Inside Google's US Media Rebate Program

google-rebatesThe rise of media rebates in the United States has put agencies under a harsh spotlight, thanks in part to the Association of National Advertisers’ June agency transparency report. But relatively little attention has been paid to the role of media sellers in driving the practice.

Take Google, for instance. Long before "rebate" became a dirty word in digital advertising, the world's largest media seller put together its own incentive program to motivate US advertisers large and small, and their agencies, to buy more.

Google's rarely discussed program offers cash back to advertisers through their agencies based on the amount they spend on display ads, video and other formats. Those payments generally range from 4-6% of their investment, but only when certain spending thresholds are met, according to sources with knowledge of the program. The idea is to push big spenders to stretch their Google budget a little farther than they might have otherwise.

"If you hit certain thresholds and depending on the market, a check is paid back to the agency, which the agency should theoretically pass back to the client," said a Google source with detailed knowledge of the program. "The agency will then divvy it up by client. P&G gets X and Visa gets Y."

Or at least that's the idea. Whether an agency in facts redistributes that money to clients in full may vary agency by agency, and Google has no mechanism to establish whether its payment to the agency is indeed passed on to the marketer. That's between an agency and its customer.

What follows is a detailed rundown of the program and how it works, according to numerous people with firsthand knowledge.

What Is It?

Google makes no secret of the fact that it offers rebates on media spend. On a support page describing the program, it says,

"From time to time, Google offers incentives to accelerate the adoption of and investment in Google's advertising programs. These incentives are offered to participating advertisers and/or advertising agencies. … For example, in the Google Display and Video Incentive Program, participating advertisers may receive financial incentives based on the amount of their display and video advertising spend and/or investments made to enhance their ability to use Google's advertising programs."

Left out of that description are the exact terms of Google's deals with participating agencies and brands.

Let's fill in the gaps.

Rebates are typically in the mid-single digits, expressed as a percentage of total spend, and can be negotiated directly with agencies and advertisers.

Generally, any large advertiser or agency that expands its digital and video ad spend through direct sales channels gets 4-6% of that spend back.

For example, an advertiser that grows spend by 60% a year is entitled to 4% back through Google's Large Customer Sales (LCS) group. If it grows that same line item by 80% compared with the previous year, the rebate check would be worth 5% of the total spend. And a 100% year-on-year increase nets 6% back for LCS customers.

For small to mid-sized advertisers the rebates are a little smaller, usually 4-5%.

Spend totals are calculated and paid out once a year, in the first or second quarter.

To qualify for the program, media must be purchased directly from Google, either through a human-negotiated deal or through a programmatic direct setup. It can include Google Display Network inventory as well as Google-owned and -operated inventory. However, open exchange buys and technology fees such as those paid for the use of DoubleClick Bid Manager are excluded. Media purchased through an RTB auction doesn't qualify.

Say a holding company spent $100 million on Google display and video advertising in 2015 on behalf of its customer. If in the next year it spends $160 million, it would receive $6.4 million back. If it spent $180 million, $9 million might be given back. And if it spent $200 million, the payment would be $12 million.

While the program is linked to digital video and display ad spending, for large clients at least, the structure of the incentives is not always consistent from year to year. Next year it might be linked to in-feed video formats, and three years hence to media channeled through Google's nascent TV ad platform, or perhaps augmented reality ads.

"The target of the incentives changes," said one holding company executive. "It has definitely been video in the past, but it changes depending on where they're trying to drive their business."

The incentives provide a reliable way of siphoning money from other channels.

"As the year goes along, if they're not pacing toward the threshold, well you'd better get that money out of TV or Facebook and into Google," the Google source said. "No media director wants to be the guy that screws the holding companies on that kickback."

Who participates?

Not all buyers take the money.

GroupM, the media investment arm of WPP Group, has stated publicly that it does not accept rebates in the United States, and an executive at the company confirmed to AdExchanger that it does not take part in Google's program.

Omnicom Group, meanwhile, does accept payments linked to Google spend increases, but its policy is to pass all such payments back to clients. In the company's second-quarter earnings call, CEO John Wren referenced the ANA's June transparency report as well as a program with similarities to Google's.

"Our US media agencies do not seek or retain rebates and return to clients all value negotiated in the form it is received," Wren said. "In the case of one global digital media provider, there is an incentive provision in our agreement that includes the US. This incentive continues to be returned to all clients in the US on a pro rata basis according to their spending with this provider."

There's nothing inherently unethical about spending incentives such as those offered by Google, so long as brands know what they're getting into, according to Bill Bruno, CEO of Ebiquity North America. Ebiquity partnered with the ANA on a set of recommendations for advertisers following the release of the trade association's first report.

"If Google comes to me with a rebate offer linked to spending thresholds, my question should be, 'How has my advertising been performing in your engine?'" Bruno said. "The ability to measure that effectiveness is what advertisers need to create a better or clearer picture. If I know that every dollar invested in Google comes out as $4 later, then I might be heavily incented to take part in that program and I might be perfectly happy with a rebate my agency is receiving. For an advertiser whose ads are underperforming, the answer might be no. Not all advertisers have that informed decision making, and without it it's really difficult for an advertiser to understand if these things are good decisions for them."

Running the program

In practice, it can be exceedingly complicated for agencies to manage the funds they have received through Google's incentive program and to pay those through to clients. The challenges arise from the volume of campaigns many agencies run with Google, as well as the intricacies of billing and reconciliation.

"[The rebate paid] never matches with what the client thinks they're owed," said the Google source. "It can be off 10-15% easy by the end of the year. It's a line-by-line, campaign-by-campaign job for a campaign finance monkey."

This can be grueling work.

"There are billing departments at agencies where people retire early because they don't want to deal with Google anymore," this person added. "If you think about how many campaigns a big media agency runs with Google and if you think that a certain percentage of them have rebates attached, some folks have got to go line-by-line to make sure they're all right. They just take forever."

Once this process is over, Google and its agencies will often "agree to disagree." They will jointly decide that one of the parties is off by a certain amount and move on.

Other Incentives

Rebates linked to media spend increases are only one way Google encourages advertisers to spend more. The company also offers discounts, generally between 15-20%, linked to its own properties, like YouTube and other non-search media, along with extensively-documented "perks" to agencies and advertisers. These can include access to training at no cost and off-sites in Mountain View where food and travel costs are covered.

"In a perfect world, all these things are taken into consideration when the deals are signed," said the Google contact. A large advertiser might get an 18% discount on pre-negotiated YouTube supply, a 5% rebate across all video investment and additional intangible benefits, and all of that would be part of a single negotiation process.

In practice it doesn't always happen that way, but that hasn't slowed the program's growth. Google's rebate infrastructure is more robust than ever, and the company shows no signs of backing away from it.

4 Comments

  1. One question this article raises is around the perverse incentive structure, particularly if the agency is keeping the rebate, whereby someone might forgo RTB pricing (a theoretically efficient market) in exchange for a direct buy because RTB has no rebate and a marked up premium buy (or the think that Google wants to sell that month) does have a rebate.

    Reply
    • M-O Thibault

      RTB has massive mark ups/rebates. It often was the very USP a DSP/Trading Desk was promoting to agencies before this became a hot topic.

      Reply
  2. Cashback is a cancer, very bad idea, agencies start to think how to get back largest kicks and stop thinking about campaigns goals.

    Reply
  3. So why do we want small businesses to pay the agencies rather than the advertising platforms?

    In my mind, if AdWords gave a kickback of 10% for instance to smaller consultants like me, I could drastically reduce pricing and I'm sure my clients would spend that much more with Google.

    Reply

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