3 Benefits Resulting From Ad-Tech Tax Cuts

55% of ad spend budget went to paying the supply chain

Tackling the ad-tech tax is a high priority during this time when many are demanding more transparency.
Getty Images

Brands have been sounding a steady drumbeat for more transparency in digital advertising for a while. Now that the programmatic ecosystem is starting to shine the light on itself, the sights revealed tend to be displeasing more often than anyone would like. This current push toward greater transparency makes 2018 an opportune time for the industry linchpins, the advertiser and the publisher, to do something about the ad-tech tax.

From data gathered from industry sources, eMarketer recently reported that, in 2017, around 55 percent of client budgets allocated for programmatic ad spend went toward paying the ad tech supply chain, one that is crowded with a large number of players, many that add very little value to transactions. This covers the range of data and tech services from targeting and trading to verification for digital ad placements. When you tack on the additional 5 percent that agencies typically get for their roles in programmatic transactions, publishers only took in 40 percent of the deal. Not too long ago, The Guardian reported as little as a 30 percent cut.

It’s important to keep in mind that this 55 percent tax is applied to the relatively smaller portion of market share that isn’t already consumed by the walled garden platforms like Facebook and Google. This means an uphill climb for publishers to monetize. They feel forced to sell more ads than they would like, and the law of diminishing returns sets in as too many ads—many of them of dubious quality—on publisher pages annoys consumers, who tune out, install ad blockers or, worse yet, flee the offending site(s) altogether.

The ad-tech tax can only be abused if both sellers and buyers allow a veil of secrecy to reign over the marketplace.

Whether you are a Fortune 50 multinational brand or a digital-first upstart, you are not going to be happy that more than half of your media budget is going to middlemen. You want this spend working for you directly, not for the middlemen and their investors. Certainly, some do add value and actually make media spend work harder, but many others offer nothing more than ad-tech snake oil. While we can blame the avarice of venture capitalists for the gold rush of sketchy companies with limited value for creating a mysterious and confusing landscape, the advertiser and the publisher still hold the cards.

Advertisers benefit from a smaller ad-tech tax

Advertisers have the capacity to create greater value from their media spend by cutting out unaccountable middlemen. The ripple effect of this would be greater publisher monetization for each and every deal, which would result in a smaller number of bad ads on the page, higher-quality ad impressions and greater user experience. Another benefit for brands would be a more premium share of voice.  If you’re Louis Vuitton, you want to be in the same environment as the Four Seasons and not Motel 6. This would lead to a more attractive contextual environment, optimal for developing deeper brand relationships with consumers.

Publishers benefit from a smaller ad-tech tax

If publishers become stricter with ad tech vendors and aren’t afraid of jettisoning those not delivering value, they will demand a higher portion of the advertiser media spend they deserve. A bigger slice of the pie could be invested in creating an enhanced user experience, which ultimately could maximize revenue. An enhanced user experience would feature publisher pages that carry fewer ads, creating less clutter, faster page loads and a more engaged audience.

The new accountability

Brands and publishers each have the leverage—should they choose to apply it—to create a more efficient marketplace. By shining a light on the entire supply chain, advertisers will get a complete view of how their budgets are being deployed and the value that each ad tech vendor is bringing or not. Those not adding value worth their cost should be cut loose.

The ad-tech tax can only be abused if both sellers and buyers allow a veil of secrecy to reign over the marketplace. Abuse can run rampant, if enabled. Cases of bad actors gaming the system abound. In one instance, a platform was charging advertisers for hidden fees not documented contractually. They were only uncovered and identified by examining the particular deal with greater scrutiny.  Brands and publishers need to integrate this sort of monitoring on a comprehensive basis for each and every digital ad deal. By insisting on this level of discipline and accountability, brands and publishers have the power to create a more lucrative and fulfilling marketplace for all parties.