Transparency is the word on everyone’s lips, but with so many different agendas operating within the industry, is it possible for everyone to work towards the same target? Tim Maytom reports.

It’s hard to deny that the entire digital advertising industry is currently in a state of flux. After years of successful growth and innovation, powered by unprecedented insight into audiences and pinpoint targeting, the cracks are beginning to show. Some of the largest platforms for advertising are built upon barely regulated user-generated content, leading to huge concerns over brand safety. Fraud continues to be a major issue, with ad tech firms struggling to keep pace with bad actors seeking to exploit the vast advertising infrastructure.

Perhaps most crucially, there is growing tension among the various players involved in the programmatic industry, with both brands and publishers worried that they are losing money through an inefficient supply chain that has far too many links. The drive for transparency seems to be the most obvious answer for this – an open, honest chain where everyone’s contributions are accounted for, and charged at a fair rate. But with seemingly the entire industry calling for transparency, why does it seem so far from realisation? And is everyone driving towards the same goal?

The time for action
Since the birth of the commercial internet, ad tech providers, ad networks, agencies and other stakeholders have inserted themselves between the publishers hosting content and the brands looking to advertise alongside it. Some of this was simply replicating the structures that have always existed in advertising; in other cases, there were new entities, offering increased efficiency or scale in the untested waters of the internet.

With the rise of programmatic advertising, this supply chain grew even more complex, as data became a new currency, and new levels of scale, targeting and accuracy became possible. One only needs to look at the iconic martech Lumascape chart to get some sense of how tangled and labyrinthine the programmatic ecosystem has become. It was only a matter of time before questions about whether everyone was doing their part began to dominate the conversation.

Those rumblings of dissatisfaction came to a head with Marc Pritchard’s speech at the IAB’s Annual Leadership Meeting at the start of 2017. In a moment of frankness rarely seen in the industry, the chief brand officer for the world’s largest advertiser, P&G, said that the firm would no longer “waste time and money on a crappy media supply chain” and announced that “the days of giving digital a pass are over”.

Pritchard announced a series of guidelines and requirements that all of P&G’s advertising vendors would have to comply with, and called on other advertisers to hold their suppliers to the same standards. In the weeks and months that followed, the transparency debate hit new heights.

Representatives from every part of the industry seemed to have an opinion on whether Pritchard’s demands were a series of reasonable expectations in a system plagued with fraud, or a dominant company throwing its weight around to get a better deal. Whatever the answer, one thing was plainly evident: the transparency debate would no longer be denied.

What we do in the shadows
Figures from industry research certainly back up the idea that we are facing some form of sea change when it comes to transparency. TMG’s blockchain-powered agency Truth interviewed 102 senior marketers at well-known brands to take the industry’s temperature in November 2017. It found that lack of consistent measurement and metrics, lack of agency transparency, and lack of visibility on third parties were the top concerns for advertisers. It also reported that 79 per cent strongly or somewhat agreed with the statement “We are concerned about the level of transparency in programmatic advertising”.

Those concerns are translating into shifting ad revenues. According to research by QueryClick, 22 per cent of UK brands have said they plan to decrease their programmatic advertising spend because of worries over costs or performance, and 41 per cent of advertisers say they have lost trust in programmatic advertising as a result of ad fraud. Of those who are planning to decrease their spending on digital ads in the next 12 months, 41 per cent cited lack of transparency over how much programmatic ads cost, and 39 per cent the lack of transparency over where ads will be placed.

One of the crucial issues here is how closely ad fraud is linked to a lack of transparency. While ad tech firms and other programmatic stakeholders may feel they have a right to keep their processes private inside ‘black box’ solutions, the oblique nature of so much of the programmatic chain has allowed fraud to flourish to worrying levels, with only 40 per cent of marketers confident that more than half their online adverts in the past year were seen by people.

“Despite it being on the rise, programmatic advertising is wide open to abuse,” says Chris Liversidge, founder and managing director of QueryClick. “Recent studies have put the cost of digital advertising fraud as high as $31bn (£22bn). That makes digital ad fraud not just more costly than any form of cybercrime, but more costly than offline crimes such as counterfeit goods and payment card fraud.”

“Many CMOs are fed up with the fraud and lack of transparency in programmatic ad exchanges,” agrees David Kohl, president and CEO of TrustX. “Opaque trading practices, high fraud rates and a general lack of accountability have given programmatic advertising a bad name. We have reached a crisis point. It’s time for the industry to come together to restore value and efficiency to programmatic trading. We need to rebuild the fundamentals for which it was originally designed.”

Everyone seems firm on the point that the current model for programmatic advertising is unsustainable, no matter how successful it is in the short term. The entire industry, from brands to consumers, is powered by trust in the value exchange, and when that trust is undermined, any solutions that don’t address the core issue are built on a foundation of sand. Transparency is one of the essential paths towards trust; after all, when you prove you have nothing to hide, then you can begin to work in good faith again. That means the question we need to address isn’t ‘Do we need transparency?’, it’s actually ‘What does transparency look like?’

The hidden cost of doing business
One of the key hurdles that the industry needs to get over to make any progress is a working definition of what transparency means, and what a transparent programmatic ad industry would look like. For many ‘old school’ marketers, the primary concern is non-disclosed or ‘hidden’ fees, but as the programmatic industry has evolved from its humble beginnings as a way to clear spare inventory to the primary way that digital advertising is sold, a focus on hidden fees has become a woefully outdated way of looking at a much more complex issue.

That’s not to say that those on both the buy- and sell-side aren’t right to be worried about non-disclosed fees. During the early days of programmatic the business was built around selling remnant inventory, and business models reflected that. Some large ad tech providers would build an entire business around high take rates with margins of up to 30 per cent, sustained by content providers and publishers who felt that their inventory was unlikely to sell anyway and who cared less about what ad tech providers did with it.

