Why Working Media, Like Wine, is Important to Marketers

No, this is not a joke about marketers needing wine, lots of it. Read on. ;-)

When I say "50 cents on the dollar" or "the 15% unknown delta" everyone knows what I am talking about, instantly. Those are the latest headlines from the ISBA Supply Chain Transparency Study from 2020 [PDF ], which confirmed one more time what three previous studies already demonstrated -- that only "50 cents on the dollar" goes to publishers for showing ads. The other 50% is the tax taken by ad tech middle-leeches. The "15% unknown delta" also made headlines because that was the portion of dollars that went somewhere "unknown" -- i.e. accountants from PwC couldn't account for it.

What is less well known, and hardly remembered, is the fact that only 12% (about 1 in 10) of the impressions could be matched from "end to end" (from the buyer to the seller) despite using data from 15 prominent advertisers and 12 mainstream publishers -- in other words, a "well-lit neighborhood." Out of 267 million impressions, only 31 million (12%) were matched; of those 31 million impressions, 50% of the value went to taxmen, and 15% went missing. Despite the obvious opportunity for advertisers to effectively double their money, by going back to buying ads directly from good publishers, few have done so.

You can "buy direct" and still use programmatic channels; just be sure to target the publisher's specific sellerID or dealID and target the one specific exchange that the publisher prefers to use. Why? If you don't lock down the number of exchanges, the multitude and complexity of supply paths means "leakage" -- money and ads going to unknown places. If you don't specify the sellerID or dealID exactly, an inclusion list of domains is still subject to the form of fraud called domain spoofing -- fake sites mis-declaring the domain passed in the bid request.

In what country or category are you willing to pay a 50% tax?

Despite the four previous studies that show a 50% tax on ad budgets spent through programmatic supply chains, advertisers have not balked, like they would in every other category -- from food and beverage, to clothing and accessories -- if someone tried to charge them a 50% tax. Would you be OK getting half a bottle of milk for the price of a full one? or half a box of cereal for the full price? Of course not. But that's exactly what is happening with your media budget, spent in digital through programmatic ad tech. Your "working media" (the portion that goes towards showing ads) is half of what you spent. (Hint: it's actually way worse than that, but I won't digress.)

For years, advertisers have tightened the ship on television advertising, and the portion of their dollar taken by media agencies, the "non-working media" which reduced "working media" (dollars for showing TV ads). They clamped agency fees down to about 15% and some finally dissociated agency pay from media spend entirely. That was a great move because it eliminated a key misaligned incentive -- agencies advised clients to spend more in TV because the more they spent, the more the agency made as a fixed percentage of that spend.

>50% tax hidden from view, double-paying for ad tech services

The same crap is happening in digital media, except it is well hidden from view. Not only are media agencies making undisclosed margins on digital media, they are also taking undisclosed kickbacks from ad tech companies, giving themselves kickbacks via foreign subsidiaries, and doing principal trading (taking ownership of digital media at wholesale prices, and selling to their own clients at retail prices, so they don't have to disclose mark-ups). They are always aggressively selling "programmatic" because it is the single highest margin line item for them, because of all or some of the above. In some cases you can't even see that you are paying a 50% or greater tax.

For example, advertisers were shocked to learn they had been double-paying for fraud detection in the same campaigns, same ads. How? Ad exchanges pass along verification fees by marking up the media CPMs. Advertisers paying a $3.00 CPM don't know that they are only getting $2.85 CPM media. The 15 cent verification CPM is bundled in with the media cost, and therefore hidden from view. The advertiser happily pays again, because on their books, verification fees are a separate line item from media costs (where they already paid for verification). Be sure to ask your media agency to show you what CPM you bid, so you can compare it to what CPM publishers got. You will be more shocked than you are now, guaranteed. You may be shocked at how little goes to the publisher as media CPMs for showing your ads; or you may be shocked that they can't get that info to you because they don't have that data, they never looked, and no one has ever asked them for it. Shocking?

Working media is like wine, but ...

By not having clarity on what they paid or what the publisher received -- media CPMs -- advertisers are entirely in the dark about how much of their dollar was actually "working media" used to show ads. Even in the simplest supply chain configuration -- advertiser -> DSP -> SSP -> publisher -- many unknown steps, unknown margins, and unknown drop-offs remain. Recent data from Adalytics shows that between 20 - 99% of every dollar is taken by middlemen, with the average predominantly in the 40 - 60% range.

Now for the wine part. We all love wine. But did you know that the winery that made the wine usually only gets between 9 - 44 cents of every dollar you spent on the bottle, because a multitude of middlemen take cuts or make markups, including government tax collectors. The following handy graphic from the FT illustrates this phenomenon at four price points of wine bottles. In the very best case, 44% is the "wine value" the portion that goes to the winery for making the wine. The other 54% goes to retailer margin, logistics and packaging, and tax.

Some ad tech bros have used this wine analogy to justify the tolls they take in programmatic media. They say that the DSPs (demand side platforms), SSPs (supply side platforms), and other ad tech intermediaries are necessary just like the logistics, packaging and retailer margins are necessary parts of getting the wine to you. While it is true of wine, which is a physical product that requires logistics, packaging, and retail distribution to get to you, it's a false equivalent to the digital advertising supply chain. Advertisers never needed all those ad tech intermediaries; they could already buy digital ads directly from real publishers. Of course advertising technology deployed by the publisher will still place the ads on the publisher's site. The key is cutting out the gaggle of unnecessary middlemen, and the costs, risks, and fraud associated with them.

If you buy wine directly from the winery or ads directly from the good publisher, you will get better quality product, and lower overall costs. The winery and the publisher will be able to make a living wage, which they could not do when middlemen were taking 50 - 99% of every dollar, even if this is hidden from view. In digital advertising most of the middle-leeches are not necessary. We've also shown in previous articles that their tech doesn't work well or at all , microtargeting doesn't work well or at all , and buying ads through those channels is riddled with fraud, mistakes, and false metrics . A 50% tax is the tax you can see; the rest of it are taxes that you are already paying but cannot see if you are buying through programmatic channels. After paying all those taxes, how much "working media" do you have left? Do you even know? Time to find out, the hard way.

Enough shock therapy for the day? I'll stop here. Let's have some wine, the good kind, please.

Don't read the following unless you've had a few glasses of wine: https://www.dhirubhai.net/pulse/really-bob-another-supply-chain-transparency-study-dr-augustine-fou and https://www.dhirubhai.net/pulse/how-check-you-got-what-paid-programmatic-ad-fraud-researcher