Transparency is really an interesting industry term, but to level-set us its inherent that we state the subject at hand is specific to the cost of media here in the 21st century of programmatic buying and audience & data exchanges. What’s interesting is that before the dawn of software that connected to massive marketplaces of inventory, transparency was less about cost structure and more about the inventory supply. Nowadays, thanks in large part to the early greed-mongers that saw programmatic as a revenue center, not as an efficiency play, we are subjected to constant skepticism over our business practices.
So, let’s set the record straight on this: the buy-side of software-based media buying in open and closed exchanges. Remember transparency can be the object of a lot of factors in the ecosystem, however on the buy-side there is really only about 5 different factors:
- Management Fees
For Technology fee, we are speaking specifically of the access granted to the exchanges by SaaS platforms such as The Trade Desk, Doubleclick Bid Manager, and others. This fee is dependent on volume and can roughly be about 10-25% of media dollars. Now typically the inventory that you are getting access to is much less expensive than what you would buy going directly to a publisher, in some cases nearly 10x less, but remember it is bulk impressions without sophistication.
Data fees aren’t quite as cut and dry, but for the purposes of this example we are speaking of 3rd-party data fees. 3rd-party data is any behavioral, contextual or demographically-based data that helps target audiences, rather than target media placements. When you layer this with the inventory that the technology allows you to gain access to, you are then only targeting a subset of people, and perhaps a truer, or even truest, as this subset is more likely to be your audience. For instance, if I wanted to buy recent purchasers of blenders, I would layer 3rd party data from Amazon on top of my media buy to insure I’m getting only people that are in my target set. So now our low-cost media is about 20-30% more expensive than when I started, however it is 100% of my audience make up, rather than a composition of my target.
Media cost really is just the cost of inventory as set by the publisher, and is the one aspect of this that is built entirely on supply and demand. However, most planners look at this as the only metric that counts, and this is where some mind-bending needs to take place. Just because the other two fees we spoke about do not connote ‘inventory’ doesn’t mean it isn’t a part of the ‘working media’ budget. Take this simplistic calculation into mind:
Buy 1 – direct composition-based buy
$12 CPM x 60% composition = $20 CPM for working media against your target audience
Buy 2 – Audience buy, through the exchange using 3rd-party data.
($3 CPM Media + $1.50CPM Data) + ($2 CPM + $1CPM Data)x15% Tech fees = $5.18 CPM
In that example, that I give often, showcases that while our minds have to wrap our heads around fees associated with buying media, the net result is a CPM that is nearly 4X less than the alternative.
Now comes the last two sets of fees that most marketers gripe about, and you can already see that no matter what these are they will not reach the composition CPM, but needless to say I will detail them anyway.
Verification fees are becoming more and more important as we continue to learn the intricacies that are digital advertising through exchange inventory. The common belief is that direct buys are highly controlled and therefore do not need such verification tools and that the monster that are open marketplaces are the culprits. That isn’t exactly true, but for the sake of this example we’ll assume some aspects of it are true. Verification fees range as well, but think of adding anywhere from $0.25 – $0.75 CPM to your $5.18 CPM above. This brings us to $5.93 CPM.
Verification is insanely important, because without it you are subject to bots, fraud and other non-human traffic, which then turns you nearly $6CPM into something much greater. But with it, you maintain your low-cost audience targeting with the peace of mind that every impression is just that, a real impression.
Lastly, and the most disputed, misunderstood, and where the whole transparency issues stems from is Management Fees. When you buy an ad network, or work through vendors that use the exchange for their inventory, you are getting charged 50% or greater, and when dealing with the inventory that I explain above, is likely closer to 100% as they know the media buyer is comparing that against a composition CPM, and therefore is still cheaper.
So, my parting words are these: understand your buy, what goes into it and why. But when a company is placing a management fee on top of your buy, note that a) it is necessary, b) it’s likely going to be more than what you are used to seeing and c) that without it you lose the opportunity for massively targeted buys, that do in fact increase your amount of working media by some significant multipliers.
Author: Chris Arens, SVP, Client Development and Strategy @ Coegi