The challenges of financial transparency in digital advertising

How the market came to be so complex

Last month, my colleague Stephen Broderick wrote about the challenges advertisers face when using media agencies to provide media buying services. This month, I’m going to focus on the challenges of financial transparency specific to digital advertising. This is an issue that CFOs face with increasing frequency because of the way the market has developed structurally in recent years.

Historically, media owners – say TV stations or newspaper and magazine publishers – only had a stronghold in a single market and a solitary medium. This meant trading was localised, and there were only so many ways in which media agencies and holding companies could charge for media space. Media plans were developed by experts, and trading involved human to human transactions.

Digital media changed all that. By its very nature, digital media is globalised and borderless, with potentially unlimited reach and footprint. As the medium matured, advertisers were encouraged to invest in digital advertising, across Google, Facebook, Amazon, and a long tail of other platforms and suppliers with multi-market presence. This increased first the risks and then the realities of an ever-more obscure, non-linear, automated supply chain. As Stephen showed last month, with more and more links in the transactional chain, the digital ecosystem made media trading less transparent.

One of the principal reasons why multiple technologies now exist between advertisers and media owners is that advertisers have shifted from buying ad space on websites because of brand affinity to targeting niche groups based on their online behaviour. Agencies have taken the lead here on advertisers’ behalf, leaving many advertisers knowing little about how deals are structured beneath the layers of technology. Automated, programmatic media buying has grown to such an extent that, by the end of this year, it’s estimated that fully two-thirds of all digital display advertising will be bought programmatically. That’s almost $85bn of advertiser spend traded globally across trading desks, demand- and supply-side platforms, sales houses, ad exchanges, and ad networks, with minimal human intervention and accountability.

During this explosion in advertising technology, media agency holding companies have been busy investing in the rich variety of ad tech platforms now used to make advertising more targeted. They’ve also invested in media owners and suppliers in the ecosystem – from minority stakes and strategic partnerships to outright acquisitions. What’s more, they’re also offering trading desk solutions to their clients, obscuring the net cost of media by bundling services, technology, media, and data. All of these changes have made it challenging for advertisers to be confident that their agencies’ recommendations are objective, impartial and free from vested self-interest. It’s enough to pique the interest of any vigilant CFO.

Six ways advertisers can improve transparency from agency partners

Here are six approaches advertisers can use to navigate the non-transparent digital media ecosystem and improve the level of transparency they receive from their media agency partners.

1. Start with the contract framework

Separate out digital media investment from the broader trading contract. Review terms and conditions annually to ensure it’s up to date with the way the market operates. You can never be ahead, but you can be only one step behind. This ensures you have more detailed invoice reconciliation and better control of the way your agency manages your digital spend, and typically results in more transparency, particularly through an audit.

2. Reduce the risk of non-transparent models being used

Push back on contract clauses that reduce the level of transparency. Cap the percentage of investment that can be made in this area. Monitor the proportion of advertising space bought programmatically in each market. Advertisers who do this have a greater proportion of spend that is auditable. As a result, they have increased transparency into their net cost of media.

3. Control media inventory quality

If it is difficult to obtain transparency of cost, as a minimum ensure you are monitoring for fraudulent ad space and not paying for non-human traffic – ads “seen” by bots not people. Write verified appearance of ads into your contract and hold regular contract compliance reviews to determine if there are any monies owed back to you for ads that were delivered fraudulently.

4. Only work with transparent partners

The explosion in trading desks, search, affiliate, native, and social outsourced specialist resourcing has resulted in a huge number of transactions that are either non-auditable or out-of-scope transactions. Eliminate these from your media supply chain contractually. And if the agency is unable or reluctant to make this happen for you, ask yourselves – and then the agency – if it’s time to put your business out for tender so you can find the type of partner you want to work with.

5. Consider in-housing supplier deals

There are risks and benefits to weigh up, but you can improve transparency by bringing some commercial deals with ad tech suppliers in-house. Restructure fees to ensure that you only pay net for technology and a fee for agency services that are commensurate with the work being done. Auditing all invoicing for ad tech ensures agencies are only passing on the net cost to advertisers.

6. Don’t accept non-transparent trading models …

… at least until you’ve been informed about the alternatives. Agencies recommend their solution for a reason. There are many independent solutions available in the market, from trading desks to demand-side platforms. Advertisers should treat agency-owned solutions in the same way that they treat any other media vendor, testing and questioning whether it’s right for them and delivers the level of transparency they’re happy with.

In summary, it is clear how and why media trading in the digital age has become less transparent. With many more players in the ecosystem and increased automation, there is less human oversight of a more complex environment. Lose: lose. But it is relatively straightforward for advertisers to take back control, and this is best achieved when finance and procurement partner with marketing to tackle the endemic lack of transparency in the system together and head on.

 

This guest post was written by Federica Bowman, Managing Director – Digital at FirmDecisions.

FirmDecisions, the largest global marketing compliance specialist, contribute a column to Accountancy Age once a month.

 

 

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