As programmatic inventory becomes more focused on premium content, this kind of model simply doesn’t work anymore, and has led to the popularity of different programmatic selling types that can guarantee more engaged consumers and better levels of brand safety. However, some ad tech firms are still rooted in this older model.

“For these companies to overhaul their entire business model is a huge undertaking, and one they aren’t likely to engage in with investments that require a high rate of return,” says René Plug, supervisory board member at Improve Digital and board member for IAB Europe. “They are addicted to high margins, which can only appear justifiable when buried deep within a ‘confusopoly’ of fee structures.”

Getting these firms on board with the push for transparency is going to be a challenge, given that their entire business model seems to rely on a level of obfuscation. But they aren’t the only elements of the programmatic chain who are invested in keeping things the way they are.

The fight for data
Data is the lifeblood of the programmatic world. It is what enables the ecosystem to operate in the first place, and it is what enables firms to squeeze the highest possible efficiency out of every single ad placement. The ability to access and leverage the right data is what separates the decent from the good, and the good from the great, so it’s only natural that firms that can offer this kind of service are eager to protect their methods.

But this attitude is another leftover from the earlier days of programmatic. As publishers and brands gain a greater understanding of the power of data and the methods that steer the programmatic world, they are becoming less willing to hand over their information and their business to ‘black boxes’ without being offered an in-depth explanation of exactly how these vendors are adding value.

Add in the looming spectre of GDPR and a renewed focus on the first-party data that brands can access, and its no surprise that an increasing number are looking to bring their programmatic efforts in-house. According to the Advertiser Perceptions DSP Report, which polled over 700 advertisers, 32 per cent plan on moving programmatic in-house. Infectious Media, which interviewed 200 marketers across the globe, found the number was even higher, with 86 per cent of marketers planning on taking at least some of their programmatic marketing in-house.

“Agencies will need to adopt a more flexible, hybrid approach that caters for advertisers’ specific requirements as well as their desire for greater control over their digital advertising,” said Martin Kelly, CEO and co-founder of Infectious Media, in a statement accompanying the report. “This will be crucial if agencies are to build a more effective and sustainable working relationship with brands in the future.”

‘Sustainable’ is the key word here. The increase in in-house programmatic, and the subsequent brain-drain that the industry is likely to see as brands begin to compete for programmatic expertise, could prove highly damaging for the ad tech firms seeking to maintain their place in the ecosystem. In order to maintain their position, firms need to be willing to open up and work with brands and publishers in a more transparent way, which will not only lead to more efficiency, but greater trust too.

“An optimal yield strategy can only be based on deep insight into inputs and outputs,” says Plug. “Your ad tech provider should facilitate that, and not only let you see, but encourage you to look under the hood. It should allow you to access information and perform complex analyses in real time. The most sophisticated of these systems will allow you to download all your data without restrictions. Data should be accessible easily, readily and in full. If any of these three points is missing, it weakens the real value of your data.”

Improving transparency
In the face of all these torn loyalties and counterproductive incentives, it’s hard to see how the industry can make any kind of progress, but all the discussion around transparency does seem to have prompted action. Organisations like the IAB have developed substantial plans and guidelines designed to improve transparency as well as tackle related issues like ad fraud and viewability. These guidelines move the industry towards the most important first step in the fight for transparency: a common working definition and goal.

“In order for the programmatic trading system to continue to grow and provide added value to the industry and its stakeholders, we need to make sure that everyone has a clear image of how this ecosystem works,” says Daniel Secareanu, member of the board of directors at IAB Europe. “We can only do this by ensuring that the programmatic trading currency and its supply chain are fully transparent to everyone involved in it.”

The IAB isn’t the only one setting goals, however. Marc Pritchard, who gave the transparency debate its watershed moment at the start of 2017, took to the stage nine months later at Dmexco and told the audience that the industry was “60 per cent there” for meeting P&G’s strict new criteria for programmatic trading, and he expected them to reach 100 per cent by the end of the year.
These criteria included establishing an MRC-validated viewability standard, bringing in MRC-accredited third-party verification and introducing guaranteed brand safety assurances – all major steps for restoring trust and establishing industry-wide standards that firms could be held accountable to. But even here, there’s conflict and contention.

“Major platforms have opened themselves up for auditing by the Media Research Council, but the MRC standard is a minimum that advertisers think acceptable,” says Phil Smith, director general at ISBA. “Many advertisers and agency networks think that the gold standard should be set at 100 per cent – and this is something that we have agreed with the IPA.”

The rising tide of transparency does appear to be lifting all boats, but it’s still happening at different speeds for different areas, and the idea of a unified approach doesn’t appear to be any closer or more realistic. Initiatives like ads.txt and header bidding are helping to improve efficiency and stamp out fraud, but they are still suffering from uneven uptake.

For the industry to truly work towards transparency, it’s going to take significant economic incentives, more than just incremental boosts in efficiency and the threat of lost business somewhere down the line. Perhaps the clearest demonstration of this was P&G’s dramatic stand, but even as the world’s largest advertiser, it can only steer the conversation so far.

Publishers, brands and ad tech firms that have already got on board with transparency need to be more vocal in their demand for a fairer industry, even if it risks making some enemies among those still operating in the darkness of black box solutions. It isn’t just a question of happier relationships among the programmatic chain – it’s a question of the entire system remaining viable as it moves from helpful tool to dominant platform. And when it comes to the best approach for reaching transparency, perhaps David Kohl of TrustX says it best:

“The more dramatically we can pull off the Band-Aid, the more effective it will be.”