The ad tech tax is decreasing as vendors along the supply chain become more transparent and lower their fees.
While total US dollars spent on fees for non-social programmatic buys will grow 18% to $11.6 billion in 2019, that number is rising in aggregate because the amount of money spent on programmatic is increasing overall, according to a report from eMarketer released Monday.
But individual vendors are lowering their take rates as they struggle to differentiate in pricing and capability, said Nicole Perrin, principal analyst at eMarketer and author of the report.
As more buys are transacted programmatically, the volume of dollars flowing to ad tech companies will increase, allowing vendors to collect more money from fees while still lowering prices. The overall amount of money spent on programmatic display ad fees in the United States will continue to rise by 15% to $13.4 billion in 2020, and by 13% to $15.3 billion in 2021.
But vendors are no longer able to name their price when it comes to fees.
“Back when there were only a handful of players, they could charge whatever they wanted,” Perrin said. “Competition across almost all vendor categories has helped bring prices down.”
Fees have also declined as buyers become savvier with tactics such as supply path optimization, which helps them find the cheapest path to inventory in the convoluted open market. Industry standards like ads.txt have also allowed buyers find more efficient paths to the right supply, Perrin said.
And as buyers transact more frequently through private marketplaces and programmatic guaranteed set-ups with predetermined requirements, they are using fewer vendors, which can control for issues on the open market like brand safety and viewability.
“Some buyers are not using their full ad tech stack to execute those transactions,” Perrin said. “They’re forgoing fees they might be paying in open marketplace transactions.”
As buying habits change, some vendors are moving to a software-as-a-service pricing model instead of a volume CPM model, allowing them to charge lower fees while obtaining higher recurring revenue from clients. Verification vendors, for example, can use such models to incentivize buyers to use more of their services, because they’re paying a flat fee rather than being charged per impression evaluated.
“By giving the vendors that steady guaranteed stream of income, you get leverage and you get a better rate,” Perrin said.
While the ad tech ecosystem will remain healthy because programmatic spend is growing, vendors will have to differentiate to survive. If they can’t, buyers may question the need to transact in the open marketplace when they can reach their audiences and access unique inventory from walled gardens such as Facebook, Google and Amazon.
“A DSP needs some differentiation that’s worth paying for,” Perrin said. “I haven’t heard about people abandoning certain DSPs en masse, but that’s the worry down the road.”
While vendors have been hesitant to share their fees for publication in the past, eMarketer didn’t have much trouble getting data for the report, which speaks to a broader industry move toward greater transparency.
“The reputable players recognize the value of transparency and would like to shine more of a light on the space,” Perrin said. “It has gotten better since the quote-on-quote bad old days, but we definitely still have a long way to go."