Programmatic Advertising is a Mess: Lots of Complexity with Poor Results
Updated: Jun 22, 2020
Remember Enron? Today if you Google that company all you see is coverage of their destruction. But they used to be one of the most admired companies in the world. And I remember thinking that they were so smart that I couldn’t understand how they made money- it was me, not them.
But it turned out that all that complexity was just a way of hiding fraud. They weren’t making any money. It reminds me of programmatic digital advertising today. It feels like the industry is deliberately trying to make it hard to understand. And there’s a lot of fraud.
Pricing that varies wildly
Prices for programmatic advertising varies so much, depending on who you buy ads from, that it’s impossible to say how much digital ads are actually worth. Here’s an example of different costs to buy one thousand digital advertising impressions. These costs are approximate ones that I’ve seen for similarly targeted bundles of ad impressions. I’ve hidden the names of two companies (Reseller A and B) as a courtesy to them. And the Local Media Company pricing is an estimated average.
The Trade Desk: < $1
Google Content Network: $2
Reseller A: $4
Reseller B: $6
Local Media Company: $10
Looking at the table above, you could say that the pricing levels are like those in any market with lower wholesale costs and higher retail costs. But when you see retail prices 10x wholesale costs, something is wrong. What’s wrong is that a lot of ad buyers don’t understand the market well enough to get lower prices. Sellers are hiding bad deals within the complexity.
And then there’s the fraud
Ad fraud happens when advertising impressions don’t reach human viewers but are sold as if they do. eMarketer reports that in 2019 $5.8 billion will be lost to fraud globally. This is a huge problem that erodes the value of ads we buy. It means that in order to get the same number of click-throughs, we have to buy more ads. That erosion of value has driven down click-through rates for ads year-over-year down to about .06% on average today. Some of it may be “banner blindness” (people becoming immune to ad engagement) but much of it is fraudulent.
It’s a mess
The marketplace for programmatic advertising is a big mess. The lack of pricing transparency erodes trust. Fraud is rampant; it drives up costs and weakens results. And let’s not forget what might be the most important point: consumers don’t like banner ads and respond to them less and less often.
So why am I writing this post? After all, I work in the industry. The reason is that business owners and brands, my clients, need legitimate and effective digital ad programs. And programmatic advertising is getting worse, not better, and it needs to be fixed. Let’s not let our industry go the way of Enron.