(As published on MediaPost)

As programmatic advertising reaches critical mass, the ad industry must now move beyond conversations surrounding adoption, and turn toward the thorny issue of the financial struggles publishers face as they try to maintain control over their ad inventory.

Online video ads pass through up to six different technology layers before they reach the intended viewer. These fees are often referred to as the  “tech tax”: the tariff publishers must pay to technology partners to make their inventory available programmatically.

As much as 55% of the money invested in programmatic actually goes to ad-tech companies (demand-side platforms, supply-side platforms, trading desks, data providers and verification vendors) and only 45% reaches publishers, according to a  2015 study produced by the Interactive Advertising Bureau. The organization has even built a “Programmatic Fee Transparency” calculator to determine the fees associated with specific ad buys.

Here’s how those fees might look for a typical campaign:

  1. Platform fees. Many publishers use a video SSP to manage and optimize their desktop and mobile inventory, which accounts for 15%-35% of total spend, depending on whether the inventory is sold through the open exchange, private marketplaces or direct deals. This doesn’t account for all of the other platforms and exchanges that they may be buying through the primary SSP, which takes its cut as well.
  2. Ad-serving fees. The SSP may double as the ad server, but charge separate fees, typically on a CPM basis, which can equate to roughly 1.5% of video revenue. There is a growing trend of a “platform charge” for all unfilled ad opportunities. These costs can escalate quickly, depending on performance.
  3. Verification costs. Advertisers are focused on quality, forcing publishers to take brand safety, viewability and fraud verification into account. These worthwhile investments come at an additional cost of around 2% of revenue.

These fees have publishers giving 30%-40% directly to intermediate platforms and technologies, without mentioning charges for creative hosting, clearing house services and implementation. To make matters worse, these fees aren’t always disclosed and reported back to the publisher. The true cost is usually obscured in the opaque layers of intermediate players and platforms.

Publishers can take control by asking the following four questions to evaluate the effectiveness of their stack and assess the profitability of their partnerships.

What’s the return on investment for data partnerships?
recent study by GroupM found there’s a point where having too much data can lead to diminishing returns. For example, publishers who spend 5% of potential revenue on data platforms and experiences a 3% lift in performance must asses the actual value of each data layer and cut those that aren’t boosting performance.

How much can publishers increase CPM to cover cost without impacting revenue?
In other words, is pricing aligned with the value delivered? Increasing CPM floors provides short-term revenue growth potential to offset vendor costs, but comes with the potential to turn away price-conscious advertisers and slow long-term growth.

Which verification vendors will protect my revenue?

Without impartial verification partners to help manage quality, viewability and accuracy concerns, publishers can lose revenue to data discrepancies and low quality inventory. Picking the right vendors for the job is critical to maintaining inventory quality and minimizing advertiser clawbacks.

How does the inventory perform without these tech layers?

The reality is, most margin loss occurs as inventory is traded from platform to platform and exchange to exchange. Publishers can leverage programmatic technologies to more efficiently connect directly with advertisers through private marketplaces and deal IDs.

The recommendation is simple. Publishers need to clean up their ad stack and scrutinize their partnerships to determine the best places to cut costs, take back margin and protect their revenue.

In the end, publishers should ask themselves this big question: Are their programmatic partners margin-takers, or market-makers?


jeremy_ostermiller
By Jeremy Ostermiller (@jostermiller1)
Founder & CEO