WARC claims that middle men (including agencies) ‘Tech Tax’ costs advertisers $30bn

We all know that lots of programmatic advertising is wasted – strange that old Lord Leverhulme’s observation that half his advertising was wasted, he just didn’t know which half, still obtains – and now industry researcher WARC has produced some new and rather startling figures on the subject.

But it isn’t bots or villainous Russian spies to blame, it’s the serried ranks of middle men creaming off their cut.

WARC estimates that $63.4bn was spent on programmatic advertising worldwide last year but as little as $17.8bn (28 per cent) may have actually made it to the ‘working media’ level.

Programmatic’s role in ad trade is increasing rapidly: two in every five dollars (39 per cent) spent on advertising in the US last year – across all media and formats – were traded by machines. This rate has doubled over the last five years.

With such rapid rise in digital advertising, over half the senior marketers surveyed by the CMO Council cited social media risks and reputation management as a major issue. One in three highlighted ad fraud, ad misplacement and viewability as concerns, while a quarter cited media buying transparency and accountability.

WARC’s evidence seems to show they’re right to be worried, especially about transparency and accountability.

The ‘Tech Tax’ (money spent on trading desks, demand side platforms, ad exchanges and data, targeting and verification services) cost programmatic advertisers over $30bn in 2017.

The tech tax equates to $34.9bn although WARC says the true figure will be closer to $30bn, as platforms where the tech is integrated (such as YouTube’s Trueview) cloud the calculation.

After such eye-watering agency fees, of the $63.4bn in estimated programmatic advertiser spend last year, only $17.8bn made it to the ‘working media’ level when assuming a 30 per cent fraud rate.

Which is pretty staggering. How do agencies justify it?

Reputation management is another issue but we all know that. In terms of ad misplacement WARC reckons that programmatic video ads pose the biggest risk to advertisers with the average risk for desktop display ads across 11 key markets at 6.9 per cent.

The Americas are the worst offender with one in ten (10.2 per cent) desktop impressions in Brazil flagged as moderate to very high-risk inventory, followed by the US (9.4 per cent) and Canada (8.4 per cent). The risk was lowest in Singapore (3.4 per cent).

But it’s that £30bn ‘Tech Tax’ that will raise eyebrows.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.
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