Are you a sucker? Your advertising technology might think so

In advertising technology (adtech) right now, it’s actually a profitable business model for some demand-side platforms (DSPs) to collect large fees without adding any real value to their customer’s media buys. How do they get away with treating their customers like suckers?

Simple: Their customers don’t ask the right questions.

Suppose you run a hedge fund. You make a lot of money for clients and take a healthy fee for your toil. Then one day a client notices that every trade you made on their behalf matched the exact suggestions of Jim Cramer, the ranting host of CNBC’s Mad Money.

On Wall Street, if a hedge fund is playing middleman like this, the solution is obvious:  You fire the hedge fund and set your DVR to record Mad Money. No-brainer. You cut out the middleman. In adtech, it’s the same.

Is there a conflict of interest?

If I told you that I represented both sides of a stock deal, you’d spot the obvious conflict of interest right away. On the one hand, I’d owe the seller a duty to seek out the highest possible price. But on the other hand, I’d owe the buyer an equally important duty to seek out the lowest possible price.

No matter what, I’d shortchange at least one client, or quite possibly both, because there’s no way that I could be impartial and represent both sides of the transaction.

The same is true in the media business, except that there’s a whole category of companies that have a stated business model of doing exactly that — representing both buyers and sellers.

How can this be — and more importantly, why would advertisers tolerate such an obvious conflict of interest that clearly adds a cost to each transaction without adding value?

In some cases, the combined DSP/supply-side platform (SSP) model depends on unsophisticated advertisers. That can be a hard thing to believe in an industry that depends so heavily on technology.

But the truth is that the rapid advances in media buying technology that we’ve seen in the past few years often work against an advertiser’s ability to understand what’s really going on.

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Simply put, the more complex the technology becomes, the more room there is for shady vendors to take advantage of the less sophisticated players in the market. Moreover, ad networks, which in many ways were the forerunners to combined DSP/SSPs, primed the market to accept a middleman who worked both sides of the deal.

However, ad networks emerged to solve a specific problem around access to inventory. Solving that problem added value for advertisers, who were willing to overlook the conflict because ad networks gave them a way to buy inventory they wouldn’t have been able to purchase any other way.

But in a world of DSPs and SSPs, there’s no additional value to combining both sides. Likewise, there’s no guarantee that agencies and advertisers will get the best price for their media buys, just as there’s no guarantee that publishers will maximize their CPMs.

In fact, despite what combined DSP/SSPs claim about tasking separate business units to address conflicts of interest, the only true guarantee is that both sides cede value to a middleman on each transaction.

Can you leverage the algorithm and your publisher relationships?

One of the byproducts of using algorithms to buy media is that their use strips the media-buying process of its dependency on relationships. Or at least this is the false choice presented by some adtech companies: Either adopt programmatic buying, with the efficiencies and performance it provides, or stick to relationship-based, direct-to-publisher insertion orders. It’s all or nothing, goes this line of thinking, so pick a side.

In reality, the strongest companies in programmatic media are offering buyers the best of both worlds; they use deal IDs and private marketplaces to set up premium publisher deals and leverage your long-standing relationships. And then they use the DSP to target your audience, allocate budget, and optimize the campaign. Best of all, they can also use the DSP to discover new publishers that you should develop relationships with.

Building new silos between programmatic media and traditional digital media is not the answer. Instead, the goal is to use a DSP to manage all of your audience buying in one place.

Can you customize with the API?

Adtech vendors love to talk about proprietary technology. Some are the real deal and others aren’t.

Determining which vendors are truly offering something unique and which ones are just selling spin is incredibly difficult, because such an inquiry involves complex technical questions. At the same time, many vendors insist on protecting their trade secrets and refuse to give their customers sufficient access to that technology.

But rather than focus on the nature of the technology, advertisers would do well to ask themselves whether or not a particular vendor gives them additional capabilities, especially in terms of the ability to customize the DSP via its APIs.

I often liken this process to shopping for a new car. Imagine you’re at the dealership and the car salesman is bragging about the 400-horsepower V8 engine. And then imagine you ask to see that engine, but the car salesman won’t let you open the hood. You’d be rightly skeptical.

DSPs that give their clients the ability to customize the API are basically saying, “We’re happy to let you look under the hood.”

API access also means that clients can use more than the out-of-the-box user interface provided by the DSP. They can build their own proprietary advantage on top of the technology.

First, an API allows agencies and advertisers to cut down dramatically on the busy work necessary to launch campaigns. Rather than manually entering voluminous amounts of information into various fields and drop-down menus, an API allows marketers to automate the campaign setup process.

Let’s say you’re a media agency that books upcoming campaigns using Salesforce.com or MediaOcean. Using APIs, you can push those campaigns straight from your booking system into the DSP.

For larger and more sophisticated agencies and advertisers, the same APIs can be used to upload custom media trading strategies. If you’re a media agency that works heavily in the consumer goods space, you’re going to have repeatable trading strategies you can use in the future.

Last, pairing an advertiser’s CRM data with a DSP can be extremely powerful. Every DSP has algorithms that aim to push ads to the right audience. But no one understands Tide customers better than Proctor & Gamble and P&G’s agencies. Long term, big advertisers and agencies will demand more control over audience targeting, including their own custom-built audience algorithms.

Ask the right questions

Given the amount of money and attention that has gone into programmatic in the past few years, it’s not surprising that some adtech vendors are proliferating without adding value.

Asking the right questions — and staying educated on the evolving landscape — will ensure you stay ahead of the game.

Brian Stempeck is Chief Client Officer for The Trade Desk, and oversees all of the company’s relationships with agencies and advertisers. Stempeck leads The Trade Desk’s New York City office and specializes in educating agencies about the evolving world of real-time bidding, and helping them develop and manage online marketing strategies for clients.