A visual metaphor. Photo: Shutterstock

Digital Media Is Kept Afloat By a Black Box of Confusion

Advertisers will keep spending on digital media and figure out how it works later.

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Jun 10 2016, 4:00pm

A visual metaphor. Photo: Shutterstock

Digital media companies prey upon the misinterpretation of services and outcomes between advertisers and the agencies that get their ads where they need to be. In particular, the lack of technical knowledge possessed AND transferred between all parties mainly benefits digital media companies that keep serving ads on their large-scale content farms.

The worlds of advertising, agency life, and digital media are all assessing their level of implication in the Association of National Advertisers report on media transparency, which was released this past week. The findings don't necessarily hold any party in the process of multinational brands spending their money in a positive light. Instead, the report by K2 Intelligence has demonstrated a purposeful disconnect between all of the parties that are in the ad buying chain.

An advertiser doesn't necessarily know if online advertising works. In fact, most of us don't know how an ad gets into a zone, or a pre-roll slot before a video plays. Advertisers just know that they have to spend money on online advertising. In fact, the ad spend on digital is set to overtake television in 2017.

The agency is a middleman, but the technological understanding of buying and serving ads has become increasingly complex. This black box of confusion plays into the hands of digital media companies and agencies.

Section 5.2 of the report is entitled "Increasing Complexity of the Media Buying Landscape," and includes a series of findings about the lack of expertise by advertisers in digital media and the technological components of ad buying and serving. Agencies are in a position where they are able to favor their own interests by choosing favorites with media supplies and ad tech companies.

"An executive at a large print and digital media supplier asserted that, in recent years, media buying has become vastly more complicated, with less of a linear relationship between spend and results (i.e., more spend does not necessarily lead to better results)," the report reads. "In this environment, advertisers are less sure of how and where to spend their money in order to drive sales."

The unnamed executive goes on to imply that advertisers aren't that eager to know much more about their digital spend than a CPM, or cost per impression. In a way, it's easier to say that advertising online is new, and the definite way to measure results will eventually emerge. The CPM is often shunned as an outdated method of monetizing content, but if advertisers honor it as a reduced metric that helps them understand what they spent money on. As much as the digital media wants you to believe in the next big innovation that will be monetized, it all might still boil down to a CPM number with the advertiser.

The entire process of buying ads and quantifying the return on investment could always be considered the art of statistical manipulation. Programmatic ad buying online is an entire economic system that can be manipulated by agencies and media suppliers. The ANA report of media transparency found that oftentimes, ad buyers aren't staffed to vet the technological elements of digital ad buying, much less execute on their right to audit.

Image: K2 Intelligence

Programmatic ads are a real-time bidding process in an open market. In a fraction of a second, a media slot on a website or video is placed for sale and the media is purchased. Agencies can rely on outside ad tech firms or have an automatic trade desk monitor their bids. The report details broken arrangements that allow agencies to bill markups or fees on the process of programmatic ad buying.

There are more cases in which advertisers displayed their technological ineptitude. The report documents multiple cases of advertisers getting slammed with high costs for serving advertisements.

"Sources also told K2 that agencies are marking up items that are not strictly media, for example, ad serving. A former C-level executive of a digital entity within an Agency Holding Company estimated that his Agency Holding Company marked-up ad servers 200 percent to 250 percent. This source stated that this markup is not disclosed to clients. The source attributed the ability for agencies to effectuate these types of markups to advertisers' naiveté and further stated that advertisers generally do not ask the right questions."

The media focus on the media transparency report focused on agencies collecting rebates in the form of cash or services for steering the spend of advertisers toward media companies. The advertisers that are often grouped together are not informed. Proceeds from the rebate are not passed back to the advertiser, which the report argues should at least be disclosed to the advertiser when entering into any agreement.

Source: K2 Intelligence

Thus, agencies have taken a beating after the ANA report for their widespread use of rebates. The larger takeaway is that very few people actually understand the technological details of digital media. As online ad buying becomes an even bigger slice of advertiser expenditure, the report could have made stronger recommendations for agencies and advertisers to better disclose online ad buying arrangements. Otherwise, online media companies will be there to benefit from the purposefully under-informed advertiser-agency relationship.

Fiduciary duties or honor in the pure definition of agency should not be expected unless written into a contract that is understood by all parties. There is no incentive for media companies, agencies, or ad tech companies to make the system of buying and serving ads clear. The digital media landscape is still an undefined frontier, but the ANA report makes it clear that this purposefully unlearned marketplace is a good thing for companies on the correct side of the agency system.

Life on the Content Farm is a weekly column about internet media written by Carles, the last relevant blogger.