Each year, companies dedicate thousands – if not millions – of dollars toward generating leads and brand awareness online. The Manifest research from 2018 on U.S. companies found 81 percent of companies spend at least $50,000 a year on digital marketing, while 41 percent spend at least $500,000. In 2020, a Gartner survey of CMOs in Western Europe and the U.S. found they spend 80 percent of marketing budgets on digital channels. With the pandemic setting new highs in online traffic and spending, performance-marketing service providers are cashing in.

Over the past few years, transparency of user data emerged as a factor in consumer activity. As major companies were busted for mishandling user data behind the scenes, tech giants like Google and Facebook started to slowly oblige calls for increased transparency on the utilization and sale of user data. Similarly, on the B2B side, performance marketing agencies started to face the same sorts of inquiries from marketers in light of ad fraud and brand safety concerns. Where were ads placed? What was the true cost of generating leads?

In other words, where was their money going?

Show me the money

Performance-marketing models strive for quantifiable goals and are usually afforded autonomy in their pursuit of those goals. Their business model makes money from charging administrative fees for running a client’s campaign. Performance-marketing agencies buy ad media and offer a price that includes both the administrative cost and lead generation cost, but the customer only pays the agency upon achievement of the goals, which can vary depending on the customer’s needs, such as acquiring a new user or generating a download, a first purchase, or a user registration. This model, however, depends on clients being left in the dark on some of the media buying processes, which run on programmatic advertising – the automated system of media buying and selling.

These processes range from calculating the cost per lead all the way down to choosing the appropriate ad networks, and involve sometimes numerous parties along a supply chain. Costs per lead, for example, depend on the agency’s pricing models, which aren’t always fully transparent, while the ad network of choice is, at times, selected based on an agency’s commission benefits and partnerships, rather than what’s in the best interest of the marketers. Four years ago, an ANA report found that “markups on media sold through principal transactions” ranged from anywhere between 30 to 90 percent, meaning marketers were paying huge premiums for media or to agencies buying the media. Moreover, supply chains became so overloaded in the programmatic advertising system that only 45 percent of programmatic revenues were actually reaching the ad publishers, while 55 percent went to those along the supply chain, according to a 2017 WARC report.

For some time, marketers were satisfied with the results for which they were paying agencies. As Alexandra Bruell reported in the Wall Street Journal in 2017, “The clients didn’t cry foul, because they were happy with the performance of digital campaigns or because they weren’t clued into the complexities of digital ad buying and agency profitability.”

The lack of transparency is catching up to them. Marketers are starting to take notice.

Wait a minute…

Three years ago, the bubble of inflated supply chain costs started to burst, as marketers started to ask questions, starting with Marc Pritchard. Many in the marketing space can recall the P&G chief’s famous speech from January 2017, in which he expressed discontentment with both the ad-network tech giants like Facebook and Google, and agencies’ lack of transparency.

“We serve ads to consumers through a non-transparent media supply chain with spotty compliance to common standards, unreliable measurement hidden rebates, and new inventions like bot and methbot fraud,” Pritchard harshly noted.

The ANA report, coupled with Pritchard’s industry-wide call, that exposed the non-transparent practices, had suddenly become the catalyst for change. But there is work to do still, in 2020.

Despite a seemingly optimistic programmatic advertising and general digital-media buying space, there still appear to be problems inside the supply chain that are difficult to attribute a cost to. An ISBA, PwC, and AOP study found lingering expense issues in the programmatic advertising supply chain, with “15% of advertiser spend – the unknown delta, representing around one-third of supply chain costs” unattributable. Furthermore, the study found that only 51 percent of advertiser revenue had reached the publisher – a meager 6 percent rise from WARC’s 2017 findings.

Forced by the pandemic

So, while it appears little has changed for the better in terms of the percentage of advertiser budget reaching publishers, the hope is that transparency will improve. With larger digital budgets under COVID-19, companies will increase the demand for transparency in contracts with agencies. Just like P&G’s subsidiaries that Pritchard mentioned would start more critically reviewing contracts with agencies, companies will follow suit. The larger digital ad budgets will force marketers to demand it.

In turn, greater demand will boost more transparent agencies and their supply chains, forcing those lagging behind to start picking up the pace.

Alternatively, because of the glaring supply chain issues and deeper pockets, advertisers may start cutting out some of the supply chain and managing the advertising needs in-house, or with different types of agencies. Companies looking for more control and transparency will start shifting from working with agencies running on the performance-marketing business model to agencies running what’s called a “subscription-based business model”. These kinds of models, often using special optimized platforms, provide more control over campaigns and greater transparency, wherein every dollar spent can be traced much more easily, by giving marketers direct access to the campaigns.

Full transparency might be a diamond in the rough inside the performance-marketing sector, but there’s always optimism that the system will change for the better. With more digital marketing dollars to go around during COVID-19, marketers will demand change from performance-marketing agencies or look elsewhere to fill their needs. The time is now for all varieties of advertising business models to change for the better.

Cover image source: Freddie Collins