An introduction to Programmatic Tech Costs for Publishers!

Publishers are good at creating content. They spend considerable resources in publishing and are dependent on advertising to pay for employees , Infra and other related content costs. At least this is the case for most of the publishers globally with a small percentage , generating revenues through subscription.

Publishers also strive for maximising the reach and engagement for their content. Since primary source of revenues for publishers is advertising , formula becomes simple :

Generate more content , drive more traffic, get more page views, introduce more ad slots, generate more inventory , expect the advertisers to pay for ad impressions and users , improve quality of supply to make buyers pay more impressions. 

While Publishers are good at producing content and driving users , advertising ecosystem , especially programmatic is not a strong point.

Since one can add only as much ad slots and drive only as much traffic , in an effort to maximise the ROI on content , publishers end up signing up with multiple partners , ad exchanges and networks. However, not every publisher really understands the implications of tech fee involved .

Programmatic tech cost structure

To give you an idea , As per studies conducted by leading industry experts , publishers receive only 45% to 50% of every $ spent by the advertiser. This ~40% is spent on tech costs to make the ad transactions work.

In programmatic Stack, typically money flows as shown below:

Image Credits : MagnaGlobal

At each layer , certain % is shaved off. For example , if an Advertiser puts $100 the budget:

  • 20% goes to DSP, Agency, Trading desks
  • 5%-10% to exchange
  • 15%-30% to SSPs and Resellers
  • 45% reaches publisher.

So, for every $100 spend by advertiser, seller only gets $45 – $60 approximately.

While over the years the % costs at each layer is going down , the scale is going up due to ever increasing adoption of programmatic sales.

Publisher can take a stand of defining minimum price for their supply. Going by the example above in reverse order , if Publisher decides to reserve the price at $50 , the inventory becomes costlier as costs for each layer compound.

This results in lower coverage since advertiser budgets are more or less fixed , and more of the ad spend moves to other suppliers with a lower inventory rates .

What options do publishers have to claim larger share of ad spend?

As a publisher, you are on receiving end , both Literally and Metaphorically 🙂 , but Prudence and Curiosity are your best friends. Here are a few suggestions to better understand the costs and what to negotiate

  • Understanding Margins :
    • A good place to begin will be review all the contracts that you have with SSP and Adservers . Pay special attention to commercials , Fee structures , Platform and tech costs , Verification costs, Audience and DMP costs. Speak with your reps on take rates being applied for you.
    • This will give you an idea on how much are you sharing with SSP and ad exchange . you may choose to renegotiate the platform and tech fee, Audience verification Minimums or CPM rates and audience costs.
  • Clean The Supply Paths :
    • Speak with SSP’s and Adserver team to understand how many Hops are involved before your supply reaches the exchange?
    • .How many resellers are authorised to sell your inventory to an exchange.? Most SSPs are happy to help with limiting the pipes that carry your supply as this saves infra cost.
    • Essentially , you should reduce the number of resellers carrying your inventory to an exchange.
    • Ideal would be to sign a direct contract with your SSP , so that supply reaches to SSP and there for exchange in nor more than 2-3 hops.
  • Audience Data .
    • If you have first party data , insist on using your own data to save the layering costs
    • However, before making such suggestions , you should ensure your buckets are properly calibrated and validated else you would loose the business and face too.
    • If your audience buckets are well formed and perform well, but not able to provide scale, you can look at audience extension, which is less expensive

If you are a large publisher , then you may also try Demand path Optimisation. You should to speak with Trading desks and DSPs to understand their pain points and expectations. If you can offer custom solutions to their entities like premium supply, first call , Private Auctions, you should able to demand not only better rates but also lower the costs involved .

Update . More recent study out by FT on May 7th , 2020

https://www.ft.com/content/9ee0ebd3-346f-45b1-8b92-aa5c597d4389

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