Digital Dysfunction and the Broken Ad Industry

digitaldysfunctionThe “mortgage-backed securities” equivalent in the shady digital ad game means advertisers are getting minuscule returns on their investment. Can it be fixed?

According to recent research, marketers are pouring their dollars into internet advertising at a rate that is poised to overtake TV dollars by next year, says Tony Silber writing in Folio:. And for the most part, it’s going to waste.

Silber is talking about the complicated process of “traffic assignment,” in which a smaller publisher signs over their audience to a larger entity, which can then claim higher traffic numbers and, therefore, higher ad rates. While legal, it’s been described as “the online advertising equivalent of mortgage-backed securities.” (Variety posted a great explanation of traffic assignment in a recent post.)

Combined with all the other digital dysfunction going on – including ad fraud, ad blocking, the viewability scandal and poor engagement – Silber make the case that cheap digital ad costs may be coming at an enormously steep cost to advertisers.

“That all may produce incremental revenue, but only at a high cost in UX [user experience] and the publisher’s reputation,” he states.

Truly mind-numbing is the percentage of ad spend that results in anything actionable.

“For every dollar spent, only 40 cents reach actual consumers. Let’s say that of that 40 cents you lose another 25% to bot fraud,” explains Maarten Albarda in MediaPost. “That is 30 cents that actually reach consumers. But wait, one in five (?) people now use ad blockers, so take another 20% away. That leaves you with only 24 cents for every dollar spent on digital advertising that can generate potential consumer impact.”

What boggles Albarda’s mind, and ours, is that only in digital media is this kind of abuse allowed to happen.

“When the television advertising industry grew to such proportions that it became more and more difficult to keep track of what was broadcast when and where, the industry agreed to the ISCI code. When outdoor or local radio were accused of charging for ads that were never placed, agencies and marketers jointly developed spot-check services. The industry did these things together,” Albarda writes.

“Yet here we are in the 21st century with a whole segment of the industry that is, at best, shady and at worst, completely fraudulent, with no joint initiatives to tackle them whatsoever,” he continues.

It’s the classic case of a system developed to benefit the system’s creators and operators, not the people pouring their marketing dollars into it. Fortunately, some publishers have woken up to the digital ad nightmare and are taking action, by moving away from “impression-based trading” and backing up their ad sales with some real accountability. It seems that publishing – serious publishing that offers real content – is poised to splinter from the massive wave of dreck online. Let’s hope it happens before the industry completely melts down under its folly.