How To Avoid The Coming Ad Market Crash

Advertisers, like investors in 2007 and 2008, are feeling ripped off.

How To Avoid The Coming Ad Market Crash

If the digital advertising industry doesn’t straighten itself out, the ad tech market is heading for a crash that will destroy billions of dollars in value. Here’s a look at what could happen—as well as some steps we can take to fix it.

To explain the solution, it will help to make an analogy to the housing market disaster that nearly brought down the U.S. economy almost a decade ago. In 2006, banks were offering both prime housing loans to borrowers with impeccable credit and subprime mortgages to less reliable borrowers who, long-term, couldn’t afford them. Those different loans of vastly differing quality were then mixed together and sold in bundles to investors who weren’t aware the AAA-rated instruments they’d purchased were laden with junk assets as well.

That lack of transparency proved a noxious, almost fatal mix. As overleveraged borrowers defaulted at increasing rates, the banks were overwhelmed. Soon the markets collapsed and tipped us into the worst economic recession in 70 years.

A similar lack of transparency plagues an increasingly large swath of the multibillion-dollar media industry today, in the realm known as “programmatic advertising.”

With programmatic, advertisers, through intermediaries called “trading desks,” place bids in advertising exchanges, stating how much they’re wiling to pay to reach target audiences with specific attributes such as income level, geography, buying habits, and so on. Leading brands that spend many millions of dollars also demand choice spots—premium placements in reliable, respected, and well-produced media, preferably in subject areas relevant to the ads being placed. On the supply side of the market, publishers offer their ad spots along with their “ask”—a floor price—and information on who’s viewing their media. When the exchange finds a match, the ad is inserted. It all takes a fraction of a second, and when it works right, both sides get good value.

The problem, and it’s a huge problem infecting the ad-tech industry, is that advertisers can’t be sure they’re getting what they’ve paid for. There’s a lack of transparency not unlike what took place in the housing markets in the mid-2000s. Advertisers can find it very difficult to determine how much of their budgets are spent on actual ad placements and whether the ads that are placed match what they paid for. Often there’s lower-quality inventory—call it “subprime”—thrown into the mix.

It’s said that more than 30% of programmatic advertising spending goes to ad spots that no human sees—shown on nonviewable parts of a page or triggered by bots—and more goes to ads that don’t match the parameters the marketer specified.

Not surprisingly, advertisers, like investors in 2007 and 2008, are feeling ripped off. Over time, advertisers who lose confidence in programmatic markets will find other ways to reach consumers. We’ve already started to see rumblings of dissent, and both trading desks and the ad agencies that oversee them are feeling the effect.

Zipcar, concerned its ads were appearing in places that wouldn’t help it gain members, brought management of its placements in house, contracting directly with ad tech firms it can oversee. “When you are writing a check to a partner, you expect them not to play games,” Zipcar CNO Brian Harrington was quoted as saying. “It’s about trust.”

A key research firm, expressing concerns over a lack of transparency, downgraded ratings of the four major ad holding companies earlier this year.

How, then, can we make sure marketers get what they’re paying for and avoid a multibillion desertion touched off by a lack of trust? Here are some solutions:

The added level of assurance that ads are truly viewed by people willing to see them will open up vast opportunities for marketers and publishers on increasingly popular mobile screens. With the added transparency and openness, dollars will naturally flow to premium inventory, rewarding the more upstanding exchanges and publishers while driving down the amount less reliable markets and publishers can collect.

If, as an industry, we can separate the top players from the bottom feeders, we can instill the kind of trust that builds liquidity and wealth for generations.