Advertisers who outsource programmatic media management do so at their own risk

Opinion

Advertisers need to be more active stewards of their media investments rather than delegating that entirely to their agencies, writes ANA Group’s executive vice-president.

ANA just released the report, ANA Programmatic Media Supply Chain Transparency Study – First Look. One of the fundamental findings focused on information asymmetry, which is an imbalance in the nature and quality of information possessed by different parties in a transaction.

Information asymmetry in the programmatic marketplace was found to be a serious issue for advertisers, leading to inefficient and unproductive media investment decision-making, resulting in substantial waste.

Tom Triscari is a noted programmatic economist and served as an advisor to ANA on this project. Triscari is a firm believer that there is significant information asymmetry in the programmatic marketplace and that most advertisers are disadvantaged as a result.

Within the programmatic supply chain, sellers typically have more and better information than buyers about the quality of media inventory being sold in auctions. If buyers are unable to properly access the price of the programmatic inventory (and audiences), they tend to overpay. If buyers are unable to know enough about the underlying quality of the inventory being sold, they cannot know how to price it with any precision or certainty.

Kroll was the investigative/qualitative research partner in our study. They conducted 35 one-on-one interviews with the goal of illuminating, clarifying, and demystifying the US-based programmatic supply chain. As a result of that work, Kroll identified information asymmetry as “a roadblock that makes transparency difficult to achieve and, instead, serves to perpetuate a system that is opaque, confusing, and potentially inefficient.”

Some of Kroll’s relevant findings:

Advertisers do not know information is available

Information asymmetry is fuelled by a complicated, decentralised, and highly technical system comprised of many disparate players that has, and is subject to, minimal oversight or regulation. Paradoxically, the information necessary to alleviate this asymmetry is largely available, at least in theory. In practice, however, it appears that many advertisers are either not aware that this information is available and/or lack the knowledge of how to use it.

No insight into contracts with downstream partners

The structure of contracts in programmatic buying appears to be a contributing factor to this imbalance. For instance, our sources cited the fact that contracts between the various parties are generally only one level deep.

As a simplified example, the advertiser contracts with their agency, the agency contracts with the demand-side platform (DSP), the DSP contracts with a supply-side platform (SSP), and the SSP contracts with the publisher.

As such, the advertiser is often only privy to the terms and conditions of the contract with their agency. This lack of insight into the contracts with downstream partners creates an inherent information asymmetry, as the advertiser likely does not have any contractual right to know the terms of the deals their agency is making.

Advertisers rely on agencies for programmatic understanding

Another cause of information asymmetry in the programmatic space is the differing levels of education about how programmatic works. Our sources were clear in their belief that it is rare for anyone at the advertiser to truly understand how programmatic buying operates.

This lack of education naturally leads to a heavy reliance on the agency, thereby making knowledge a valuable commodity for the agency. We found that advertisers were mostly content to rely on their agencies to guide them through this confusing and highly technical space, as it is often cost-prohibitive to maintain those resources in-house.

Manning: The ANA’s media transparency redux and the need for more honesty

Just as important, sources reported an awareness that knowledge comes with a responsibility to act on that knowledge. As such, some advertisers have abstained from taking their programmatic buying in-house because they “don’t want the liability” and “agencies have a lot of resources that are hard to replicate.”

What next?

So, what should advertisers do regarding information asymmetry? Advertisers must become far more responsible and provide more active stewardship of their media investments. Media is often the largest marketing expenditure at most companies.

Advertisers need to “lean in” and be more active stewards of their media investments rather than delegating that entirely to their agencies. If delegated, they need to ensure the agencies are working in the marketer’s best interest.

This is especially important with programmatic media given its complexity and opacity and the fact that it’s the biggest area of advertising spend for most companies. Lack of stewardship increases the risk of wasteful and inefficient media buys.

Advertisers who outsource their programmatic media management without active internal stewardship do so at their risk. Read the full report here.

Bill Duggan is EVP of ANA Group.