Understanding Real Value in RTB: The Importance of Transparency

  |  April 13, 2014   |  Comments   |  

The display ad tech ecosystem has evolved into a complex web of tech offerings and jargon to confuse any marketer, with transparency and margin points hidden away. This column explains why you should care about transparency.

If you’ve kept up with ad tech and display advertising in particular over the past few months, you might have noticed that a common buzzword among vendors today is "transparency." And while it may feel a bit like "transparency" is the flavor of the month and it’s just fashionable for every tech vendor to list transparency as one of their differentiators, transparency can be applied to many parts of the business. Perhaps the most important aspect is transparent pricing. How much did my campaign cost? Are my campaign metrics (CPM/CPC/CPA) a true barometer of the price of ad space in that market? How much of my campaign cost is the vendor’s margin?

If "I don’t know" is your answer to the last two questions, then you are not alone and you are not to blame. The display advertising ecosystem has evolved into a complex web of technology offerings with enough pricing models and three-letter-acronyms to confuse any marketer. The transparency and margin points are hidden away in this complexity and in this piece I’d like to bring these points front-and-center and explain why you should care about transparency.

Why Does Transparency Matter?

Marketers understand their business goals better than anyone else, so it is critical that they have access to as much data as possible in order to evaluate performance across channels. Transparency of the actual costs of media and margin gives marketers a true understanding of which channels, vendors, and individual campaigns are delivering the most incremental growth for a given time period so that they can adjust investments to achieve the best results.

The Pricing Model

Of course, with the multitude of pricing models that exist in online performance advertising, this is not such an easy task. The most common of these pricing models are cost-per-click (CPC), cost-per-action (CPA), and cost-per-mille (i.e. cost per 1,000 impressions, or CPM).

In the prevalent CPC model, made popular by search marketing and often adopted for display, the marketer pays a set cost for each click generated by the campaign, regardless of the actual costs of the media purchased on behalf of the advertiser; this model is usually not transparent, so the margin is hidden in the CPC cost. Advocates of this model would encourage you to move away from any conversation around media margin and instead focus on your perceived value of a lead or sale. The important counter to this point is that the opaqueness of a hidden-margin CPC campaign is a serious limiter to your campaign return on investment (ROI). If your ad tech vendor is making an undisclosed 100 percent margin, then you could (and should) double your sales without increasing your marketing budget by switching to partner that can meet your goals and key performance indicators (KPIs) with a transparent, reasonable, and disclosed margin.

This benefit is especially true here in Southeast Asia, where some of the newer markets just don’t have as much competition in the real-time bidding (RTB) auction, which results in relatively low costs, compared to other markets. This is a huge opportunity for marketers to leverage the pricing benefit of an early stage RTB market. For example, a dynamic personalized ad campaign in countries like Vietnam, Taiwan, and Thailand should result in effective CPCs of low single-digit dollar cents. A fixed CPC deal of $0.15 might sound great on a media plan, but that probably includes a 200 percent mark-up on the true cost of inventory in Vietnam.

Transparency Promotes Aligned Interests

Fundamental to the transparency point is full disclosure about all aspects of a campaign — not just pricing. With the complete picture of data usage, optimization methods, and pricing, marketers and their technology partner of choice can have a more meaningful conversation on the goals and performance of a campaign. In it’s most basic form, transparency is a commitment that says to marketers, "Our interests are aligned." Arbitrage-based models incentivize vendors to optimize campaigns to improve their own margins. When the advertiser does not benefit from the efficiency gains from said optimization, then the efficiency benefits of programmatic buying for are negated, at least for the advertiser. In a way, arbitrage in the programmatic world it is a step back into the dark ages where opportunities are created for vendors to buy inventory low and sell high.

Advertisers have the right to know the true cost of media for their campaigns, including whether a high "mark-up" and arbitrage is potentially limiting the potential performance of a campaign. Three simple points and questions to keep in mind to navigate this complexity are:

  • Remember that the universal currency for buying display inventory is CPM. Ask your vendor how much they mark up the CPMs. Bring margin to the forefront of the conversation.
  • Focus on performance. Regardless of buying model (CPC/CPM), hold your vendors accountable to your KPI targets. If you are unsure of your vendor’s margin, then chances are you are paying over the odds for your campaigns
  • The Web is your friend. Some of the publicly traded companies in this space have to by law report on their media cost and revenue separately. Some basic arithmetic should shed light on their margins – is marking up media cost by 50 percent a fair deal for the customer? What about 70 percent?

Programmatic media buying executed by the right partner that aligns its interest with yours can help marketers improve ROI on their marketing budgets and grow customer lifetime value. Businesses looking to drive sustainable revenue growth from online marketing need a toolbox that delivers choice, control, performance, and reach without sacrificing transparency — not a black box that keeps them in the dark. In my mind real transparency should be a given for every ad tech vendor, not a differentiator.

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Rohit  Kumar

Rohit A. Kumar is the managing director APAC, Sociomantic Labs. Prior to joining Sociomantic, Rohit ran his own ad tech advisory business. Rohit has also worked for Google where he began as industry manager for Google’s automotive team. Later, as a founding member of Google’s EMEA Ad Exchange team, he led the commercialization of the product and helped bring real-time bidding (RTB) to the marketplace in early 2010. He holds a degree in economics from University of Madras in India and a Master’s degree in management from the London School of Economics. Today, Rohit leads the growth and development of Sociomantic in Southeast Asia. You can find him on LinkedIn and Twitter.

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