• by Marc Guldimann , Op-Ed Contributor, February 8, 2016

Imagine you go to the gas station and the attendant says they aren’t selling gas by the gallon today. Instead, the gas is distributed in a series of buckets ranging in price—roughly determined by size and octane, which you aren’t privy to.

“This one is $5, that’s a $10 there and the big one is $20,” says the attendant, waving his hand over the buckets. The alarm bells in your head are blaring: This sounds like a rip­off. Your bright idea: you offer to pay 10% more than whatever the gas station paid. Through a miracle of accounting your proposal is accepted, and the gas station attendant rings you up for a price that seems fair.

This might sound crazy, but it’s actually how business is done in digital media, and it’s called cost­-plus pricing. When the consumer of a product doesn't understand the intrinsic value of an amount of a good, the market trends toward pricing based on cost + a known margin.

There's an argument that the opaque value of impressions are the culprit. After­ all, it's near impossible for a brand to make sense of the value of an impression when their creatives are being delivered across a multitude of formats: 300x250s, interstitials, skins, take­overs, branded content, 300x600s, mobile units, etc.

Instead of trying to evaluate what the agency has delivered, the brand simply says, “I’m going to pay you 10% of our total spend.”

Cost-­plus pricing might be fair, but it has several unfortunate side­ effects:

• It discourages innovation
• It encourages anti­social behavior

Innovation is discouraged by cost­-plus models because manufacturers don’t get to capture the margin typically created by more efficient systems. Historically, a good that became cheaper to produce created more margin for a manufacturer, but that’s not the case in cost­-plus models.

Why would a manufacturer invest in more efficient technology under a cost­-plus model?

Anti­social behavior manifests itself in kickbacks and other incentives. In a cost­-based model the manufacturer of a good is inclined to use higher priced suppliers who may return some of their profits to the manufacturer.

When you think about the pitfalls of cost­-plus pricing in the context of the gas station example, it's obvious what the solution is: Start selling in gallons.

Brand advertising needs to find its gallon, a metric that accurately represents the value of media. Media, at its core, is about the transfer of attention from content to advertising—so the metric should most closely approximate attention. There’s a good argument, supported by research coming out of the FT and Microsoft, that this metric should be time, as it does a much better job approximating attention than the impression.

Before we put the gas station analogy to rest, let’s use it to examine another flawed pricing metric: the so­called "business outcome."

Imagine the attendant from before saw your concern at the prospect of buying gas by the bucket and asked where you’re headed. Boston, you say and he does a few quick calculations. The attendant then offers to give you as much gas as you need to get to Boston for $50. Your right foot tingles with the realization that you can floor it all the way up 95, run the A/C with the windows down, and otherwise burn gas like it was going out of style without paying for the extra fuel.

The problem with this model is that incentives are misaligned. You don’t care about fuel economy. and the attendant is going to give you low quality gas. The same goes for a vendor who promises to deliver a brand “business outcomes.”

They’re looking to optimize their own margins, not yours.

In the end, the metric determines the efficiency of the market. Impressions and “business outcomes” both create inefficient markets plagued by opaque metrics and a lack of innovation. It’s in everyone’s best interest that brand dollars move to a metric that more closely approximates the raw material used in branding: attention.