It’s 2017… Tear Down These Walled Gardens!

AdTech has manifested into a two-tiered ecosystem: independent publishers and “walled gardens.” The latter are the cool kids on the playground – you can play with them… just as long as you play by their rules.

Let’s start with some clarity: Facebook and Google are the poster children for the lot which includes Amazon, Snapchat, Yahoo, AOL, Microsoft, LinkedIn and Twitter… the walled gardens, AKA the “easy button.”  PRINTADTECH notes that all require the use of their own systems, dashboards and metrics. With that, these walled gardens retain significantly more of each dollar into their respective ecosystems.

Compare them to independent publishers, and the indies’ data doesn’t measure up. The walled gardens are able to reach a much larger audiences with deeper targeting power. At our last Roundtable it was noted that Facebook and NewsCorp (an independent publisher) hold different apparent value in the marketplace, and that is reflected clearly in a recent Yahoo Finance post, “The two tech giants [Facebook and Google] accounted for 103% of the growth in the digital ad industry, while everyone else shrunk 3%.”

Big buts, though. If your company makes its money by selling online ads, or you are an ad agency… your warm-fuzzies have vaporized. For you, easy-button companies have a different name: Frenemy. Industry professionals including Sir Martin Sorrell, CEO of WPP, the world’s largest advertising agency, have argued that the industry must take action, and In a recent Huffington Post article, Mark Haviland, EVP at Rakuten Marketing Europe stated, “In order to combat walled gardens and earn the trust of advertisers, the digital world needs to be increasingly transparent.” Note the language here. “Combat.”

Put another way – AdTech as an industry cannot continue to allow the players to be the referees. DIGIDAY notes that Facebook and Google are restricting third party AdTech companies from operating on their networks, stating, “It raises questions about whether Facebook and Google’s AdTech products can be trusted to function objectively, or if they’re merely being used to funnel ad spend through their respective media networks.”

Forrester took a deeper look at the sacrifices made in customer intelligence when working with walled gardens, recognizing that the value coming back over the wall isn’t necessarily equal. Of the research, Media Post summarized, “The short-term benefits are the ability to leverage unique user identification for targeting the measurement. However, the strategic and operational downside of closed ecosystem is that they increase cost and prevent brands from reaching consumers across channels. They leave marketers with a dangerous blind spot, losing ownership of key data pertaining to their consumer over time and coming to depend on walled gardens for customer intelligence.”

Facebook admitted to its third measurement blunder, and advertisers are calling for more accountability. Procter & Gamble announced they would be cutting their investment in targeted Facebook advertising, and Sorrell notes on the Huffington Tech article, “it could even result in budgets being switched to focus more on traditional channels, such as TV.”

Substitution is not a remedy, however. If we are going to continue enjoying the fruits of the walled gardens – and they are juicy – a checks-and-balances initiative has to be implemented now.

Stop Calling It an AdTech Tax

We cringe when we hear it: tax. It feels awful, it sounds unfair. But taxes are additional costs tacked onto the original service or product that often have nothing to do with the deliverables themselves.

Weather transactional fees or SaaS, our fees are necessary to leverage all the amazing stuff we do for brands, agencies, publishers… AdTech has changed the game, embraced and continues to define the digital, attention-based economy. If we allow our revenue to be thought of as a tax, we will never define our value and maximize it openly and appropriately. And what’s worse, our hard-earned dollars will continue to seem somehow an unfair burden that nobody wants to pay for.

What we need is transparency, which will allow all parties to see the real value in AdTech.

According to Advertising Age, through the massive shift of programmatic revenue the IAB estimates that less than 45 percent of revenue into the ecosystem actually reaches the publisher. The IAB also notes that, “understanding where dollars are distributed across the stack from advertisers to publishers can be quite disorienting in the current programmatic landscape.”

…Well, that’s reassuring.

What happens if we have transparency, and all sides can see what-costs-what and who was involved in delivering an ad to real eyeballs? In our last roundtable, we quoted Mike Driscoll, CEO of MetaMarkets when working with a marketplace, “each time they increase the transparency they share with their partners, they actually see that market activity increases… transparency drives market activity.”

What happens when a marketplace is transparent?

  • Advertisers have the opportunity to spend their money more effectively
  • Advertisers have a POV from which to understand audience scarcity and understand the higher eCPMs for that audience
  • Publishers can stand behind the costs for reaching their high-value audiences
  • Publishers have the opportunity increase their revenue by selling smarter
  • AdTech can evolve to a more competitive ecosystem

The IAB agrees – and have essentially put their foot down by creating the Programmatic Fee Transparency Project. The initiative, led by Carl Kalapesi, VP-industry initiative at IAB, recognizes the lack of transparency that has undermined trust and liquidity in the marketplace, vowing “The IAB Programmatic Fee Transparency Project will develop guidance around fee disclosure and transparency within the programmatic ecosystem.”

