Programmatic and the question of price transparency

Transparency – hot or not?

 

Is ‘transparency’ the hottest (and dirtiest) topic in advertising at the moment? We think it might be so we’re going to dedicate a few column inches to looking at some fact and opinion.

What do we mean by ‘transparency’ though? We feel that there are four big topics:

• Price transparency
• Media transparency
• Data transparency
• Optimisation transparency

This article will be the first in a series looking at price transparency (we’ll be tackling the other areas in coming months).

Price Transparency

The IAB estimates that programmatic spend will reach 80% of overall marketing spend by 2018 yet, worryingly for the industry, a 2016 Econsultancy report highlighted that CMOs see pricing transparency as the biggest barrier to increasing programmatic ad spend. 

Does this mean that spend could increase with greater price transparency? And if so, what does ‘greater price transparency’ mean?

The tension

As with all disruptive technologies when vast sums of money are involved tensions arise. Agencies and publishers have amicably squabbled over media rates for years, yet in recent times the squabbling has intensified with programmatic price transparency at its heart. Advertisers are also becoming increasingly more vocal, notably P&G & O2.

The issue of pricing transparency has its roots in the technology itself, namely its ability to automate a list of formerly intensive human activities, and the subsequent efficiencies.

In taking a significant and obvious human element out of the media, planning and buying process (phone calls, rate negotiation, creating media plans & reports, calculating optimisation) the widespread assumption is that planning and buying should be cheaper and more economical. A viewpoint that was not helped by the early positioning of programmatic as a cheap, performance buy.

Bad press

CMOs, marketer and publishers are calling for agencies and vendors to provide greater clarity on the distribution of costs across the supply chain, including how the agency/vendor margins is used. Mark Pritchard, Chief Brand Officer at P&G recently spoke at length about improving the industry with reference to fees. 

Last years ANA report did nothing to support the belief that something murky is going on with pricing, exposing a number of direct and non-direct interrelated issues with the US ad market, most notably for programmatic that “an agency (or its holding company or associated company) purchases media on its own behalf and later resells it to a client after a markup.”

As expected (and justifiably) there has been a lot of bad press for the industry. Larger brands like P&G are confronting the news head on (a positive for the industry), others are taking activity in-house as part of their attempts to establish greater control, while many brands are switchings agencies to find ‘greater transparency’.

Perceptions, misconception and costs

Programmatic advertising offers customers a raft of benefits easing the process of media planning, buying, targeting, reporting and optimisation significantly, all of which are valuable and expensive. 

However, programmatic has often been positioned, in its early days at least, as a cheap, automated performance buy, a tagline that has lingered causing advertisers to believe that they should be purchasing cheap ads (as opposed to more efficient campaigns).

There are significant costs associated with a programmatic purchases that vendors, agencies and advertisers need to be familiar with and, importantly, more comfortable talking about.  

To start with there is significant investment in skilled staff (of which the programmatic pool is small) and R&D.  It adds up! An old-ish yet still relevant Adage interview highlights the scenario really well: five agency employees could spend and deliver a $100 million national broadcast budget, where as five well trained programmatic employees could deliver a $5 million budget.

The technology supply chain is vast and can be costly. The image below from Marin Software details it quite well. The tech stacks can include data & targeting, DMPs, DSPs, ad serving, exchanges & networks, ad verification, ad blocking and managed services.

 ‘Greater pricing transparency’

Without doubt agencies and vendors have used the complexity and rapid growth of programmatic to their advantage creating some of the pricing issues, that said, there are genuine and significant costs. It’s time for us all to bring some clarity.

‘Greater pricing transparency’ should be a clear articulation of the cost centres associated with programmatic: staffing, R&D and the tech stack. 

By providing detail on the scale and skills of teams, the (broad) areas of R&D and stripping out the supply chain advertisers would get a better picture of how revenues are re-invested. This kind of transparency gives enough visibility under the bonnet, while keeping enough information back for vendors and agencies to maintain their competitive edge.