Prepare for the agency bloodbath as digital advertising matures
As Google and Apple introduce their individual ad blocking measures, Simon Larcey considers how agencies have the most to lose during ad tech's Armageddon.
Armageddon is coming – I assure you. The way advertising is bought and delivered is about to change.
In the last six months, both Google and Apple have introduced measures across their browsers to block advertising. Leading programmatic vendors have moved towards a first-price auction model as opposed to the second-price system.
For an industry that embraces change, the key media buying organisations do not like this one little bit.
The industry talks about transparency, but there is still a long way to go. The ads.txt system, which agencies demand the major media owners use in the name of transparency and fraud reduction, is a move in the right direction. But it is in its early days and yet to be a proven solution, as invalid traffic is becoming more and more sophisticated.
It appears the ad tech vendors are taking things into their own hands. When someone like Google – whose core revenue is from advertising – blocks ads, it says something.
I’ve heard references about the ad tech bloodbath – well ladies and gentlemen, I introduce the agency bloodbath. Unless we practice what we preach, it is going to happen.
Based on the current decisions by Google, Apple and programmatic vendors, we need to work within these new parameters and ensure we understand what they mean and how we can still deliver the goods.
First-price auctions provide better yield for publishers and give the advertisers true perspective on value. If advertiser X is prepared to pay Y – then let them.
The biggest losers in this transaction are likely to be the agencies, as they have to pay what was actually bid as opposed to one cent above the second price.
Would a second-price auction work in any other industry? Can you imagine bidding on a house, where the house owner accepts the winning bid, and then the agent says, “Actually, we’re taking the second price +1.”
Really, how would that go down? The real estate agent would actually do themselves out of commission and the homeowner would get less.
So why is this pissing off media agencies? This should work in an agency’s favour.
Google’s new filters on Chrome get rid of annoying ad formats. Banners that cover content, video ads that start playing, the type of nonsense ad formats being bought in droves over the recent years. The type of ads that less-than-premium publishers use.
Google is dedicated to providing first-class advertising solutions. By introducing this new initiative, it will reduce bad actors and help improve performance. In addition to this, they are helping publishers ensure their advertising won’t be turned off by launching the Better Ad Experience Program.
This is a great initiative, which publishers can use to evaluate whether their inventory and advertising will be filtered. If it is, Google give recommendations on how to resolve and time to make the suggested changes. They are not just cutting you out.
However, if you do not make the changes, you will find all your advertising eventually being filtered out.
Google’s aim is to improve the consumer experience and only deliver non-invasive ads to real humans. In addition to improving the consumer experience, eliminating the annoying ad formats will help to reduce ad fraud and improve performance. Overall, this will make agencies look good and deliver better-performing campaigns for their clients.
Apple’s changes on Safari are a little more sophisticated and hard hitting. Their solution is to outright block third-party cookies. This substantially reduces the ability to cross-website track, which is the basis for current digital advertising targeting.
When this was announced last year, no less than six trade organisations in the US joined forces and sent an open letter to Cupertino, complaining about the changes and the negative effect it would have on the industry. Apple said the changes are meant to improve trust with users, explaining that “users feel that trust is broken when they are being tracked and privacy-sensitive data about their web activity is acquired for purposes that they never agreed to”.
This change by Apple will motivate new, innovative solutions and create alternative ways of tracking users and delivering advertising. Cookies were designed around desktop computers. More people now view the web on mobile devices and it is imperative that a better, less invasive way of targeting be introduced.
Big changes are happening. With first-price auctions, advertisers now pay what they believe to be a fair price. Google has introduced a system to improve the quality and effectiveness of digital advertising, and Apple has improved the experience and privacy concerns of their customers by introducing third-party cookie blocking.
These are all positive changes in the digital advertising space.
It seems to me an unexpected power shift is happening in the media industry. The companies that once made the decisions now have to adapt to suit the technology vendors that are setting the rules for the next generation of digital advertising.
