Everyone wants to know “what’s the performance of my digital marketing campaigns?” That’s a good question. The answer is NOT how much traffic, how many clicks, how many impressions did my agency buy for me and how low were the CPM prices? But sadly, these are the exact things most often reported as “performance” by media agencies in Excel spreadsheets sent to their clients. This is partly because these quantity metrics are easily measured and big numbers look better — the campaign got billions of ad impressions, millions of clicks, etc. Yay!
But you might guess where I’m going next — these quantity metrics have little or nothing to do with actual business outcomes. Without getting into attribution models or analytics, let’s look at some established facts in digital marketing and use some common sense to ponder how effective digital ads could possibly be, given the way big advertisers are doing digital these days. Note that I’m a digital marketer of 25 years and continue to advocate for it, as it is one of the most efficient and cost effective channels for marketing — but only if used correctly. Let’s hold that thought for a minute and explore how big brand marketers spending billions in digital ($157 billion in the U.S., $350 billion globally) through big media agencies are doing it wrong and wasting big money in the process.
Digital Supply Chain Costs – 50%
When marketers buy digital ads, some of that money goes towards showing ads and some of it goes to the ad tech companies whose technologies are used as the “pipes” to target and serve the ads – i.e. the programmatic “supply chain.” The portion of every dollar that goes through to the publisher/website is the portion that is used to show the ads; the rest of that dollar goes towards the revenue and profitability of the adtech middlemen. The complexity and lack of transparency of this supply chain (euphemisms for fraud) are covered elsewhere; we’re only focused on the overt costs here. (see: Things Are Not What They Seem In Digital Ad(Fraud)tising)
Three separate industry wide studies — ISBA (2020), ANA (2017), WFA (2017) — confirm that about 50% of every dollar goes to adtech middlemen in the digital advertising supply chain. That leaves 50% for the publishers to show the ads. That’s like a 50% tax. For every dollar an advertiser spends, they only get 50 cents worth of services (showing the ad). This is way worse than TV ads, for example where agencies might take a 15% cut of the ad budgets. Fifty percent is the average, and there are cases where the supply chain costs are even higher, but hidden from view. In what other channel would anyone be OK with a 50% tax; would you pay 50% tax on your groceries? Of course not.
Digital Ad Viewability – 50%
Of the dollars that ultimately make it through to the publisher to show ads, some ads have an “opportunity to be seen” while others don’t. For example, when a webpage first loads, the ads at the top of the page load immediately, while ads that are at the bottom of the page (“below the fold”) may be loaded but are not yet visible to the user unless they scroll down. To account for these differences a standard for digital ad “viewability” was introduced by the MRC (Media Ratings Council) in 2014, which provided that if 50% of the pixels of an ad were in view for 1 second, they would count the ad as “viewable.”
Again, without getting into how viewability measurements can go wrong or how bad guys deliberately alter viewability measurements, the charts above from DV and IAS show average viewability ranging from 50 – 70%. Of course viewability may be higher (some of it due to fraud) or lower than these averages; so let’s use 50% for this discussion. And I’ll leave you with a brain-twister – the MRC standard says if 50% of the pixels of an ad are in view for 1 second, it is counted as viewable. The stats show that 50% of the ads meet this criteria. That means half of your ads are half visible – I sure hope you put the key message or call to action in the top half of the ad.
Digital Ads Shown to Target Audiences – 50% at best
Let’s take another dimension – whether digital ads were shown to the right target audience. Most marketers assume that when they specify their target audiences (e.g. by buying data and audience segments from ad tech vendors) that their ads are targeted correctly 100% of the time. Far from it, Nielsen and comScore data dating back to 2011 and 2014, respectively showed that ads that are on-target range from 5% (left chart 10 million out of 213 million) to 50% (right chart – 44% on average “in-target”). This means that at most, half of the ads were actually shown to the right audience when targeting was used.
Without going into gory details, this is because virtually all of the targeting parameters and audience segments sold by ad tech companies are derived or deduced from other data. Users are typically not logged in and have never voluntarily given these companies their personal data. So these ad tech companies make guesses about who they are (gender, age range) and what they like, based on data points such as what sites they visited and what pages they looked at. You can see where this could go wrong, right? If the input data were crappy, the insights derived from them are crappier; and advertisers using this data for targeting are getting the crappiest results. So let’s be super generous and pretend that you’re the advertiser who got lucky and somehow 50% of your digital ads ended up being properly targeted.
