Ad Tech Braces for More Investigations Into the Programmatic Supply Chain

Trade groups and publishers are setting out to map programmatic advertising's 'unknown delta'

A PwC report for an advertising trade body found that 15% of digital spend was unaccounted for. Getty Images

Key insights:

A landmark report exploring how advertisers’ payments are distributed throughout the complex ad-tech ecosystem has prompted much finger-pointing and some handwringing within the industry.

The Incorporated Society of British Advertisers (ISBA) trade body for marketers commissioned PricewaterhouseCoopers to audit more than $120 million in media spend. The report, released last week, found that only 51% of the amount advertisers shell out for online ad placement actually makes its way to publishers. These findings echo earlier reports by its U.S. counterpart, the Association of National Advertisers.

The rest is pocketed by the middlemen of the media ecosystem; but given the vagaries of ad tech, 15% of advertiser spend—that’s about one third of supply chain costs, according to the report—disappears into an “unknown delta,” with the findings underlining the widespread lack of understanding of programmatic media trading.

Now, advertisers (and media owners) want answers, with the trade body appointing a task force to forge greater transparency, as well as to better ensure compliance with privacy laws.


Time for a change—and the blame game

The report also found a “lack of understanding and inconsistency” among ad-tech suppliers regarding data capture, data sharing and storage, with PwC’s Sam Tomlinson highlighting that “this study represents the most premium part of programmatic” in his report notes.

Meanwhile, ISBA’s Abi Gibbons noted how this lack of consistency required cross-industry collaboration to achieve standardization, particularly in terms of contract arrangements, technology specifications and data sharing in the “waterfall” of programmatic media trading.

“The study reveals the depth of the supply chain’s lack of organization and complexity. A total of over a thousand distinct supply chains were identified,” Gibbons wrote in her report notes.

Industry sources told Adweek that the inability of one of the industry’s leading auditors (PwC) to trace one-third of all programmatic supply chain costs was indicative of a number of issues in the supply chain. These include complications caused by the dynamic pricing of online ad auctions.

In addition, there are also discrepancies in the accounting practices of both sell- and demand-side platforms in terms of bid requests and impressions served, not to mention FX rates, i.e. currency conversions.

Jay Friedman, president of independent media agency Goodway Group, told Adweek that to interpret the findings of the survey as “49% of media spend is lost to the ad-tech tax” would be incorrect. “It’s a huge mistake to think of this as $1 goes in, and then how much comes out,” he said. “People should think of it as $1 goes to the publisher, and then what are the additional fees” for services such as ad serving, brand safety costs and enhanced targeting.

Accounting in the space has also become more complicated in recent years as publishers increasingly adopt first-price auctions to monetize their inventory, with the practice increasingly common after Google began to support it within the last 12 months (previously, second-price was its default).

Advertisers’ transparency concerns

PwC’s findings will undoubtedly reverberate throughout the industry, piquing the interest of procurement teams at large corporations, prompting them to request meetings with their marketing colleagues. Speaking at last year’s flagship ANA conference, Procter & Gamble marketing chief Marc Pritchard urged his peers to seek greater transparency—having previously labeled online media as “murky at best”—in their marketing supply chains, fueling in-housing conversations among marketers.

Speaking with Adweek prior to the publication of the report, one source from a major advertiser explained how their department began seeking more direct relationships with ad-tech suppliers. “I think there will be a situation where you need to outsource certain things,” said the source, who requested anonymity due to their employer’s PR policy. “You want to have the right tools … direct relationships with the technology providers, because then you can make sure your dollars work hard.”

Kai Hsing, evp of marketing and operations at Bustle Digital Group, said concerns about transparency will mean ad-tech companies that bring no unique value to market will soon be made irrelevant. “Eventually, we believe market forces will squeeze out services that bring no additive value, and dollars will flow more efficiently from buyer to publisher,” he added.

Meanwhile, Michael Nevins, CMO at ad-tech outfit Smart, said the need for transparency in the ecosystem was driving M&A in the space, part of the reason why his company—which started initially as an ad server, to later develop SSP-capabilities—recently purchased DSP LiquidM last year.

“The entire supply chain will have to rationalize for transparency and efficiency,” he added. “This outlook drives our strategy to create a vertically integrated DSP/SSP that is 100% transparent and inherently more efficient for both buyers and sellers.”

Publishers and advertisers must ‘get closer together’

However, certain parties maintain there are vested interests when it comes to maintaining the status quo of inexplicable costs and hidden fees.

David Kohl, CEO of TrustX, an SSP owned by publisher trade body Digital Content Next, described PwC’s findings as “troublesome” to Adweek. “It’s extremely difficult to understand what each cost is as you move down the line,” he said. “You put in $10 at one end, and then you get $5 at the other end. Some of it is unclear, and some of that is by design.”

In an emailed statement, Brian Fitzpatrick, general manager for Europe at Bidswitch, claimed the findings of the report demonstrate that ad-tech fees are “unsustainably high.”

He added, “The study also reinforces the need for advertisers and publishers—long pried apart by layers of ad tech—to find ways to get closer together.”

Wayne Blodwell, a longtime executive at media agencies and CEO of The Programmatic Advisory, told Adweek that brands are “broadly aware” of where their ad spend goes, but that’s not without limitations. “They don’t get much of a look at any costs beyond the DSP, and oftentimes even access to that data can be slow,” he said.

He went on to add, “Brands also don’t understand the value all the constituent parts can add; they just see numbers and try to drive them down.”

Several sources noted how the thin margins insisted upon by brands can result in ad-tech middlemen resorting to undisclosed means of revenue generation, some of which have resulted in legal actions in recent years.

ID requirements?

Adweek contacted the ANA for comment on PwC’s findings, but a spokesperson was unable to provide comment by the time of publication. But fellow trade organization the Trustworthy Accountability Group (TAG) is championing its own payment ID system as a means of better ensuring accountability in the sector.

“A contract might look watertight, but it can spring a ton of leaks when an advertiser tries to track the actual flow of money through their campaigns,” said TAG CEO Mike Zaneis in an emailed statement. “That’s why TAG is pushing the industry to adopt a consistent framework to identify every entity in the supply chain that touches an ad by using unique TAG IDs for transparency.”

However, several sources pointed to the frustrations of earlier attempts to establish better transparency in the field of programmatic trading, particularly in the wake of the controversial 2016 ANA report that was critical of how media agencies used client budgets after marketers signed the initial check.

According to one executive who spearheaded the ANA’s accountability push, a key component of any future efforts to gain better transparency will be assuaging the anxieties of media agencies. “A lot of the agencies didn’t have the tech to pull the log files [for ad buys] necessary, and many of them didn’t know what to expect,” they said. “Then many of them didn’t feel part of the process, and so that put a bitter taste in their mouth.”

@ronan_shields Ronan Shields is a programmatic reporter at Adweek, focusing on ad-tech.
@SaraJerde Sara Jerde is publishing editor at Adweek, where she covers traditional and digital publishers’ business models. She also oversees political coverage ahead of the 2020 election.