Surviving the tech tax: how to get the most from your working media
May 29th, 2019
Buying and selling media in today’s landscape is ostensibly easy. By 2020 it’s estimated that advertisers will spend approximately $98bn on buying programmatic advertising, which represents 68% of their expenditure on digital media. At a glance, the industry is thriving, but under the surface of big budgets and splashy ads comes a new reality for advertisers as each dollar of their ad spend travels down the ad buying supply chain — how hard is their working media actually working?
The problem with working media
When looking at an advertiser’s ad budget, working media is the percentage of the budget spent on distributing their message to their intended audience. Currently, for the many advertisers who buy their media programmatically, a certain percentage of their budget is being spent on platform fees (DSPs, SSPs, verification vendors, ad serving fees) as it travels down the ad supply chain before eventually reaching the publisher, who then pushes their ads to the intended audience.
Each of these fees is what the industry calls “tech tax” (or non-working media dollars) and, in certain cases, accounts for almost 55% of programmatic spend. The higher percentage of an advertiser’s budget spent on paying tech tax is less money spent on the media itself. Publishers suffer from tech tax as well, as (sometimes as high as) 20% of the intended budget is pilfered by tech tax before it reaches them. With less money being spent on working media, each campaign will see less ROAS (return on ad spend) and eventually advertisers will have no choice but turn to different models to try and meet their business objectives and increase the efficiency of their working media.
The need for change
This fragility of the ad supply chain model impacts everyone in its path. Especially for advertisers who end up paying for the wheel to turn, and for publishers whose revenue get trimmed at each pit stop. The demand for transparency and control over working media has never been higher and without change, could impact the sustainability of the entire model.
How to make it work
One of the easiest and quickest ways for advertisers to increase their working is to nurture direct relationships with publishers. By having transparent and direct relationships with publishers, advertisers gains more visibility on how many vendors are in their ad buying chain and be able to find more direct routes that would lower their tech tax. By taking a look at their ads.txt files, advertisers better understand which vendors are direct and therefore be are better equipped to make smarter decisions on how to improve their working media.
Another way for advertisers to get the most out their working media is to only bid on placements that have high viewability, by applying bid modifiers to their campaigns and excluding low viewability placements. A non-viewable impression is a waste of working media, so it’s important for advertisers to do be more cognizant of where their ads are being placed on websites and take proactive actions on it. By tracking this metric, advertisers will make better decisions on campaign effectiveness and move their spends where they are yielding the best results.
But in the end…
While managing the viewability of ads and building direct relations with publishers are immediate actions that advertisers can take to improve their working media, it doesn’t quite solve the problem of the tech tax. A solution to this tech tax is for platforms to adopt a SaaS model, where instead of taking a percentage of media, advertisers are charged a monthly fee based on software usage.
For an advertiser, this shift means that their overhead cost is flat and controlled, which will allow them to scale their media spend. This is doable for platforms since the cost of infrastructure is the same regardless of whether an advertiser pays a CPM of $0.10 or $10. By paying one monthly fee, an advertiser can scale their advertising without increasing their cost and the publisher would gain more revenue and both sides would see a win.
Ultimately, by moving to a SaaS model and lowering the tech tax, more ads could be bought, which would benefit the whole ecosystem. As performance improves with the programmatic path, a better budget would shift from traditional advertising to programmatic, which is a win-win for all the players in the game.
Originally published on The Drum.
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