Simon Larcey is an adtech specialist.
Have you read the industry press recently? Agencies are shedding seniors at GFC-esque rate. It’s not a changing of the guard; it’s a changing of the industry. The future is not bright and, unfortunately, it will not be creative; it will be commoditised.
User ID not verified.
This is not even close to accurate on the 3 issues that have been discussed in this article, nor why agencies have issues with this.
1. First Price Auctions v Second Price Auctions: I think this is going to be a major shift over the next 12 months as more and more publishers move to first price. FPA is designed for yield management after SSPs removed buy-side fees and need to make that margin elsewhere and they make that margin by charging buyers a higher price. So while the ‘buy-side’ fee is “removed” it’s just been added in on the other side.
The reason why you don’t see it in any other industry is because other industries don’t have the tech load of programmatic. As an adtech specialist I’m sure you understand that QPS load that DSPs are currently seeing and with FPA it’s going to escalate rapidly. Second price was designed so that everyone would present their best price, but not be taken advantage of.
Let’s liken this back to your argument of a house auction. A house auction happens slowly over several minutes, giving potential buyers to slowly escalate the price with a threshold that they are willing to pay. It’s a back and forth process with an ultimate winner that was willing to go higher – no house buyer opens with their best bid and of course they compete to get it for the best price they can. So you can get an effective second price auction where two (or more) bidders are bidding against each other in increments.
If a house auction was to take place in less than 2 milliseconds, you’d see a second price model – which is why it was built and originally intended to be that way.
With the history of soft/dynamic floor pricing, publishers have always been able to set what they think their inventory is worth and buyers compete to pay above that floor. All it is, is that SSPs saw large remarketing bids come in and thought “I want a piece of that pie”.
2. Google’s move to block advertising. As you said, Google make a lot of money from advertising. So by becoming the internet police, they’re able to filter out everyone else’s ads and favour their own. In a word where one company controls the supply and the buying you have a monopoly with very little, or not competition. Do you really think that Google will block an advertiser that is using Adx and risk their advertising yield? It’s just going to force people to use the Google stack and give them the power to dictate ads and who gets money and who doesn’t.
Sure some bad players are in market, let them be in market and let buyers/planners/advertisers work it out and let them suffer and lose revenue as their ad units are crap and people stop buying them. Free market baby.
3. Apple’s Safari decision – this one actually makes sense. However the tracking of cookieless environments is not new and it’s not something that hasn’t been worked on over the last few years. Buyers can already track consumers cross-browser, cross-device using a combination of deterministic and probabilistic models. The decision only effects buyers who rely solely on cookie data and most of these publishers cookie bomb and are bad practices anyway.
Realistically this is a fairly poorly thought out article that looks like it was written from the supply side with no thought into the buy side whatsoever.
User ID not verified.
‘Simon Larcey is an ad tech specialist currently looking for new clients’
User ID not verified.
I’m sorry, point 1 makes absolutely no sense. SSPs didn’t look at remarketers and think “I want a piece of that”. What a ridiculous statement! 1st price was driven by the advent of header bidding – it allows other exchanges to compete effectively with Adx. It’s also a decision made by publishers, and has nothing to do with the SSPs, with one possible exception where a certain exchange moved suddenly to 1st price without due buy side consultation.
The removal of buy side fees didn’t drive the move to 1st price either, which you have indicated.
SSPs do not make extra margin on 1st price. With bid shading, the bids being submitted by DSPs will be closer to the winning price point, so can you spell out where exactly SSPs make more margin?
User ID not verified.
Great comment. Anyone who thinks Google are doing right or have “introduced a system to improve the quality and effectiveness of digital advertising” that isn’t self-serving, either work for Google or have the wool pulled over their eyes.
The author does mention that FPA has essentially moved the fee which I agree with, but overall it’s not as good a system as SPA… and it’s not only agencies that will lose, so will brands!
User ID not verified.