This column runs the risk of alienating folks I sometimes do business with – but it’s about an issue we all need to address and resolve.
As has been well documented, there are rebates in the world of digital ad data, and many of them are not transparent or disclosed to advertisers or agencies. I believe that needs to change.
The existence of undisclosed rebates, commissions, volume discounts and principal positions related to the sale of data for targeting, measuring and verifying digital ad campaigns has been in the trades quite a bit lately. Data fees haven’t gotten nearly the attention as fees related to the media itself, but that seems to be changing.
The existence of the ‘data tax’ and related payments were specifically identified in the study into media transparency that the Association of National Advertisers helped sponsor, Programmatic: Seeing Through the Financial Fog. You can it read here.
Should it really matter to the ad ecosystem at large whether undisclosed fees are being paid to demand-side platforms, sell-side platforms or agencies where data is transacted either on their platforms or through their planning or buying services?
Of course it matters. Here are some of the reasons why you should care:
It’s a lot of money. The ANA study above found that almost 10% of campaign funds went to data. Anecdotally, we all know that data fees can at times eat up as much as 50% of some campaign expenditures.
Money is a powerful incentive. Perverse incentives hurt everybody – especially clients, who may have no knowledge of them and assume that their platforms always act in their best interests.
But payments change behaviour. For example, consider when companies selling things pay platforms and service providers fees to have their products purchased more often – not because it makes the campaign more effective or efficient, but simply for the benefit of those making or receiving the payments.
Disclosure is critical. If your house painter is getting a 50% rebate on the cost of the cans of paint from a certain store the painter is recommending (and you’re buying), you would want to know about it. We all would.
You might be okay with it. You might want the discount deducted from your fees. You might want to use a different brand or store, and work with your painter to negotiate rebates or discounts on that paint or store. Or you might want to split the rebates. What you wouldn’t want is not to know.
Everyone is hurt. Undisclosed payments are parasitical to advertising. Full stop.
Small players and premium players are hurt the most. Winning business on volume discounts favours the biggest platforms or biggest buyers. At the same time, they risk hurting those who don’t need rebates to be bought: the best products, the best performing media, the best data and the best services.
A world driven by undisclosed rebates has an asymmetrical negative impact on premium content publishers, small and mid-sized agencies and platforms with the best data and best technology.
Fraud follows rebates. When money is pulled out of the media system in surreptitious ways, something has to give. If 10% or 20% of a campaign’s total budget leaks out in undisclosed fees unrelated to the data, there’s no way the platform can deliver the same expected quality of product at the same anticipated best price.
Frequently, this opens the door to mixing in a bunch of lower-quality media or data to keep the campaign’s volume and price in the perceived ‘right place’. With everyone’s maniacal focus on CPMs, the quality of what is delivered frequently gets a lot less attention. And, since nothing is cheaper to add than fraudulent inventory and manufactured data, it’s not unusual for undisclosed rebates, commissions and volume discounts to result in media fraud.
Paying fees for sales is easy for data owners. Digital data is an intangible asset. Once you create or own it, the cost of goods in incremental sales is virtually zero. Thus, much like undifferentiated digital banners in a world of massive oversupply, the owner or distributor is happy to give up a big chunk of the revenue in fees, since any money left over goes straight to the bottom line.
Trust requires transparency. We have seen an enormous erosion of trust in the ad ecosystem over the past five years. The lack of transparency around data payments only makes this worse. We can only bring trust back into the market with full transparency.
The ANA recently created a Trust Consortium to help in this area. I am proud that my colleague John Piccone is a member of the consortium.
This is not a time for folks in our industry to sit on the sidelines. If we don’t fix trust, our industry, its growth and our people will suffer.
What can be done? What’s most important is that folks in our industry care about undisclosed payments and the consequences of these perverse incentives. Be curious. Be diligent. Investigate. Ask questions. Demand disclosure. Make noise when you don’t get what you deserve.
What do you think? Is it time get rid of undisclosed rebates in the advertising data business?
Dave Morgan, a lawyer by training, is the CEO and founder of Simulmedia. He previously founded and ran both TACODA, Inc, an online advertising company that pioneered behavioural online marketing and was acquired by AOL in 2007 for $275 million, and Real Media, Inc, one of the world’s first ad serving and online ad network companies and a predecessor to 24/7 Real Media (TFSM), which was later sold to WPP for $649 million. Follow him on Twitter @davemorgannyc
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