Where did the money go? Guardian buys its own ad inventory

04 Oct 2016  |  David Pidgeon 
Where did the money go? Guardian buys its own ad inventory

Hamish Nicklin

In worst case scenarios, for every pound an advertiser spends programmatically on the Guardian only 30 pence actually goes to the publisher.

The revelation, announced by the Guardian's new chief revenue officer, Hamish Nicklin, at the Automated Trading Debate on Tuesday (4 Oct), means a host of adtech businesses operating within the supply chain are extracting up to 70% of advertisers' money without being able to quantify the value they provide to the brand.

"There's leakage. The money that goes in is not the same as the money that goes out," Nicklin said.

"There are so many different players taking a little cut here, a little cut there - and sometimes a very big cut. A lot of the money that [advertisers] think they are giving to premium publishers is not actually getting to us."

Nicklin said the Guardian had purchased its own ad inventory to try and assess where the money was spent across the entire supply chain and saw, in some instances, that only 30 pence was making it back to the publisher.

"That's not in every single case, but in worst case scenarios," he said. "But the fact is it happens."

Asked where the money goes, Nicklin said he had a "reasonably good idea" which businesses extracted it, but declined to identify any at this stage.

The problem said Martin Brown, managing partner at consultancy Stack I/O, was there are now thousands of technology companies operating in the programmatic space, creating a complex market with little accountability.

"All of them do a certain variation of one small part of the programmatic supply chain and it's incredibly difficult to navigate your way through it," he said.

"That makes life very difficult for marketers and we're getting to this stage now where less and less dollars are actually going on working media, and that's a major challenge because the idea is to simplify efficiency and effectiveness and we're actually going the other way."

panel

Steve Hobbs, Catherine Becker, Martin Brown, Hamish Nicklin and Dominic Mills (chair)

The news comes as publishers face a host of threats born from the transition to online. July's results from Guardian Media Group revealed its digital advertising was down despite growth in online readers, while almost all publishers are grappling with a growing threat from Facebook which is hoovering up online adspend by curating news content without carrying the burden of funding it.

However, the idea that adspend is not being delivered on the working media will almost certainly raise eyebrows at the opposite end of the market as those spending the money wonder where it's actually going.

Steve Hobbs, global head of media at mobile agency Fetch, said that the programmatic market needs to now move away from being a 'supply chain' and turn instead into a 'value chain' where every player can be seen to be adding something rather than simply subtracting money.

"I see a lot of people from the US - entrepreneurial businesses that have [venture capitalist] funding - and all they're interested in is the short-term return they're going to deliver to their VCs over the next week, month, year or two," he said.

"They're not interested in what we're interested in which is building long-term, enduring relationships with suppliers on behalf of our clients. That's something that we all need to collectively address."

Nicklin also argued that the idea of context in online advertising is being lost as programmatic seeks to deliver 'audiences' for brands, irrespective of environment.

"The idea that the only thing that matters is the audience is nonsense," he said. "Quality of creative and quality of environment matter massively to advertisers.

"The problem we're seeing is that technology doesn't value everything in the same way...building your brand and deep relationships with consumers, these things matter; but if we look at how we buy media in order to achieve that goal, purely through the lens of an audience-based, direct response mechanic, we don't achieve any value. We totally lose context."

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Robert Brill, Founder and CEO, BrillMedia.co on 10 Jan 2017
“Paul - we buy media using a number of programmatic solutions. You get different points of transparency depending on where you sit in the supply chain. Large enterprise advertisers can negotiate contracts with their agencies to get line item budget transparency. Many do not. One-off ad buyers can negotiate transparency for their media buys through a programmatic ad buying partner, though many don't. Agencies who buy through programmatic channels get transparency down to the cost of data providers, platform fees and peripheral technology costs and media fees. We do not get insight into costs for SSPs, order management systems and ad exchanges.”
Paul Fallon, Performance Marketer, Enquote Marketing on 5 Nov 2016
“Jim - you say in your original post that the 30% figure reflects a 'market force at work' and you imply that the margins many companies take are justified because of the value they offer. That may or may not be true, but for any market to function properly buyers need accurate, complete and transparent information on where their money is going. This is the real issue.

As a genuine question, do advertisers who buy traffic which includes data from VisualDNA in the supply chain get the exact figures on how much of their spend goes specifically to VisualDNA?”
Ben, Analyst, NA on 2 Nov 2016
“Jim - you might be confusing the concept of operating margin % and net vs. gross revenue. While I agree fashion retailers would be happy with 30% margins, it's not an analogous situation to publisher receiving 30% of what their advertising client believes they're paying for ad placement. It would be similar to a retailer selling product for $100 on eBay and be having eBay's commission for that sale be $70 as opposed to the actual take rate to eBay which is < $10. For any consumer facing e-commerce seller, a 70% cut of the sales price from a vendor would obviously make the operating margin very negative.”
James, Owner, Own on 19 Oct 2016
“Actually it's a completely incomparable scenario; retailers are selling goods in a physical store and receive a large cut for making the sale, their justification being that they absorb the cost of sale. Publishers first and only role is to deliver content - be it news, entertainment, whatever. Advertising represents a revenue channel that allows brands to promote their goods to relevant audiences in contextual environments. Not the same at all.”
Ben, Head of programmatic, Witheld on 18 Oct 2016
“Fair point Jim, other than oil and retail know they are only getting 30%. They are clear where the 70% is going and what value is being provided in exchange. It's not being extracted in an opaque way whereby they have to buy their own oil to work out who else is in, and what they are taking, out the supply chain.”
Jim Hodgkins, Managing Director, VisualDNA on 7 Oct 2016
“From this example of at worst 30% share to publisher the industry has clearly moved a long way from the old days of 15% agency commission or (85% net). However the opportunities and threats in media buying such as targeting audiences, managing optimisation on positive side and well documented negative ones have also changed. Look at other value chains such as fashion or oil and i think the producers would be delighted with 30% of retail price In a world of rapidly increasing supply of digital ad inventory and difficulty in determining who you are advertising to perhaps this is a market force at work and not a shocking revelation ?”

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