The Truly High Cost Of “Efficiency”

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The Truly High Cost Of “Efficiency”

September 27, 2020 | technology | No Comments

Thank you Dayna Moon, for the inspiration.

“Efficiency,” in mechanical terms, means the ratio of the useful work performed by a machine to the total energy expended to do that work. In digital marketing terms, “efficiency” should mean the ratio of business outcomes to total money spent to achieve those outcomes. Unfortunately “cost efficiency” has come to mean simply “low cost.” Media agencies have been touting “cost efficiency” as the key benefit of using programmatic ad tech to buy and place digital display media. And who doesn’t love a good deal, or low prices, as it were? 

But of course there’s a catch, as with anything that’s too good to be true. How can there be continuously more ad impressions to buy, while the CPM prices go lower and lower? As far as I’m aware, the number of humans on earth hasn’t exploded recently and the amount of time they spend online, on mobile devices, and on social media has been at a plateau since 2013 (i.e. fully saturated). Juxtapose that against the half-a-quadrillion display ads that are now transacted programmatically annually — yeah, “how many zeroes?” in 500,000,000,000,000? This leads us back to the original question — is it “efficient” to invest your ad budgets in programmatic media, even if the prices are lower, sometimes much much lower?

Is It Efficient If It Produced No Outcomes?

First off, we should look at whether programmatic digital ads are producing business outcomes. Virtually everyone assumes it does; that’s why $150 billion are spent on digital ads in the U.S. annually, and $350 billion worldwide. But when P&G turned off $200 billion (with a “b”) in their digital spending in 2018, they saw no change in business outcomes. Similarly, when Chase reduced the number of sites that showed their ads from 400,000 to 5,000, a 99% decrease, they saw no change in business outcomes. When Uber paused 80% of their paid marketing aimed at getting more users to install the Uber app, the installs kept happening at the same rate. These are just a few of the large, publicized examples of digital ad spend not driving incremental business outcomes, or any outcomes at all.

Marketers should run their own “pause digital spend” experiments to truly see whether digital dollars are performing for them. The pandemic has already led many marketers to do just that; and we are waiting to see the “receipts.”

Is It Efficient If Pennies on the Dollar Goes to Showing Ads to Humans?

When buying through programmatic channels, marketers might be getting cheaper CPM prices. But what is hidden from them is the portion of every dollar that goes into the pockets of ad tech middlemen instead of towards showing ads. After all, these intermediaries have to make money and keep their investors happy, right? Three industry-wide studies over the years have shown that at a minimum, 50 cents of every dollar goes to middlemen, leaving only 50% for the publishers to show ads. Wouldn’t it be better if you just paid the publishers directly to show your ads? The smart marketers that have realized this already have started initiatives which include “supply path optimization” — reducing the length and complexity of the programmatic supply chain, to reduce these middlemen costs and the associated risks of fraud.  

Is it efficient if your ads are shown to bots instead of humans, especially if the fraud detection tech companies can’t detect the bots? Is it efficient if your ads are not viewable — e.g. in pop-unders, hidden windows, invisible 1×1 pixel iframes, etc? Is it efficient if your ads are not on target, even if shown to humans, considering how inaccurate programmatic targeting data is. 

Further reading: The Cost-Performance Paradox of Modern Digital Marketing

Is It Efficient If You’re Pitching Too Much And Forgetting to Catch Entirely?

Previously, I used the baseball analogy to describe digital marketing. You are “pitching” when using tactics like display and video ads to drive awareness. You are “catching” when using tactics like search and content to harvest demand. Consumers now have many choices of products similar to yours, and they have many places to buy such products. So whoever is the most efficient at “harvesting” will win the sale. In other words, even if Canon were doing the advertising, Sony could be harvesting the demand if they have more content and better reviews that help the user decide to buy the Sony camera instead of the Canon one. 

The allure of the “cost efficiency” (incorrectly used to mean “low prices”) of digital programmatic ads has caused many-a-marketer to lose their heads, and shift too much of their digital dollars to programmatic digital channels. So they are pitching too much and neglecting to do any catching, or harvesting of the demand. In fact, some of the largest advertisers have even shifted too much of their total advertising budgets to digital programmatic at the expense of good old fashioned branding, via TV ads and billboards in the offline world. 

This irrational chase of “low cost” might be averted if marketers realized the truly high cost of buying too much programmatic digital. These costs — of middlemen, fraud, and “imbalance” between pitching and catching — are hidden, but there. Don’t let the incorrect use of the word “efficiency” trick you into being one of THOSE marketers who are known to be an easy “mark” for ad tech companies.

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