Commentary

How Much are You Paying for Your Little Black Box?

There are many ways to understand the role and importance of transparency in the digital ad ecosystem. The term comes up in the context of attribution models, network optimization, tag-based buying and so on. For marketers, one of the most critical roles for transparency is in pricing – and that’s also an area where some ad tech vendors are failing their customers.

Without a clear view into the costs of customer acquisition and engagement, marketers have no basis on which to determine the value of an impression or evaluate ROI. The black box “performance-based” pricing model practices by some vendors leave marketers in the dark with no insight into ad performance or efficiency.

The ability to establish a benchmark for the value of impressions is absolutely critical to marketing success. Unfortunately there is no way to accurately determine that value without knowing the actual bid costs. While so-called “performance-based” models may deliver impressions, they don’t provide any description or accounting of their methods. Regardless of whether a marketer is satisfied with the quality of leads they are receiving or not, they have no way to evaluate the cost relative to the value of each impression. 

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Marketers know their target audiences and business goals better than anyone, and they deserve to have access to as much information as possible to evaluate performance. Transparency into cost and margin gives marketers a true understanding of which channels, vendors or individual campaigns are delivering the most incremental growth for a given time period so they can adjust investments to achieve the best results.

So what does the lack of transparency look like in practice? The lack of transparency can make it difficult for companies to conduct head-to-head tests between competing technologies to determine which will best meet their needs. Non-transparent vendors that are willing to take less – or possibly lose – money during the test may win the business by appearing to provide better performance than they likely will over the long term. 

Not only does the lack of transparency prevent marketers from making accurate assessments of the available alternatives, but opaque cost-per-click pricing can also disguise any number of pricing “sins.” These can range from blending the price of multiple inventory sources (and buying from a lower cost source while charging the higher rate), to overbidding to price competitors out of the market. Some of these cases, in fact, are things we hear from own customers. 

In one case, an advertiser was working with Sociomantic and another vendor. For several months, the cost of impressions on the FBX remained fairly constant. Suddenly, and inexplicably, there was a dramatic increase – one by more than 600 percent. It would seem one vendor was artificially inflating the auction prices through aggressive overbidding in order to price other vendors out of the auction. A model without transparency lets that vendor charge the advertiser the same steady rate they promised and absorb the difference between the true market eCPM and the inflated price to which they had driven the auction. 

While taking a black box approach is certainly not necessarily proof of wrongdoing, the lack of transparency creates opportunities for vendors to buy inventory low and sell it high. No harm, no foul some might argue, as long as they meet their performance targets. The margins here matter and advertisers have a right to know the cost of media for their own planning purposes. Do higher eCPMs result in fewer impressions being purchased? Are mark-ups and arbitrage potentially limiting an advertiser’s reach? 

Along with giving marketers the fullest information possible about the performance and potential of their campaigns, inherent in the concept of transparency is desire to eliminate opportunities for manipulation. In its most basic function, transparency is a commitment that says to marketers, “Our goals are aligned.”  Vendors whose model is based on arbitrage have an incentive to optimize to improve their own margins. Vendors who adopt a transparent approach must achieve their client’s performance targets in a manner that demonstrates profitability for both parties.

In today’s real-time Web, transparency (insights) and performance (execution) can now form an always-open feedback loop that helps marketers accelerate the customer journey and grow customer lifetime value, instead of just focusing on the next click or transaction. Advertisers looking to drive sustainable revenue growth from online marketing need a toolbox that delivers choice, control, performance, and reach without sacrificing transparency, not a black box that replaces “performance” for insights and keeps them in the dark. 

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