AppNexus CEO: ‘Let’s change how the supply chain works’

Marketers are now under increasing amounts of pressure to demonstrate an ROI on media spend (Pivotal Research’s influential analyst Brian Wieser explains this succinctly here) meaning adtech is now firmly under the microscope of the procurement departments of some of the advertising industry’s biggest spenders.

It is arguably this dynamic that has denoted 2017 in the evolution of adtech, or the ‘transparency debate.’ Besides the brand safety question raised to much opprobrium earlier in the year, 2017’s transparency debate has largely centered on ‘take rates’, aka the ‘adtech tax’, which refers to the money charged by each player in the programmatic supply chain throughout the course of a campaign.

It could be argued that Rubicon Project’s much spoken of legal tussles with The Guardian over just this issue that has put it front-and-center of the media business, with many questioning if similar legal disputes will follow.

This aspect of the transparency issue has occupied the mind of AppNexus chief executive Brian O'Kelley, the man behind one of the industry’s first online ad exchanges, as of late. He believes the technology (and the will) exists within the industry to help cure such ills, all that’s needed is a groundswell of movement to ensure the required dynamics are in place.

Speaking with The Drum, he points out that Procter & Gamble’s (P&G) recent cull of $140m in digital ad spend was not solely down to programmatic players, this also applied to the industry’s ‘duopoly’, and argues that this is down to the lack of clarity over whether or not there’s good economics throughout the whole chain.

“Part of my idea is to say these are problems in the current state of programmatic, and if we don’t resolve them, then we’re going to struggle to grow [as an industry],” he says. “It’s about asking the question: ‘how do we get digital advertising to live up to the promise that we think it always has?'"

With the increased focus on minimizing the impact of the adtech tax, where many players don’t disclose the full extent of their fees, many are heralding blockchain as a potential fix for the problem.

Although, he maintains such technology – while valid in its aim – is far from being widely implemented, rather there are more simple steps that can be taken to better ensure end-to-end transparency, according to O’Kelley.

“If I’m a marketer and think I’m buying hundreds-of-thousands of dollars worth of ads, but the publisher turns around and tells me they only bought tens-of-thousands of dollars worth of ads [due to middle-men siphoning off their fees] then that’s where I think this stuff gets interesting,” he says.

For true transparency to thrive in the digital media sector, there needs to be a ‘compression’ in the middle of the market, with measurement as the key tool for such a sea change, this will provide a benefit for all players truly providing value, he argues.

“I don’t think blockchain per se has to be the technology, I think it’s about the supply chain. What we’ve been focusing on for about a year now is looking at how do you achieve transparency, and I’ve been talking about supply path optimization, and now we’re seeing a lot of talk about auction logic and soft floors where people get tricked into bidding incorrectly,” adds O'Kelley.

“Today what happens is that the marketer pays the agency [let’s say] $1m, and the agency then pays a bunch of media companies – say $900,000 – and then some of those are adtech companies are networks, and you see the money fade down, and the more the money hops between the marketer and the end-publisher, the more money goes out,” he says.

As an alternative to the scenario where money is input at one end, and then “all the financial shenanigans in the middle” result in the publisher receiving a vastly diminished sum from the advertiser’s initial spend, O’Kelley proposes a system where a marketer writes a cheque to each member of the value chain individually.

“Imagine a world where instead of paying everybody in sequence, the marketer says: ‘I’m going to pay the agency $8,000 because that’s what you earned, and then pay the DSP $10,000 and then I’m going to write the rest of the cheque to the publisher – that could be game-changing,” he says.

However, for this to happen, further established dynamics within the ecosystem have to change, namely the terms (and speed of) payment.

“Right now the net time between the ad running, and the publisher getting paid can be as much as 120 days for agency to release the money through the chain,” he relays. “So think about all the financial discrepancies and work that has to be done so everybody reconciles with everybody else.”

As things stand, most sizable adtech outfits have to get a $100-$200m line of credit to handle the float of payments, according to O’Kelley, who agrees with the assessment that the current system of payment delays can lead to a scenario where adtech players are inadvertently incentivized to employ non-transparent tactics.

“I’d just say let’s change how the supply chain works,” he retorts when asked for his advice to marketers.

If a makers pays all of their suppliers at once they will better enable them to assess the value they’ve contributed. “This would be instead of saying: ‘huh, my $100,000 has disappeared’,” he adds.

The issue client-agency, and subsequently agency-vendor payment, etc, has long been hotly debated in the media industry. Holding groups are often quick to point out that convincing marketers to release budgets is increasingly difficult. When quizzed on this, O’Kelley remarks that brands releasing payments earlier are likely to find that they also benefit, and this would have a healthy downstream effect.

”I also think you could see an enlightened agency say: ‘we want this to happen’. And then they could actually drive it,” he says. “Instead of wanting to play the leverage game, you’ll have agencies that say we want to drive results for our marketers.”

O’Kelley says that such a groundswell is also dependent on brands’ procurement departments likewise placing a higher emphasis on quality, as opposed to zero-based budgeting.

“Then we’ve got to get away from this audience buying where some ad on a random site is worth the same as an ad on a high quality publisher. We know from 50 years of advertising in the modern world that context matters, but right now people don’t value it. I think that procurement is somewhat to blame,” he adds.

“If you say you want to minimize cost then it pushes the agency to decrease media cost by 5-10% a year, then it really pushes you to go to lower-and-lower quality sites, and that’s a double whammy that hurts the publishers and it hurts your results," contends O'Kelley. “If anything seems too good to be true, and you think ‘waoh, I’m getting so many impressions and post-view conversions for such a low price’, then it probably is.”

Revisiting the blockchain proposal when it comes to imbuing the programmatic supply chain with more transparency; O’Kelley, himself an investor in a startup company called Amino Payments, reiterates his belief that the technology is some way off. Although he does offer his assessment of how such an implementation can benefit the industry.

“The idea beneath that of a ledger beneath that everyone participates in, where end-to-end transparency is possibly and enforced by money? Well, that would make this industry so much better overnight,” he concludes.