• by Joe Mandese  @mp_joemandese, September 11, 2023

As the Association of National Advertisers prepares the second installment in a groundbreaking study identifying as much as $20 billion in wasted programmatic advertising buys, MediaPost has a conversation with one of its authors, Kroll Regional Managing Director of North America Forensic Investigations and Intelligence Richard Plansky to follow up on some of the initial insights he identified in a recently released qualitative analysis of the study, especially two key findings that likely have bearing on much more than just programmatic advertising:

That the ad industry is grappling with "information asymmetry" in terms of how it buys media, and that there often are "misaligned incentives" distorting the delivering of media buys and campaign objectives.

MediaPost: Some of the conclusions of your report are super important, but should it be surprise to anyone that there is information asymmetry, or misaligned incentives, in the advertising marketplace? Aren’t these things baked into the culture of the industry long before they emerged in the programmatic marketplace?

Richard Plansky: It’s a good question, but I think it deserves some context. We were brought in to provide some qualitative insights and bring in an outsider’s, unvarnished, unbiased perspective. So I wouldn’t say that our team was particularly surprised by anything.

It also bears mentioning that this is an incredibly sprawling, complex and confusing supply chain. It's a confusing ecosystem.

Our sample was based on 33 interviews with 25 unique sources, which is not nearly big enough to draw definitive conclusions.

What we were looking for was patterns and insights that would be useful to the ANA’s membership in understanding what’s happening and hopefully being actionable about it.

I think the reaction so far is that they have found it useful. And it did stand out to us that, while technology obviously plays a huge role in the workings of the programmatic supply chain, the obstacles that we found to achieving transparency, efficiency and effectiveness, are mostly human-made obstacles.

MediaPost: Those similar patterns have existed for decades in analog media long before digital and they were all human endeavors by advertisers, agencies and media reps. But does it get exacerbated when it moves into programmatic pipes, because there is less of a human check and balance?

Plansky: I think it does. And the fact that it’s an unregulated supply chain is part of it. But the thing that drives the behavior most is the complexity of the supply chain. It’s so complex and so big that it’s intimidating and really hard to understand and our two main insights are both products of that. And they’re connected to each other.

In terms of information asymmetry, in a transparent business arrangement, both parties to the transaction have essentially equal access to material information. And that’s how we define transparency. You don’t need to know everything, but you need to know what’s material.

And as we lay out in our report, there are folks on the advertiser side who can only see to the horizon and have no idea what’s behind it. They don’t necessarily have the knowledge to understand how the various pops in the supply chain work. And also because there are internal disconnects within advertisers – procurement handles the contracting and marketing handles the execution and finance handles the invoices  – the three of them don’t always meet up.

There isn’t enough information in the hands of the people who are executing a programmatic campaign to make informed decisions about the right thing to do.

And then when you add on top of that the misaligned incentives – that you don’t actually have to ask for information that is going to be hard for you to understand and that you don’t need to have in order to hit your KPIs – that’s a recipe for non-transparency.

MediaPost: So let’s talk about information asymmetry. Markets that have information symmetry – like the financial market – operate efficiently, because both sides have the same information when there’s an ask and a bid and they know what the strike price is.

The market mechanism is completely transparent in terms of what buyer and seller are seeing. That doesn’t exist in advertising and it’s because of the way the industry has been structured from the very beginning. Finance is a regulated industry. There are laws governing how commodities and equities are traded on Wall Street. Advertising is a self-regulated industry. How do you make an industry like that symmetrical?

Plansky: It’s a good question. I think there are two ways to do it. There’s regulation, which is something over which none of us have control. Or, as a marketer, you can arm yourself with sufficient knowledge to make it more symmetrical.

I don’t think perfect symmetry exists anywhere, but as we laid out in the report, there are things marketers can do to get the information you need to make better decisions. It doesn’t always mean you make the right decisions, but at least you have the information you need to make better decisions.

