Commentary

The Ad-Tech Tax

There is some research, and a lot of loose talk, about the so-called ad-tech tax. The term suggests that selling advertising with technology has a hidden, possibly unjustified, cost. Not true. As in every supply system, there is some waste, but it’s trivial compared to the fact that advertisers pay way less than they used to for a better audience, thanks to technology.  

Accusatory numbers abound. As the chart above suggests, numbers usually take a memorable form, such as “for every dollar an advertiser puts into programmatic advertising, the publisher ends up with 50 cents.”  That may be true, but it’s not unfair.

In the dominant narrative, the word “programmatic” suggests that computers do all the work, but that is not true, either.  The issues arise not from whether a human or a computer is doing the work, but from which party does what work, and the outcomes and motivations created by those dynamics.

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The Work

A lot of the money goes for good-old-fashioned work, done by humans.  You know, the kind where people go to the office in the morning. The economics of so-called Saas platforms discourage platform companies from bragging about all their people, but they are there.

“Traditional” operations are very different from “programmatic” in several significant respects, mainly having to do with the fact that, in programmatic, the demand side controls the buy, impression by impression, and owns or controls the data used to make buying decisions.  

In programmatic, the demand side pays for some portion of planning, trafficking, flighting, post-campaign reviews, measurement, account management, operations, data management, and media sales --  all formerly a burden on the publisher.

So programmatic comes with a shifting of work, and corresponding shift in control, toward the advertiser. But how is that compensated? We can argue about all that, but in the end, the money goes to the work. The fact that publishers still maintain all of those capabilities is not the fault of the ecosystem.

Does this all add up to value creation? Something must be working. If publishers had not made their inventory available to programmatic distributors, programmatic would not exist. But they did -- voluntarily. And advertisers keep coming.

So yeah, programmatic has a price, but what would the price have been without it? A world without a Web site for your local dog park? Or a world without a Web site that tells you how to clean grout? I don’t need all this information at the moment, but I am happy that it is available for the price of seeing an advertisement.  Programmatic makes that possible because it can pay the long tail, one transaction at a time.

Technology gives every advertiser a way to connect with any consumer on the Web, in any time frame, on the basis of past behaviors, demographics, or content. And it gives publishers that would not have existed otherwise a way to make money. In a fragmented world, that’s essential, and would not have been possible writing IOs publisher by publisher. Programmatic, in retrospect, may have been the only feasible adaptation to extreme media fragmentation.

So, the ad-tech tax, if you choose to call it that, pays for work that was made necessary by the evolution of media, just as your income tax pays for the work made necessary by the evolution of civilization (e.g., building roads).

Those who imagine that ad tech somehow makes off with bags of unjustified profits are free to examine the financial statements of any publicly held ad-tech company.  (And don’t look at gross margins, but at net profit. The difference is mainly … work.) You will find that the days of extravagant parties and fancy addresses are mostly gone.

If you want to ascribe that to a so-called “tax,” go ahead. I’m going to go swimming now, in a pool funded by my condo tax, and then drive on a road funded by my income tax. Great day, overall, thanks to all those taxes.

3 comments about "The Ad-Tech Tax".
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  1. Augustine Fou from Marketing Science Consulting Group, Inc., July 21, 2016 at 5:33 p.m.

    In this context, then, I would call digital ad fraud "double taxation" except that it is far more than double the legitimate fees you should pay for the service of (good) ad tech. 

    Ad tech and "programmatic" are good thiings. But those terms have become synonymous with the wild west of super tiny websites that have no natural traffic (humans). And ad tech has also allowed the automation of the fraud operations (fraud ops). So ad fraud is enjoying its golden age, as we speak, and as long as the industry continues to be distracted by things like ad blocking. 

  2. Shailin Dhar from Method Media Intellgience, July 21, 2016 at 8:28 p.m.

    My purpose in highlighting the concept of the tech-"tax" isn't to debate whether or not the technology layers deserve the cut they receive. Most of the time they do.

    What people need to understand from the concept of the tech-tax is that those companies make the same money whether the impression is human or fraudulent. THAT is where the problem lies. 

  3. Kyle Cottrell from LiquidAdX , October 4, 2016 at 8:13 p.m.

    very eye opening piece, especially your analogy on the income/state taxes, your right on the money with that one! as i always believe my taxes are in the most cost efficient when I see 10 workers getting paid $20 an hour just sitting around all day when the job could have been easily done with 2 workers within 3 hours. it’s all about efficiency. yes, the tech is a value added but once the advertisers fork over the funds into a black box it's party time!! the only way to clear the fog in this market is to get your technology in-house and choose and know all the principal counterparties. 

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