• by Robert Glazer , Columnist, August 15, 2017

If some amazing technology could figure out for you the best way to show the right ad at the right time to your ideal customer, you’d use it, right? That’s the promise that has drawn so many companies to programmatic display advertising.

In fact, after impressions through programmatic video ads doubled within the first three quarters of 2016, Google expected an increase of between 150% and 200% from the previous year. Instead, MediaRadar reported that programmatic ad buying decreased 12% in the first quarter of 2017 from 2016’s first quarter. Programmatic display is quickly turning from a hot trend to a dirty word as fraud and a lack of transparency pose major challenges to its viability in its current form.

Where Programmatic Display Misses the Mark

The first pitfall is that programmatic display leaves the door open to fraud as most participants in the value chain are compensated on volume, not outcomes. The Interactive Advertising Bureau estimates 36% of all web traffic is fake. While many consider impressions to indicate the success of programmatic ad buys, the reality is that views and clicks can be fabricated.

Not only does this type of fraud decrease confidence in programmatic buying, but it also points to a transparency problem. Statistics made available only after the buy has been made don’t reveal much, leaving companies to wonder which impressions are authentic, and how — or even if — audiences are actually engaging with ads.

So where do we go from here? The future of performance-based marketing lies in having aligned incentives and transparency across the ecosystem of partners, agencies, and clients.

1. Aligning Incentives

First, agencies should abandon the practice of taking a percentage of ad spend. Accepting kickbacks based on spending client’s ad dollars is wrong, plain and simple. This behavior only serves to incentivize the agency to spend more of its client’s money. Rather, compensation should be based on an agency’s ability to drive performance and results for its client.

McDonald’s threw its weight behind performance by ending its longtime relationship with Leo Burnett. In pursuit of a new agency, McDonald’s clarified its expectations: The chosen partner would sink or swim with the success of the ads.

Procter & Gamble also set this precedent after finding out that some of its agency dealings weren’t above board. To rectify this, P&G immediately reviewed all of its agency contracts and developed a five-point program to guide its digital media agencies’ spending. The company also noted that it needed to pay agencies at least enough to cover their requisite costs.

This performance-based incentive structure necessitates agency investment not only in its clients, but also in its clients’ products.

2. Ensuring Transparency

Agencies and networks have a responsibility to their clients to be transparent about where and how the ads they are placing and buying are being shown, as well as to ensure that those ads are being seen by real people, not bots.

The benefits of transparency are plain to see: Agencies know they’ll be paid an appropriate fee and that client expectations are clear; clients can rest easier knowing an agency will spend their money more strategically on ads that will actually be seen by people; and agencies are less likely to engage in questionable practices. Transparency not only strengthens partnerships, but it also fosters trust throughout the industry.

Beyond Programmatic Display

Despite the hype and the increased use of automation, programmatic display — in its current form — leaves much to be desired. With its misaligned incentives, lack of transparency, and potential for fraud, CMOs are realizing this method fails to deliver on its big promises.

A more viable and valuable solution for companies to consider is a reallocation of marketing spend from programmatic display to more performance-based partnerships, which are characterized by transparent, open communication and incentives that are tied to outcomes.