Marketers Deserve Complete Transparency About Exchange Fees

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Dhawal Mujumdar, co-founder at Polymorph.

To combat domain fraud, ads.txt was implemented as a tool for publishers to disclose which exchanges are authorized to sell their inventory. Why don’t we have a similar system where fees are clearly disclosed in every bid request so buyers know how much of their spend is going toward middlemen fees vs. actual marketing media?

Why not have some initiative, like ads.cert, which is in beta for OpenRTB 3.0, for pricing and take rates that are clearly baked into OpenRTB protocol? That way, marketers and demand-side platforms can choose the cheapest route to reach their desired audiences.

This would eventually lead toward a much more reasonable fee structure where more revenue would pass from marketer to publisher. It would also lead to innovation in ad tech business models and come closer to the kind of transparency found in stock exchanges, which many hold up as an aspirational model for ad tech.

Securities such as stocks, bonds and other financial instruments are traded in stock market exchanges to raise capital for businesses and create investment opportunities, with the exchange acting as a clearing house. Ad exchanges are similar, but instead of securities, we are trading media and conducting auctions.

However, ad exchanges radically differ from stock exchanges in their business models and transparency. Almost all major stock exchanges have very clear and transparent business models: They charge participants for listing fees, data and information services, technology solutions and transactional fees. For example, the New York Stock Exchange has a clearly defined fee structure, which is openly disclosed on its website and in financial reports.

Most ad exchanges, while similar in function, operate on the transactional revenue alone in the form of take rates, which are not always disclosed to all the participants, especially buyers. Buyers are mainly left to figure out how much of their spend is really going toward buying media vs. ad tech exchange fees. Take rates are a contentious issue, with recent price wars. Many exchanges have dynamic take rates that change on impression-to-impression basis. All of this leads to non-transparent behavior, which leads to questionable tactics such as bid caching or hidden fees.

It took the watershed moment of a stock market crash in 1929 to pass the Securities Act of 1933, which eventually led to establishment of the Securities and Exchange Commission to provide transparency and disclosure in the securities-trading world. Financial stock markets are not perfect but at least they are much more transparent.

We are at that pivotal moment in digital advertising where trust is at an all-time low, the industry is fraught with fragmentation, fraud is eating the business inside out and yet billions of dollars are traded every day. It’s time for ad tech to pick up the pace. Viewability standards and ads.txt started the ball rolling, but let’s increase the momentum by incorporating more measures that improve transparency.

Follow Polymorph (@polymorphlabs) and AdExchanger (@adexchanger) on Twitter.

2 Comments

  1. Ravi Patel

    I get that Marketers want these take rates, but don't understand why they should be privy to them on an alway-on basis. It's the publishers responsibility to own the contracts with the SSPs not the advertisers. What if publishers want the DSP tech fees + Targeting data fees from all DSPs ? If we are going to ask all take rates on Supply side to be transparent, so should take rates on the Buy side. Aren't DSPs just a broker in the end ? All fees are transparent there.

    Trust has more to do with what you are buying and who they are buying from, rather than revenues that reach the end. If Supply Path A had an average CPM of $3.50 for display inventory, while Supply Path B (to the same publisher but Supply Partner B takes lower take rate) had an average CPM of $5.50, what incentive does advertiser have to pay more ?

    Reply
  2. The financial transparency question is one that exist beyond ad exchanges to the entire media market, but the issues are pronounced in programmatic b/c of the non working media fees relative to traditional (~25% vs ~3%). Both brands and sellers are motivated and rewarded when the fees taken by intermediaries are rationalized. Fee transparency will enable proper evaluation and payment of service. The OpenRTB spec is a step and brands are exploring blockchain as a mechanism to gain insight into fees in more real time, and to force intermediaries to disclose.

    Reply

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