The Middleman: Friend or Foe?

By Operative On the Media Archives
Cover image for  article: The Middleman: Friend or Foe?

What was once two or three content distribution channels (print, TV, display) is now many more (video, programmatic, addressable TV, mobile, social, etc). Channels continue to increase as consumers fragment media use across devices. For brands and publishers to keep up they have to rely on technology partners to connect the dots. From new ad servers, data providers, programmatic vendors, viewability and measurement solutions media buying is so complicated that most advertisers and publishers don't even know who they are working with. In fact, last year Ghostery found that most publisher websites have more than 70 technology vendors on them!

What’s worse, this complexity is extremely expensive for brands and publishers alike. In 2013, AOL came out with a controversial statement saying that almost 3/4 of digital ad buy dollars go to the “middle men” and encouraged publishers to embrace programmatic buying as a way to control the supply chain.

In theory, programmatic advertising has the ability to increase your ROI by using automation and taking advantage of more streamlined processes. Unfortunately for many publishers, the uptake of programmatic technology has done little to slow down the tide of middle-man costs. This is because, as with any new opportunity, we are still at the early stages of the learning curve, so we hire more people, silo the programs and rely on third parties to help.

More broadly, legacy systems -- linear TV for example -- are not compatible in the least with digital advertising technology. TV vendors have virtual monopolies on ad scheduling, audience measurement and reporting on TV. This is obviously not in the advertiser’s or publisher’s best interest, so many have embraced yet more new technologies to serve video content and advertising in new ways (streaming, addressable, etc.)

In my second “definitions” post, I have outlined the key terms that describe the state of the middle-man technology ecosystem.

  • Middle-Men:Companies that provide technologies and services for media buying and advertising for advertisers and publishers. This can include ad serving, ad optimization, creative services, data and measurement.
  • Ad Technology "Tax": Every vendor that contributes to an ad campaign takes a cut of the media dollars that fund it.  It has been estimated that as much as 75% of digital advertising dollars (the “Ad Tax”) are spent on the technology delivering the ads.
  • Media-Based Revenue: Vendors who take a percentage of revenue based on an advertiser’s media spend. Some companies take a margin or a cut on every impression or media buy that transacts through their system.
  • Incentives and Digital Agency Kickbacks: Companies who take a cut of media revenue have an incentive to encourage high volume and more ad buys. More ad impressions = more money. See this recent AdAge Article describing the practice. This is bad for advertisers and publishers because it gives their partners a reason to spread out a media buy regardless of quality.
  • Opaque or "Black Box" Media Buying:Ad networks, programmatic Demand Side Platforms and Sell Side Platforms, agency trading desks and data marketplaces benefit from not sharing how they are optimizing and allocating advertising across inventory sources. The challenge is that advertisers and publishers don't actually know where their money or ads are going -- they have no control and receive limited reporting. Additionally, they don't know what margins are being taken or with whom they are competing. (Agencies will often pit competing advertisers against one another within a trading desk.)
  • Specialist sales:Many publishers have segmented their sales teams into separate teams across channels, particularly TV, digital direct and programmatic. This limits their ability to create comprehensive programs for advertisers, limits revenue optimization and creates additional costs.
  • SaaS or “Flat Fee” License Platforms: Digital advertising platforms that don’t take a cut of media or impression flow usually charge typically use more traditional IT pricing instead. This fee structure typically eliminates the bad incentives that are rampant in the industry. This allows vendors to align with advertiser and publisher quality and performance goals.
  • Convergence:This term refers to the standardization and consolidation of media channels and properties. We can't operate in silos forever. Advertisers are asking for "audience based" media buys so that they can buy targeted ads across channels and properties. To support this, for example, media companies need to keep up by standardizing their metrics (impressions vs GRPs for example) and standardizing audience data (Nielsen PRIZM vs cookie data).

Already, companies like Verizon are working to consolidate channels in anticipation of the need for broader audience-based media buys across screens and media types. As convergence across channels (including TV, traditional display, programmatic, etc.) gains traction, advertisers and publishers will put more pressure on the middle men to increase transparency and will reduce the number of middle-men that they work with. In the next few years, there will be massive consolidation, realignments of incentives and streamlined practices across channels, which will benefit both advertisers and publishers -- but only the savviest of the middle-men.

The opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillage management or associated bloggers.

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