"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 Joel Sadler, vice president of product at Adacus.
Every so often over the last few years, well-written, thoughtful articles have popped up that identify parallels between digital advertising and the mortgage crisis of 2008, which was so vividly depicted in Michael Lewis' “The Big Short.”
It is a tempting comparison. The mortgage crisis was brought on in part by worthless loans being bundled up with good loans in collateralized debt obligations (CDOs). CDO buyers were not aware of the low quality of some of these assets. Similarly, the comparison goes, worthless digital ad impressions are bundled up with good impressions and hidden in large programmatic media plans.
The financial industry was also entrusted to police itself but, not surprisingly, failed to do so effectively. As a result, the lack of external regulation helped to create the mortgage crisis. A lack of oversight can also be found in the digital advertising industry, which has been largely left to regulate itself. Given the continued ubiquity of fraud, it has also clearly failed to do so effectively.
Finally, and perhaps most importantly, the financial industry was structured in such a way that nearly everyone within the industry benefited greatly from the proliferation of subprime mortgages. Likewise, since almost every ad tech company is paid on a CPM basis to one degree or another, nearly everyone in digital advertising benefits from the proliferation of impressions, whether they are of quality or not.
Seems like an open-and-shut case. Yet, many of the comparisons equate "impressions" in digital advertising with "loans" in the financial industry. Impressions, however, are not like loans at all. Impressions cannot default. Any single impression exists for but a brief moment. Impressions are not purchased by consumers. Impressions have no permanent record on a balance sheet. Impressions are ephemeral entities.
Loans, on the other hand, are real and legally binding agreements in which a company counts on the borrower's ability to make payments over time. Subprime loans didn’t cause the mortgage industry to collapse. The financial industry only went from business as usual to collapse when borrowers began defaulting. There is no ad tech equivalent of the adjustable rate mortgage. Without such an equivalent, the majority of impressions will continue to be subprime indefinitely. Fraud will remain ubiquitous so long as the benefits are high and the risks are low.
There is no ticking time bomb in ad tech that will set off a subprime-like crisis.