Commentary
Read My Tulips: No New Currencies
- by Joe Mandese @mp_joemandese, July 23, 2018
Thanks to a good friend who develops high-speed trading systems for Wall Street, I was a little ahead of the curve on the implications for blockchain trading on Madison Avenue. But I still don’t get the push to float new cryptocurrencies to enable, especially when the old fashioned one -- money -- still works fine.
The primary argument is that cryptocurrency is required to “tokenize” the unit of exchange being traded in an advertising or media-buying contract powered by a blockchain. I get why it’s important to tokenize what’s being exchanged. I don’t get why it has to be a currency and why millions of dollars need to be raised via ICOs (initial currency offerings) to power it.
Without naming names here, it feels like it’s just a scam for raising capital that would be better raised the old-fashioned ways: venture capital, debt, private equity, public offerings, etc.
I’ve written about this before, but I’m writing about it again today because I think it’s important that the ad industry not conflate the development of secure blockchain trading infrastructures with new forms of currency. If history is any indication, it will only create new issues for media trading. If you look at the history of Madison Avenue’s alternate currencies -- mainly media credits and time banks -- they haven’t exactly been squeaky-clean, and have sometimes led to outright fraud.
I may be wrong about the need for integrating new currencies into media-buying blockchain trading. If I am, I’d like to hear from anyone who can make an argument for it -- as a comment to this blog post, or directly at joe@mediapost.com, and I’ll cover it appropriately.
Meanwhile, nary a day goes by that I don’t get pitched either on a new ICO or a new blockchain advertising or media services model. Right now, I’m more interested in the latter. And specifically, how, why, when and where blockchain enables media trades that are better than could have been done without it.
Last week, the Interactive Advertising Bureau Tech Lab formed a pilot program to establish standards and best practices for blockchain trading. That’s a good start.
The rest seems anecdotal -- mainly some shop trying to leverage a new-fangled buzzword to put some sizzle on what they’ve always done.
I got a pitch like that a few weeks ago from Chicago agency RPM Advertising. RPM announced it is partnering with Ternio -- a blockchain platform powered by a new cryptocurrency -- because it might improve the “efficiencies” for digital advertising.
“In the past, after accounting for costs to recover fraud, a $100,000 digital marketing budget could be reduced to $60,000 as the real figure remaining for marketing,” RPM Account Director David Brinkman said.
“By using Ternio’s system, the $40,000 that was formerly wasted can now be utilized for other totally innovative marketing ideas such as brand activation or direct-to-consumer initiatives," he added. "I always ask my clients, ‘What would you do if you had 40% of your marketing budget handed back to you?’ The possibilities are endless!”
Sounds good, but the pitch did not explain how the blockchain-enabled trading actually recouped 40% of wasted digital budgets, or why that couldn’t have been achieved without it. In other words, if you cannot explain how it works, and precisely how it contributed to the bottom line, it’s just a new version of vaporware that will create more distractions for harried advertising and media execs.
Like RTB, programmatic, attribution, and all other next new technologies that have promised how black boxes can remove fraud, create transparency and greater efficiencies, if you cannot show it, do not tell it.
Joe Mandese is the Editor in Chief of MediaPost. You can reach Joe at joe@mediapost.com.
When an advertiser spent a dollar, 85% of that would be seen on the screen (or page, etc) and 15% was the agency’s commission. Now we have the well documented “tech tax” with the agency, dsp, ssp and a host of others chopping off their slice and each proclaiming their essential role in completing the process of precise targeting. At the end of the day we are left with 40 cents “on the screen” but we haven’t yet considered viewability or non human traffic. How have we gone so wrong?
Jack, I hate to say it but the whole system was set up to make money for the tech folks so it is not surprising that little thought was given to giving the advertisers a fair shake. It was assumed that they would simply have no choice but to spend heavily in digital media as the old media were doomed. Also, little thought was given to the publishers being able to upgrade their editorial content nor to the audience and whether it's use of the medium would be plagued by disruptive ad placements, ad clutter, tracking, etc. Finally, as everything that could be would be automated, that, too saved money and increased the tech bottom line.
The real question is now that "the cat is out of the bag" will the rulers of digital step up and ---for once---work to set things right---even it this entails a dip in profits---or will they keep blaming "bad ads" and turn to things like "blockchain" to magically set things right. I hope that they chose the former course as digital media has great potential ---if it can be turned into a real advertising medium without all of the smoke and mirrors nonsense.
Attraction to shiny objects, slight of hand beliefs and greed are ways "we have gone so wrong".
Joe, crypto = nothing is there besides making the criminals wealthy ? Do you think the alternative currencies could flood the market to the degree they are worth nothing ? How long do you think it would take ?
Jack I am unsure about how the US industry worked/works, but here in Australia we also had the agency commission system until it was dismantled in 1997.
The media rebated 10% to the agency which also charged a 7.5% service fee and production costs (which were a variable cost).
Following de-regulation, the media agency rebated the client the 10% (typically re-directed to the creative agency) and issued an invoice of its own (typically 3%-3.5% and sometimes as low as 1.5%). The creative agency may or may not have raised its own invoice and again production costs.
At face value, 17.5% became 15%. But this, along with digital, meant that there were many more snouts at the trough, each clipping the ticket. I'd bet my bottom dollar that the nett cost to the advertiser actually increased which was never the advertiser's intention.
John, way back in ancient times the media built in a 15% commission for the agencies in their pricing and the agency kept the 15% which funded all of its services, including "creative", account handling, media planing/buying, etc. There were no fees for each function and most of the larger agencies made a 10-15% profit on their 15% fee. Along came the variable fee system, plus agency-client consolidation, and the typical charge for creative/account handling was reduced to the vicinity of 7-8% ( note: there are all sorts of variations related to billing size and other variables ) while the many independent media services and the agencies charged for the media buying. Generally speaking a fair fee for national network TV buying was around 1%, with cable around 2-4% and spot TV a bit higher. So, tyically, an advertiser with a reasonable media mix might spend about 2-3% for media with "planning" often just tossed in. As far as I can tell, an advertiser who sticks to traditional media still pays about the same media fees which means that there is a savings compared to the old flat 15% fee system.
The problem arises when digital media gets into the mix. Here media agencies frequently charge double the cost of traditional media----or more--- and many other aspects---data processing for targeting, programmatic buying, transmission of the ads to publishers, etc.---must be accounted for. These can total as much as 35-40% of the ad spend and like it or not, publishers are the ones who get stiffed most often by the "tech tax". So, in digital media most of the old rules dpn't apply and this is where many advertisers are probably paying far more than 15%---one way or another--- when all of the functions---"creative", account handling, research and media planning/buying are accounted for.
Ed, you have described much more eloquently what I was trying to explain. Many thanks.