Opacity is ultimately wasteful and counterproductive – we all know that trust builds lasting relationships. We will continue to deliver, innovate, and monetize our work, but our revenue is based on direct results. The first step in transparency is not calling our revenue something it isn’t.

So don’t call it a tax.

Who’s to Blame for the Current Ad Tech Trust Gap?

Recently, PluggedBD held an executive-level roundtable titled “Transparency, Measurement and Viewability in the Digital Age,” which began with a discussion about what Procter & Gamble Chief Brand Officer Marc Pritchard meant when he called for “… new [transparency] rules for agencies and ad tech to get paid.”

Not one of the panelists, representing every aspect of ad tech, could exactly answer the question, which prompted moderator Jonathon Shaevitz, CEO of Industry Index, to ask a second question: “Who’s to blame for the ‘trust’ mess we’re in?” That’s when the conversation got really interesting because solving marketing biggest “whodunit” is how we start down the road to redemption.

Who’s really to blame?

The angst in the room was palpable as the group struggled to solve this “whodunit,” with panelists assigning blame in equal measure to agencies, publishers and CMOs — all the while acknowledging they weren’t really sure whom to blame.

But to me, the culprit is clear. Without hesitation, I’d have raised an accusing finger at the one group not in the room: venture capitalists (VCs).

What’s the evidence?

The case against VCs starts with the basic fact most VCs tinkered in an industry they knew little about. As a result, they applied their typical investing formula — 1) “cool team”; 2) “cool tech”; and 3) “cool SaaS Model” — indiscriminatingly to marketing, with unfortunate consequences:

  1. “Cool team”: VCs overwhelmingly favored engineer CEOs (often young) who often lacked any understanding what their marketing customers really needed.
  2. “Cool tech”: Ad tech is now a fragmented, dysfunctional ecosystem because of VCs predilection for “cool” tech (versus useful tech), which heavily burdened the industry with so many similar startups that advertisers struggle to distinguish one from another. The knock-on effect is that most advertiser attempts at frictionless marketing management are doomed to end in failure. A most unhealthy outcome all around.
  3. “Cool, SaaS business model”: This is possibly the most damaging ingredient in the VC formula because it created a misaligned incentive structure that rewarded low quality digital deliveries instead of high quality audience interactions.

The real crime

It’s clear in hindsight that a lot of damage was done by the VC investment formula because it steamrolled marketing’s own, albeit “uncool,” formula that is equal parts art, science and execution. This fundamental mismatch directly led to ad tech becoming a toxic, adversarial brew that undermined long-term and trusted relationships across the marketing ecosystem:

  • Advertisers were pitted against publishers in a zero-sum game where advertisers “win” by getting the best inventory as cheaply as possible, and publishers “win” by selling the worst inventory possible at the highest price possible. No wonder everyone is twitchy.
  • Agencies and ad networks fight to deliver profitable media buys because too many people have their hand in the arbitrage cookie jar.
  • Everyone is playing a perverse metric, hot potato game whereby SaaS businesses are quick to pass the metric buck to anyone, ad networks blame other platforms, and everyone blames agencies for whatever they can get away with. Everyone loses.

The road to redemption

Blame is useful to help us to adapt a new attitude that gives us the fortitude for the long and arduous journey ahead. The place to start is for advertisers and agencies to fully appreciate that every dollar spent in advertising doubles as an investment for ad tech ventures. The VC model was not kind to marketer-led ventures, which is part of why there is such a lack of transparent, process-driven ventures. With this new consciousness, though, advertisers can wrestle control from VCs to determine which ventures thrive with these “investment” guiding principles:

  • Funnel marketing dollars to ventures that deliver a system level solution that integrates the art, science and execution of great marketing versus narrow point or SaaS solutions.
  • Reward platforms that develop pre-campaign proformas with business-centric KPI’s like Cost Per Visitor (CPV) to create transparency and trust.
  • Rethink the scale equation with a new sensitivity towards the realities of quality digital scarcity. Move away from tonnage metrics towards smaller and meaningful metrics that can be traced to revenue-generating activities.
  • Go the extra mile to hear new ideas in ad tech, especially from marketer CEOs. The effort has profound implications in reshaping the ad tech landscape of tomorrow.

It’s taken marketers over five years to get smart enough to challenge the black boxes that ad tech packaged itself in. The next five years will look quite different, as marketers create ad tech where trust is the norm, not the exception.