, fake news creates a poor user experience with which advertisers do not want to be associated when considering a publisher or ad tech partner. The more fake news and bad quality content there is in the marketplace, the more apprehensive advertisers are to participate.

Page load times also contribute to a poor user experience that’s becoming a larger concern to advertisers. According to eMarketer, 54% of a page loading time is due to ad related activity[2] caused by too many vendors and too many ad units on a page. Sluggish page loads not only lead to higher bounce rates, but also to accidental clicks as users think they’re clicking on one link or scrolling only for the page to skip thereby inadvertently clicking on something else. New technologies like server side header bidding and 5G wireless networks will surely speed loading times. But with faster speeds, publishers and ad tech vendors will once again be encouraged to add as many tags and ad units on a page as possible. This cycle will continue to repeat until the industry makes a conscientious effort to reduce the number of vendors and ad units on a page.

Ad blocking is a direct consequence of these bad user experiences accounting for nearly 25% of total desktop pageviews in the US and costing about $10Billion per year globally[3]. “Ad blocking is a detriment to the entire advertising ecosystem,” said Paul Verna, an analyst at the research firm eMarketer. While many possible solutions have been proposed, “the best way for the industry to tackle this problem is to deliver compelling ad experiences that consumers won’t want to block.” This will be no easy task, however, as creating better ad experiences requires participation and investments from publishers, advertisers, platforms and vendors.

Compounding the challenge of creating a better user ad experience is knowing if clicks or page views are from actual users or from illegitimate traffic; bot traffic, Methbot-style fraud (which is estimated to have cost advertisers and publishers $3 to $5 million per day), and click fraud. Until recently, advertisers paid very little attention to performance data as online sales increased annually and advertising ROI seemed to legitimize higher online ad spend. This ignorance, however, enabled bot traffic and fraudulent clicks to go largely undetected and let this practice escalate.

Overall, all these factors not only cause billions of dollars in damage to the digital ad industry, but also exacerbate the already insufficient and inaccurate data available to advertisers and publishers when making key investment and spending decisions. The reality is that the industry has a very critical data problem. Data is sometimes inaccurate, as Facebook’s report on miscalculated video views shows. But, more often, data is not consistently measured, tracked or verified. Every vendor, advertiser and publisher seems to have a different definition and calculation for key metrics like page views, viewability, video views, and clicks. 

The lack of consistent, comparable data increases the risk of doing business. This risk increases exponentially as programmatic technology proliferates across the digital ad industry since its algorithms are driven by data. “As the advertising ecosystem continues to evolve and we increase our dependence on machines to determine [value and generate revenues], the fidelity and accuracy of the data that represents the publisher will be vital”[4] for the marketplace to survive.

Prognosis

All these symptoms are a result of a marketplace adopting technology (e.g. programmatic) too quickly without first establishing rules to preserve its sanctity. Without a coherent set of standards and guidelines that all players understand and abide by, advertisers will continue to lose confidence in the marketplace and allocate the majority of their budgets to other channels like linear TV and radio. Ultimately, if left unchecked, this market will face the same consequences of the stock market after the roaring 20’s, a market collapse that most likely will require government intervention to restore.

Recommendations

Much like trying to combat a virus, there’s not one single solution to address these symptoms and restore trust (or health) into our ecosystem. However, a few critical steps can be taken in the appropriate direction:

·     Standardized and Verified Data: Linear TV ad spend relies heavily on Nielsen ratings as the standard metric, even though everyone agrees that it’s not the most reliable measure. Simply having all players agree on one standard makes it easier and less risky to transact. Digital advertising, likewise, needs standards around data measurement and verification to which every participant can agree. As a first step towards standard adoption, Procter & Gamble recently announced that ad platforms wanting their business must abide by Media Rating Council standards, prompting even Facebook to take steps to comply. Advertisers have the most leverage to demand change in our industry as publishers and platforms are too reliant on their revenues not to comply. They should continue the push to fully adopt standards.

·     Quality Ads and Content: There seems to be no easy way to address quality. By its very nature, content, both editorial and advertorial, is often protected by freedom of speech and subjective. Fake news to one person, as we’ve seen, may be satirical to another. From a market perspective, readers and publishers should be the arbiters of content quality. Yet, publisher’s need for digital revenues often conflicts with their editorial principles. Today, however, publishers are starting to think twice about getting the highest paycheck if it means sacrificing quality, but not enough is being done. Very soon publishers will need to decide whether they prefer to maximize revenues on a page or focus on long term user value. Unfortunately, if the industry cannot come up with a new solution to regulate content quality, the government or industry agency may have to step in as they have for tobacco, alcohol and pharmaceutical ads.

·     Pricing and User Experience: The fundamental driver leading to many poor user experiences is the click and view based pricing model that publishers and advertisers have become so reliant on using. Since publishers are paid on clicks and views, they add as many ad units that maximize those metrics, but lose focus of user delight. To change the model, however, a large platform, advertiser or agency will need to take a leadership role. The goal would be to create a model aligned to user lifetime value instead of short-term user engagement, which can be easily manipulated.

Only by taking a holistic view of the marketplace, and approaching the challenges together as an industry, will we be able to put together realistic solutions that reinstall trust and efficiency. But, only time will tell if constituents are willing to cooperate or crumble under a prisoner’s dilemma where each party’s self interest leads to poor decisions for the industry as a whole.

[1]  MyersBizNet, “Survey of Advertising and Marketing Executives on Media Effectiveness” by MediaVillage. May 2, 2016

[2]  Secret Media, “Ads Overtook Content: The Influence of Advertising on User Experience” May 17, 2016 https://totalaccess.emarketer.com/chart_jpgs/211001-212000/211763.jpg

[3] Ad Blocking: Who Blocks Ads, Why and How to Win them Back, and Internet Advertising Revenue Report; 2014 Full Year Resutls (IAB)

[4] Methbot’s Hidden Cost: Publisher Data Integrity by AdExchanger // Friday, February 10th, 2017 – 12:05 am