Digital Ad Fraud, Ad Blocking, and Other Stuff – 50%?
If you’ve stuck with this so far, you’re probably realizing that while the promise of digital is still there — the right ad to the right person at the right time — but the practical matters of supply chain costs, ad viewability, and proper targeting have reduced the value of what a dollar spent in digital could produce to mere pennies. For example, if you take out 50 cents on the dollar due to supply chain costs, you’re left with 50 cents for showing ads. If on average half of those ads were viewable then only 25 cents worth of ads would have the opportunity to be seen. And if only 50% of those were properly targeted to your desired audience segment, the equivalent of 12.5 cents of your dollar spent in digital would meet those 3 criteria.
And we haven’t even touched on digital ad fraud and other fun stuff. I won’t belabor the point, you can look at the chart below for yourself. Ad fraud is not zero; but most IVT detection tech firms only report on bots (e.g. 1%) but fail to account for all the other forms of fraud and cheating. The ISBA study mentioned above found that even in the “most well lit” environments, 15% of the money went “missing.” This “unknown delta” represents a third of the portion that went to adtech middlemen.
Further, ad blocking is done by humans; bots don’t block ads because it’s their job to cause the ads to load (they get paid for that). So if you’re showing ads to users that haven’t blocked ads, you are disproportionately showing ads to bots, not humans. Similarly, privacy regulations are forcing sites and adtech companies to obtain consent from users in order to track them and show them ads. But while only a small number of humans have given consent, 100% of the bots have given consent, because it’s their job to cause ad impressions to load. So again, showing ads to users that have given consent means your ads are being shown disproportionately to bots.
How Many “50%’s” Can You Subtract Before You Hit Zero?
The only question that remains for marketers is to ponder how many 50%’s do I lop off before I get to zero? Astute marketers will argue that this should not be subtraction because there must be some overlaps. This should be multiplication. OK, what is 50% x 50% x 50% x 50%? Right, a small number (6% for those paying attention). Marketers who spend millions in digital marketing should take into account the factors mentioned above. For every dollar they spend in digital, only 6 cents goes towards showing ads, that are viewable, to real people, in the desired target audience. What if you could spend just the 6 cents and save the other 94 cents? that’s a savings of 94% right there.
Small businesses that don’t have millions to spend are getting far more out of digital marketing. That is because they are not going for large quantities of ads, lots of clicks, and low prices. Small business owners are using very small numbers of search ads (on Google itself) and/or very small numbers of display ads (on Facebook itself) to great effect (see: Is There More Ad Fraud In ‘Walled Gardens’ Like Agencies Say?). They are measuring business outcomes (sales, downloads, etc.) and optimizing campaigns based on actual business activity that result from the paid marketing. You can too.
What Can Big Brand Advertisers Learn From Small Businesses?
Big brand advertisers and marketers don’t have to be ripped off by digital marketing. If only a few cents on the dollar are actually going towards showing ads, why spend the entire dollar? (Note the 94% cost savings above). If you buy more direct from publishers, and less through the long, complex, and shady ad tech supply chain, more of your dollar goes towards showing ads. It is also less subject to faked viewability and other forms of ad fraud. Buying smaller quantities of ads, targeted to real humans in the right audience segments will result in more business outcomes, even if the CPM prices are higher. You’re still spending less because you only need fewer ad impressions.
If you choose to ignore all of the above, you’re the proverbial “spray and pray” advertiser; unfortunately those prayers are not going to be answered by the gods of digital ad effectiveness. Better to save the 94% that would have gone to middlemens’ pockets, waste, and fraud.
The paradox is that for big advertisers, buying larger quantities of impressions lowers business outcomes (because of the various costs, waste, and fraud). Conversely, advertisers can pay far less costs and get better actual performance from digital campaigns, like small business owners, achieving awesome outcomes by doing digital marketing correctly.
Further reading: Marketers And Publishers Are Making More Money By Using Less Adtech