Understanding Ad Tech Fees
Ad tech has always had a fee transparency issue. The reasons why have always been the same — programmatic systems are complex and their fees are often branded with crafty lingo.
Advertisers and publishers both have pushed for further insight into creating greater transparency into what’s now known as the “ad tech tax”, but it starts with a further understanding of how all fees are taken.
Unless you are an engineer, it’s hard to understand every step in the chain and where it could be potentially costing publishers and advertisers. While things have certainly been progressing the direction of more transparency, we haven’t seen a mutually agreed-upon transparent solution around the ad tech value chain.
As fees are becoming more heavily debated, we are seeing companies start to shift their practices, such as many SSPs now ending their practice of charging buy side fees. While this sounds like a victory for the advertiser, what they fail to realize is they are the ones paying the sell side fee too. How could this be? Let’s take a look at how these two fees are calculated.
What is a buy side fee?
A buy side fee is taken by reducing the bid amount an advertisers inputs before the auction. This happens between the DSP and the SSP before it goes to an auction. This makes the price the advertiser was ultimately willing to pay less competitive since it is reduced before the publisher can consider it.
What is a supply side fee?
A supply side fee is calculated by reducing the cpm a publisher receives after the auction is complete. This happens between the SSP and publisher ad server. This allows the bid to clear the auction and from there a fee is taken out before the publisher receives the final price
In this model it seems the buyer is charged in one instance and the publisher in the other. But that is not really the case.
Why they are one in the same?
When thinking about monetization through ads, publishers are managing towards one goal; driving the highest yield. At no point does a publisher actually “pay” for the supply side fee. Publishers are looking at the end price and determining the amount they can make based on the advertisers working media.
What is working media?
Working media is defined as the final price a publisher receives to serve an ad after the auction ends. Both the buy and sell side fees reduce the amount of working media since they are ultimately taking away money the publisher receives for serving an ad. Meaning if you are buying the same publisher across two different SSPs the one with the lower fee will provide you with more working media.
How should we evaluate fees?
As an industry we should be looking at fees through the ad tech ecosystem, in their entirety, as a cost of transacting to the buyer. Advertisers budgets are ultimately the ones paying for these fees, so transparency into the what the rev share is with publishers is still valuable information to them. Now this is not saying that by just accessing inventory based on the lowest fee won’t guarantee the best results, but it’s information we shouldn’t ignore.
As an advertiser your primary goal is to drive ROI. Any hidden transactional fee only reduces the value of your working media, making you inclined to find out where your money is going. A transparent ad tech fee will further drive confidence that these systems are providing value — companies should have no problem paying if they are seeing a return.
Since all fees are taken as a CPM, it’s easy to calculator your own. I typically using the CPM calculator at LazyCPM since it’s quick and easy.
Ad tech has come a long way in a short time since its inception. As of recent the industry is constantly squeezing ad tech companies to further disclose their fees and processes. Both DSPs and SSPs still provide tremendous value to the space and will continue to do so with transparent fees or not. However, it’s time to get rid of the unnecessary inefficiencies advertisers have been forced to pay and label industry fees in a simple coherent way.
