From a marketer’s point of view, every media channel has ‘wastage’. Focus is drawn to digital advertising because wastage in digital is quantifiable. Whether it’s poor viewability, environments unsafe for brands or fraud (ie non-human traffic in the form of bots), there are now software companies – third party intermediaries - who report on the quality of every ad impression served. This extreme granularity is a two- edged sword – it’s given more insight, and therefore more control, to those wielding budgets. However, at the same time it’s created a sense of widespread, poor-quality inventory. As such, the digital industry’s reputation has suffered.
But what if digital advertising shifted so that only ‘good’ inventory was sold, and scarcity was reintroduced to advertising? If publishers with fewer, better ads received higher prices as a result? Not everyone benefits however. We share insights from thought leaders from across the value chain – including one economist – on who wins and who loses under such a scenario and how it might be achieved.
Our round table contributors were:
James Diamond, Managing Director, Integral Ad Science ANZ
Dan Robins, Head of Programmatic Advertising, Spotify ANZ
Gai Le Roy, Director of Research, Interactive Advertising Bureau Australia
Justin Papps, Head of CMO Advisory, PwC Australia
Jeremy Thorpe, Chief Economist, PwC Australia
Megan Brownlow, National TMT Industry Leader, PwC Australia
MB: What’s the problem we’re trying to solve here?
JD: If you look at the existing marketplace through an economic lens, you’ll see market failure in many places. The focus has been on using programmatic technology to optimise towards audience [the identification and targeting of micro-segments] and not on media quality. As a result, the industry is filled with excess supply that is bad quality (i.e. not viewable, not served to a human user etc.). And yet it attracts the same price as good quality inventory. You can pay a $5 CPM (cost per thousand clicks or impressions) and get 10% viewability, or pay a $5 CPM and get 90% viewability. Clearly they should be costed differently.
GL: Initially publishers sold only their remnant (unsold) inventory programmatically and were a bit embarrassed so weren’t that transparent about who was selling it. But we’ve made good strides. For example, there’s an initiative called ‘Ads.txt’ where publishers show who is meant to be selling their inventory, and if a reseller is not on the list you shouldn’t be buying from them. It’s a simple way of stopping domain spoofing (fake website addresses used to illegitimately claim audiences and traffic) and unauthorised sellers.
JT: The advertising market is really akin to the used car market, where it is hard to tell whether you’re getting a lemon until after you drive it out of the lot. In car markets they address this by offering warranties to show high quality. If you don’t show that faith, prices will drop to the lowest common denominator and this is what we’ve seen in digital advertising. The challenge for the industry is to build in signals to show quality.
JD: Those signals will cap supply. At the moment the incredibly low CPMs do not reflect the value an advertiser gets when they put their brand in front of a customer. The price represents not being able to identify quality and optimise towards it.
JP: It’s up to marketers to continue to pull the veil back. 2017 was a watershed year, in so far as, once that veil was lifted, we saw things people weren’t proud of. Marketers said ‘Ok, we need different ways of working together, whether it’s advertiser with publishers, advertiser with agency, agency with publisher’. Progress was made, but we need to keep an eye on those low cost providers continuing to put rubbish out there. The less money that flows to them, the quicker you can choke off those channels.
DR: We will probably see some players have to leave the market because their model is built on the sandy ground of very low CPMs, and putting more ads into places that aren’t seen. There is a big opportunity for publishers to reassess what their model is: the value exchange they give to their users so users understand that, yes, I do see some ads but I get this really good value on the back of it. It is easy for us to say from a Spotify point of view, because it is so implicit in the fact you get a listening experience for accepting some ads.
JP: The marketer can be the disruptor here and drive this, by demanding better quality content, making sure the context is right and being prepared to pay for that, and I think they will. There is some parallel with people's response to fake news - paid subscriptions to online newspapers are going up because people are prepared to pay a premium for news they can trust.
JD: The big challenge we face with marketers is they value immediate rewards more than they value long-term rewards. Many marketers will happily take an extra 10 clicks today over a percentage point improvement in return on investment. That filters throughout the whole supply chain. They will brief their agencies, who then brief the publishers, who then brief the ad networks and the resellers, and everybody is operating towards these short-term metrics. We really need to change it back to broader metrics and, perhaps like newspapers when you took a page (of advertising), you didn’t get the results for a number of weeks. Now, if you run a digital campaign you get the results immediately, and if it doesn’t move the dashboard, you’re upset.
JP: As CMO tenure continues to reduce, the need to have an immediate impact increases. It becomes like a bad drug - you have to pay more to get the same hit. A mature marketer understands that brands are built on long games. There needs to be a refocus on the meaningful, not just the measurable. We’ve worked with CMOs who have a dashboard with 23 metrics on it. We ask them ‘Of those, which ones actually move the dial for you, which ones are you most interested in?’ It may come down to three or four they know really matter.
GL: If we get smarter around the longer-term metrics, there is a role for a really brave technology or analytics company to work with CMOs and agencies to kill a number of metrics people are addicted to. For the past 10 years we’ve known the click-through rate means nothing – it has no correlation to success - and yet it’s still baked into every platform.
MB: What other metrics should we discard?
GL: Last click, last touch, any ‘last point’ attribution, unless you only touch the consumer once, but it’s rare for a brand to do that. We forget in the ad market that we’re mostly delivering incremental sales. Marketers deal with a lot of different agencies, and technology providers, who claim they created all the sales. If you add up all the sales claimed it’s probably 10-fold of what happened. Also, some publishers will need to focus on their data strategy more, if we are going
to take digital advertising to where we are promising – more personal, relevant and a cross-platform experience that travels with you in a non-annoying way. They need to have direct relationships with their customers, rather than outsourcing, and find good data agencies that can append data to theirs.
JT: Excessive digital advertising has a cost for consumers as it slows downloading, and this is painful on a mobile device especially. If you reduce the number of ads you make loading easier, and you make costs lower for consumers both in time and data. That means they are less likely to install ad blockers, which is ultimately the death spiral the industry wants to avoid.
DR: There is a risk of short-termism by some publishers (if we cap supply to viewable ads only) that they start using quite annoying ad units, like those sticky units that follow you down a page, or interstitials that take over the whole page for an excessive amount of time. These tick the box of viewability but forget the user. There are agencies in all of this too. Many are still built on volume models whereby they get paid on a percentage of either the spend or the impressions they buy. Some will struggle to pivot quickly enough.
JD: Smart agencies will change their business models. We’ve seen some agencies really invest in media strategy and that is where their value is. Others become resellers of technology and arbitrage media, and that’s where the race to the bottom is. The ones that exploit information asymmetry will lose. It’s like mechanics - I take my car to the mechanic, I know nothing about cars. I don’t know if he’s just turned a screw or rebuilt the whole engine, so it’s very hard for me to decide how much value has been added. I think a lot of advertisers feel that way when they are in a media agency. There’s a lot of DSPS, SSP, RTB, DMP, there’s a lot of acronyms and a lot of adtech is very complicated. The smart agencies can clearly demonstrate they are able to add value, they can bring transparency, instil trust, and they will win.