Martech 2.0 and Web3: Solving Advertising’s 50% Problem (Part 2)

The Waste

The problem of wasted ad spends has been there for a very long time. MediaVillage writes: “Imagine any other profession, and I use the term advisedly, tolerating the belief that half of its effort is wasted? Who would work with an accountant who files tax returns that are right only half the time? Who would work with a lawyer who loses half of his cases? Who would seek out a doctor whose diagnostic hit-rate is only 50 percent right? The advertising industry loves to perpetuate the myth that half of its spend is wasted — and that’s just how it is; you can’t win all the time. Is the click real or fraudulent? Human or bot? Who cares? It’s a flip of a coin, heads or tails, wasted or not. It’s the 50 percent rule.”

Earlier, it was in the context of print and TV advertising. Now it is the same with digital advertising. While the belief was that targeting online would eliminate waste, that has not happened. Even with programmatic advertising, the waste has continued. A 2018 post by Timothy Taylor pointed to a 2016 study by Interactive Advertising Bureau (IAB) and quotes Judy Unger Franks: “The IAB identified ten different value layers in the Programmatic ecosystem. I believe they are being overly generous by calling each a “value” layer. When you need an ad blocking service to avoid buying questionable content and a separate verification service to make sure that the ad was viewable by a human, how is this valuable? When you add up all the costs associated with the ten different layers, they account for 55% of the cpm (cost-per-thousand) that an advertiser pays for a programmatic ad. This means that for every dollar an advertiser spends in Programmatic Advertising over half (55%) of that dollar never reaches the publisher. It falls into the hands of all the third parties that are required to feed the beast that is the overly complex Programmatic Advertising ecosystem. We now know which half of an advertising investment is wasted. It’s wasted on infrastructure to prop up all those opportunities to buy individual audiences across the entire Programmatic Advertising supply chain.”

Despite all this, the power of the digital platforms has grown rapidly. Ben Thompson summarised the reasons for their success:

…The traditional marketing funnel made sense in a world where different parts of the customer journey happened in different places — literally. You might see an advertisement on TV, then a coupon in the newspaper, and finally the product on an end cap in a store. Every one of those exposures was a discrete advertising event that culminated in the customer picking up the product in question in putting it in their (literal) shopping cart.

On the Internet, though, that journey is increasingly compressed into a single impression: you see an ad on Instagram, you click on it to find out more, you login with Shop Pay, and then you wonder what you were thinking when it shows up at your door a few days later. The loop for apps is even tighter: you see an ad, click an ‘Install’ button, and are playing a level just seconds later. Sure, there are things like re-targeting or list building, but by-and-large Internet advertising, particularly when it comes to Facebook, is almost all direct response.

This can make for an exceptionally resilient business model: because the return-on-investment (ROI) of direct response advertising is measurable to a fantastically greater degree than traditional advertising measurement, advertisers can spend right up to the level they place on a particular customer or transaction’s value.

It is the combination of ease and measurability which propelled the success of the digital ad platforms. And so far, marketers have been largely oblivious to the waste that has been happening. But going forward, I believe they will have to look at these spends critically because the problem of rapidly rising costs of acquisition is going to become a serious drag to profitability.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.