Inefficiencies of Exchange Traded Media

January 21st, 2014 by Steve Latham Leave a reply »

Encore’s latest POV on Inefficiencies of Exchange Traded Media was published by AdExchanger on January 21, 2014.  You can read the article on AdExchanger or read the POV below.

While exchange-traded media is praised for bringing  efficiency to the display ad market, a deeper dive reveals numerous factors are costing advertisers billions of dollars in wasted  spend.  While programmatic buying is relatively efficient (compared to other media), on absolute basis, a lot of wasted spend generally goes unnoticed.

Research shows that perverse incentives, a lack of controls and limited use of advanced analytical tools have made a majority of exchange-traded media worthless.  While we advance how we buy and sell media, there is still significant room for improvement in the quality and economic returns from real-time bidding (RTB).

 

Where Waste Occurs

Optimizing media starts with eliminating wasted spending. In the RTB world, waste can take many forms:

  • burningmoneyFraud: Either 1x1s sold into exchanges to generate revenue or impressions served to bots, or non-human traffic.
  • Non-viewable ads: These are legitimate ads that are not viewable by the user.
  • Low-Quality inventory: Refers to ads served on pages whose primary purpose is to house six, eight or more than 10 ads.
  • Insufficient frequency: Too few ads served per user – one or two – to create desired awareness.
  • Excessive frequency: Too many ads served to individual users – more than 100, 500 or more RTB impressions over 30 days
  • Redundant reach: Multiple vendors target the same users. This is often a consequence of vendors using the same retargeting or behavioral tactics to reach the same audiences.

 

Quantifying The Costs

The percentage of wasted impressions varies by campaign, but it’s usually quite significant. Here are some general ranges of wasted RTB impressions:

  • +/- 20% of exchange-traded inventory is deemed fraudulent, according to the Integral Ad Science Semi-Annual Review 2013[TH1] .
  • +/- 7% of viewable inventory is served on ad farm pages (more than six ads)
  • +/- 60% of legitimate inventory is not viewable per IAB standard
  • 10 to 40% of Imps are served to users with frequency that is too low to influence their behavior
  • 5 to 30% of Imps are served to users with frequency greater than 100 over the previous 30 days (the more vendors, the higher the waste due to redundant reach and excessive retargeting)

To put this in the context of a typical campaign, assume 100 million RTB Impressions are served in a given month.

RTB waste infographic crop

 

In most cases, less than 20% of RTB impressions are viewable by humans on legitimate sites with appropriate frequency. In other words, 20% of all Impressions drive 99% of the results from programmatic buying.  Because RTB impressions are so inexpensive, it’s still a very cost-effective channel.  That said, there is considerable room for improvement within RTB buying.

Who’s To Blame?

When we present these analyses to clients, the first question often asked is, “Who’s to blame?” Unfortunately, there is no single culprit behind the RTB inventory problem. As mentioned, the problem is due largely to a lack of controls and perverse incentives.

  • Lack of Controls: While a growing number of brands and agencies are incorporating viewability and using algorithmic analytical tools, most are still in the dark ages. Some feel their results are “good enough” and choose not to dig deeper. Others seem not to care. Hopefully this will change.
  • Perverse incentives: We live in a CPM world where everyone in the RTB value chain – save the advertiser) – profits from wasted spending. It’s not just the DSPs, exchanges and ad networks that benefit; traditional publishers now extend their inventory through RTB and unknowingly contribute to the problems mentioned above. While steps are being taken to address these issues, we’re not going to see dramatic improvement until the status quo is challenged.

 

How To Fix The Problem

The good news is that the RTB inventory problems are solvable. Some tactical fixes include:

  • We should invest in viewability, fraud detection and prevention, and algorithmic attribution solutions. While not expensive, they do require a modest investment of time, energy and budget. But when you consider the cost of doing nothing – and wasting 50 to 80% of spending – the business case for investing is very compelling.
  • We need to stop using multiple trading desks and RTB ad networks on a single campaign, or they’ll end up competing against each other for the same impressions. This will reduce the redundant reach and excessive frequency while keeping a lid on CPMs. It will also make it easier to pinpoint problems when they occur.
  • Finally, we need to analyze frequency distribution each month. Average frequency is a bad metric as it can mask a lot of waste. If 100 users are served only one ad, and one user is served 500 ads, the average frequency is six but 99% of those impressions are wasted. Look at the distribution of ads by frequency tier to see where waste is occurring.

For strategic change to occur, brands and their agencies must lead the way. In this case, “leading” means implementing controls and making their vendors accountable for quality and performance of display media.

  • Brands must demand more accountability from their agencies. They also need to equip them with the tools and solutions to address the underlying problems.
  • Agencies must demand better controls and make-goods from media vendors. Until we have better controls for preventing fraud and improving the quality of reach and frequency, media vendors need to stand behind their product, enforce frequency caps and make internal investments to improve the quality and efficiency of their inventory.
  • All buyers must make their DSPs and exchanges accountable for implementing more comprehensive solutions to address the fraud and frequency problems.

 

The Opportunity

We can’t expect a utopian world where no ads are wasted, but we can and should make dramatic improvements. By reducing waste, advertisers will see even greater returns from display media. Higher returns translate into larger media budget allocations, and that will benefit us all.

While fixing the problems may dampen near-term RTB growth prospects, it will serve everyone in the long run. Removing waste and improving quality of media will help avoid a bubble while contributing to the sustainable growth of the digital media industry.  Given the growing momentum in the public and private equity markets, I hope we as an industry take action sooner rather than later.

As always, comments are welcome.

Steve Latham
@stevelatham


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