AdAge Claims Publishers Screwed, Makes up Math
Interesting article at AdAge where Michael Learmonth claims that one of the issues facing the interactive advertising industry, is that there are too many people taking a piece of the pie. According to him, and some guy Tolman Geffs, from an investment bank I’ve never heard of, Agencies take .75 cents, ad network $2, data provider .75 cents, the ad exchange .25 cent and the ad server .25 cents.
Obviously Mr. Geffs is attempting to get attention for a non-issue, or more likely an issue that doesn’t really exist. First of all, his numbers are completely off. He’s claiming that an adnetwork would get $2cpm, but only pay out their publisher $1cpm? Almost all ad networks pay anywhere from 50 to 70 percent of their revenue to publishers – making this number completely false and totally made up.
Next, he claims that ad serving is taking .25 cents? I’m not even sure where he gets these numbers and what ad serving solution is charging anyone .25 cents for ad serving. Costs vary in the industry from as low as 1.5 cents to as high as 7.5 cents. I don’t know a single advertising server that is charging as much as .25 cents. He’s obviously making these numbers up to prove a point, which while somewhat valid is nothing new.
The weirdest part about all this is the claim that somehow publishers are left with nothing, after the whole ordeal. He is partially right, which is why many major publishers no longer use ad networks. However, he ignores the very fact that most ad networks are used as “fillers” for publishers, for their unsold inventory. He also ignores that the costs involved, such as agency fees, data providers are often part of the “built in” value of the advertising, especially the data targeting. He also ignores that many of these fees are in result for the publisher not having to be involved, and pay the normal fees involved with commission based sales people, making media kits, advertising their media on industry publications, billing and collections and many other overhead expenses.
What exactly is the issue here? There is no issue, as there are so many other problems with ad networks that we need to focus on, besides agencies getting a cut of the action. What really irks me here is that this goes to show that major publications, like AdAge, while useful, still don’t have an idea what is going on in interactive advertising beyond what the PR companies send them.
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4 Responses to “AdAge Claims Publishers Screwed, Makes up Math”
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$1 to the publisher is 50% of $2 CPM. Plus, in talking with a number of small publishers, 50% is the norm and $1 sounds correct (have heard as low as $.10)
Hi – I’ve never heard of your blog so I guess that makes us even. If you are interested you might want to read the rest of the pres I gave the IAB last week (posted at http://www.jegi.com) as I think the context would benefit your analysis. thanks, Tolman
Yes, $1.00 would be 50% of $2.00 but that is not the claim. The claim is $5.00 total with $2.00 CUT going to network, $1.00 CUT going to publisher (in other word the network getting $3.00 and paying out 33%).
I think Geffs presentation was a great overview of the state of the industry. (posted at http://www.jegi.com)
The article in Adage has clearly taken much out of context of the original presentation and focused on "too many hands in the cookie jar." However, in defense of Learmonth, the article did state the following very clearly:
"The debate is over what parts of the online display-ad ecosystem, estimated by eMarketer to be worth $7.9 billion in 2010, are adding value for publishers or brands, and what parts are preventing the flow of brand dollars into the system."
Networks, DSP’s, RTB’s, and the various associated players, should only exist where they add value to both the advertiser and the publisher. There are many players that do neither very well. Those players will be the fallout as the industry consolidates.
But, questioning the need for such players??? The middlemen are required for advertisers to efficiently connect with the right audiences. Whoever does that best will win in the long term. The result? Publishers will get paid handsomely for being able to acquire the right audience.