Commentary

Calling All 'Math Men': Can You Pass A Programmatic Math Test?

With Math Men joining the ranks of Mad Men across Madison Ave., one company wants to make sure everyone involved really understands the math behind programmatic’s madness.

Labmatik, a consulting firm that focuses on helping brands take programmatic technologies in-house, on Monday began teaching Programmatic Math 101. The company will post one question per workday for 30 days on subjects including campaign, supply, algorithms and finance.

The first question -- posted this morning -- is a finance question, giving readers the outline of a hypothetical campaign and asking how much money would be lost to arbitrage, wasted inventory and kickback. The scenario and question:

An advertiser allocates $10 million to its agency of record to spend programmatically. The agency charges the advertiser 15% to manage the budget and it also charges a 10% DSP fee. The agency also arbitrages the media spend by paying an average $2 CPM and charging its client a $3 CPM.
 
The advertiser runs an audit and finds out that 30% of the inventory is non-viewable and also finds out that the agency has a 2% kickback deal with the DSP.

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Q: If the hidden arbitrage charges, wasted inventory and kickback are considered waste from the advertiser's point of view, how much of the $10 million was wasted?

Tom Triscari, CEO and co-founder of Labmatik, said in a statement that he thinks programmatic math is “often ambiguous, and that makes everything else overly complex." Triscari's definition of programmatic math: "Financial, algorithm, supply and campaign calculations that inform programmatic strategy and drive decision making."

"This is probably why it feels like there is too much knowing around the term ‘programmatic’ and not enough knowledge," Triscari added.

Recent agency surveys from Strata have driven this point home better than anything else. Strata’s most recent report notes that only 24% of agencies trust programmatic to properly execute ad orders, while one-third say they are still “unsure.” The number of agencies that say they “trust” programmatic is growing, but the fact that only about one-in-four trust the tech while 80% use it is telling.

"Those in the industry who understand the complexity tend to benefit from it. They also have almost no incentive to share it with advertisers because any simplification requires pulling back the curtain on many avoidable transaction costs taking place in the trade," said Triscari. "Specifically, this is similar to what happened when Wall St. changed to high frequency trading and the big banks (managed service middlemen) formed dark pools. Stock buyers (retail and institutional investors like mutual funds) had little transparency and were being taken for a ride."

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