An industry trade pub reported Tuesday that Google opened a window into its black box and blogged that it takes a 31% cut per $1 on display ads bought on its platform.
Surprised? I wasn’t — but wish I had been.
How can a fully automated software system take so much from so many so often — and deliver so little relative value? It’s sort of like Google is the interface provider on all dollar slot machines at all the casinos in the world. Its job is to make sure the wheels spin. It takes no risk in the transaction, since it controls all wheels on all machines, thus controls all coins and all clicks. Its business is just one of allocating the clicks to the coins.
Yep. And for that, it gets a 31% cut of the house.
Thirty-one percent seems like a lot. Is it? Here are some of my thoughts:
31% is just Google’s take, and only for one hop. Google’s take rate is just for initiating the programmatic transaction and serving the ad. But most programmatic ad buys end up going through a number of daisy-chained bids before they’re done. The first demand-side platform (DSP) might buy from one or more other DSPs (each adding their own markup), that then might buy from one or more sell-side platforms (SSP) (each adding their own markup) before the ad is delivered. Thus, at 31% per hop, it doesn’t take long for the “wheel spinners” to own most of the money.
31% is just for the media and ad-serving, not targeting data, attribution or verification. Just so you know, a lot more people take their programmatic cuts too, not just Google and the other DSPs and SSPs. One or more of the DSPs might have a data fee added on. Another DSP, The Trade Desk, for example, has reported that much of its margin growth over the past year has been in the development of proprietary data that ad buyers pay for on top of their transaction fees. If those advertisers seek attribution and/or verification, more fees. All fully automated, of course, so very low on the incremental costs of the suppliers.
A lot more than TV. In the world of TV advertising, all-in buying fees tend to come in around 10%-15% of the transaction.
Yes, many agencies say that they are charging 3%, but we all know that’s a bit of a fiction. It doesn’t count all add-on fees, and obfuscates the fact that the buyer might have undisclosed principal or co-marketing positions in some of the media, data or services being provisioned. However, there’s rarely more than one “hop” in a TV transaction, so the 10%-15% tends to capture it all, and the measurement cost (Nielsen) probably only adds 3%-4%, and the cost is born by the seller.
Why disclose now? Google releasing this now makes a lot of sense, not that it was really that much of a mystery to anyone who lives in this industry. It’s rumored that state and federal antitrust authorities are looking at Google’s dominance in the sector, so better to pre-disclose now and control the press and the spin proactively rather than have it first come to light in a legal complaint.
This is a good thing. I applaud Google’s transparency here. As little value as Google adds, it probably adds more value per dollar for “wheel spinning” than any other spinners out there.
The more suppliers in this marketplace go transparent about what they are doing and how they make money, the better for advertisers and media owners to operate their businesses, and the more waste and fraud that will be eliminated.
What do you think? Is 31% the right number?