Perfect transparency isn’t necessary. In fact, depending upon the specific situation of the marketer, the resources they have available, the goals of the campaign, more or less transparency might be appropriate. It really depends on the strategy and the resources.

MediaPost: Information asymmetries have always existed in the advertising marketplace, but ironically, the one area it where it seemed like it might become symmetrical and transparent was with programmatic. 

I mean, it literally started with “open RTB,” in which every buyer and seller had 100% visibility about every bid request and they could hedge anyway they wanted on that. It was completely transparent. The irony is that the ad industry has largely moved away from open RTB in favor of private marketplaces and direct programmatic trading where the open market data becomes obfuscated once again.

Is this like entropy? Is this the natural order of advertising to move into opacity and asymmetrical marketplaces?

Plansky: It’s a great question, but I don’t think I have the expertise to answer it. But I will say, opacity is not limited to advertising. I think any complex system tends to devolve into opacity, because transparency requires work. And in a technology-driven system like programmatic advertising, the worst thing that can happen is that you don’t get the data. And the second worst thing that could happen is that you do get the data. I mean, these log files are an absolute bear. They’re massive.

MediaPost: Log files are massive and complicated, but one of the first recommendations from the ANA report is that advertisers and their agencies need to roll up their sleeves and get more into them. That’s a cost and a resource issue. Do you have any hope that people will actually take on that complexity?

Plansky: I do have hope. And part of that is borne out of the changes I’ve seen since 2016, which is the narrow window with which I’ve had access to the advertising industry writ large. Since 2016, advertisers have taken much greater control over their contracts with agencies and I think that’s to the benefit of advertisers and the industry as a whole.

And that was not easy to do. Change is hard. Especially on a large scale.

So I am hopeful that there will be change here, because the first step is knowledge and understanding what’s happening. And hopefully, the ANA’s report has done a service to its membership and dragging some of this stuff out into the light.

I don’t think anything we’ve uncovered here is wrongdoing, much less fraud. But it’s a pattern of behavior that probably is not optimal for advertisers. In a complex system, this is what happens. So step one is understanding the human obstacles to achieving greater efficacy in programmatic advertising and then aligning strategy better with incentives.

What we’ve really seen is misalignment – from end-to-end – and a tendency to fall back on things like CPM.

There was a really great quote from one of our sources, which is that, “There is a tendency to confuse strategy with KPIs.”

KPIs are a leading indicator on how well you’re doing with your strategy, but they’re not the strategy itself.

Another one of our sources said, “There’s a tendency to confuse efficiency with value.”

Greater alignment does’t require technological innovation. It requires better education about how the system actually works. It requires being clear about your strategy with your agency and making sure that they understand what your trying to accomplish

. Developing KPIs that are aligned with your strategy. And making sure that the folks who executing on that strategy are hitting KPIs that actually moves the strategy forward.

Every advertiser is going to be a bit different. If you don’t have the resources it might not make sense to take on millions of lines of log file data, because that’s not going to help you.

But I really do believe that greater efficiency and greater efficacy are eminently achievable just by following some of the recommendations our sources provided.

MediaPost: Advertising KPIs have always been a proxy or shorthand for the delivery of something. In order to go deeper into fulfillment requires a new level of trust. The advertiser need to share some very proprietary information with the agency. And the agency needs to share some of it with the supplier. Are people ready to do that? Are they ready to be that transparent up and down their funnels?

Plansky: That’s the $64,000 question, isn’t it? So let me quote another one of our sources: “Advertiser owns the strategy. Agency owns the implementation.” But if you’re not willing to share your strategy with the agency how are they gong to implement in a way that furthers your strategy?

There has to be enough trust so that the strategy gets conveyed. We kept hearing the need for “the brief” in our conversations. And the brief should be in writing so that there is absolutely no daylight between what the strategy actually is and what the agency’s understanding of the strategy is. And that handshake is based on trust.