“A toll every mile:” Time to pull back the curtain on pricing
by Justin Choi, Founder and CEO, Nativo
This is the third in a teries of columns in which Justin Choi shines light on the digital advertising ecosystem from different angles. Previously he focussed on “reach at all cost” mentality of advertisers and “fill at all cost” mentality of publishers. Today he looks at opaque pricing tactics of technology vendors.
At the surface, the ad-supported media business is simple: publishers invest in content to attract consumers, advertisers pay publishers to reach those consumers, and in a perfect world those consumers buy the advertisers’ products. The fundamentals of this value chain have sustained the publishing and advertising business for nearly 200 years since The New York Sun pioneered the model in the 1830s.
These fundamentals are under existential strain today. The culprits lurk within the labyrinthine lumascape of tech point solutions that have wedged themselves between advertisers and publishers. The distribution changes brought on by automation have warped and contorted the value chain with opaque, value-draining fee structures. Our current state is so inefficient that it is normal to see as little as 30¢ of every dollar spent by advertisers reach the publisher.
A Toll Every Mile
As an industry, we’ve MacGyvered a technology layer so big and complex that it swallows up the majority of media budgets before dollars ever reach the inventory side. Even in a simplified scenario, we have a media agency, trading desk, ad server, DSP, exchange, SSP, 1st party data provider, and publisher ad server that lay between an advertiser and publisher, each taking its cut out of every dollar spent on media.
Stitch it all together, connect them all through API integrations, layer on ancillary services like verification and attribution, and you’ve got a mess of a supply chain; each component operating as a tollbooth, placing a “tech tax” every stage of the transaction as the media investment travels between buyer to seller. This has complicated pricing to a point where no one has the foggiest idea what is being charged for what and to whom.
Some might suggest that unified tech stacks are an “Ez- pass” solution to avoid excessive tolls, but the reality is that most operate as though each module on their platform is a stand-alone business, imposing a separate fee at every point in the process, all the while flirting with the temptation to “double dip.” A common example of this is when an adtech platform that connects both buyers and sellers charges each side a separate fee for using its “programmatic pipes.” In many cases, neither side is aware that the other is being charged the same fee.
Other even more shady opportunities can hide in the opacity. For instance, when pricing is calculated on an impression basis, supply-side exchanges can slip in variable fees that steal more than their fair share. This occurs in second price auctions when a variable fee is designed to conveniently fill the vacuum between a winning bid price and the second highest bid. Situations like these make it impossibly hard to understand or predict the tech vendor’s take in the transaction.
This abundance of complexity and lack of transparency reflects poorly on the entire ecosystem and is unsustainable for all parties. The result is higher tech fees, publishers unable to extract fair value for the audiences they attract and nurture, and brand marketers asking hard questions that ultimately lead them to invest less, not more, in the open web. We must pull back the curtain on the opaque fee structures that are all too commonplace in our industry. The time has come for the entire ecosystem to stand up and evangelize for the utmost transparency and push out bad actors who refuse to comply.
Publishers and advertisers deserve full visibility into the fees charged as dollars move from one side of the value chain to the other. If automation is going to support and sustain the value chain that has upheld ad-supported media for almost two centuries, it needs to provide advertisers and publishers the means to understand where the money is going. Anything short of 100% transparency is unacceptable. That’s why Nativo is making public its pricing structure, which includes no hidden or variable fees and no double dipping. We strongly encourage all of our ecosystem partners to follow suit.
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