It has been heartening to hear the calls for greater transparency and quality over the last year.
Even if the movement was long overdue, it shows that fraud and quality issues are not insurmountable. Nor do they need to be accepted realities of the ecosystem or “the cost of doing business,” as some have wrongly positioned fraud.
As we purge the blight of fraud from the industry’s collective plumbing, however, there’s yet another antiquated vestige hidden in the pipes that still needs addressing: fees.
In particular, non-transparent, variable fees tucked into the bidding layers and never accounted for to buyers or sellers. Unexplained, unaccountable, unconscionable fees are the Bermuda triangle of our industry. Money goes in and doesn’t always come out.
Fees alone are not the issue, nor are they particularly problematic. The sheer scale of the computing power needed to power today’s ecosystem requires a substantial investment. Most exchanges operate on a revenue share with their publishers. Negotiated business terms generally vary based on scale and quality, but both the publisher and exchange agree to the clearly articulated splits upfront. Simple, transparent, and without controversy. At least in theory.
Opaque Fees Diminish Customer Trust
In practice, deliberately opaque fees make your cable bill look like a model of openness. They impose friction on every transaction, increase costs for everyone, and generally diminish trust in an industry that could sorely use more of it.
This leads to a bigger issue when instituting a revenue share: How is revenue defined? Is it the gross clear price the buyer paid, or the net price the exchange clears to the publisher? The problem is that some exchanges and supply-side platforms are charging up to a 15 percent transaction fee on every sold impression that neither publishers nor buyers ever see. These fees are generally taken out before a negotiated revenue share is assessed. And rather than living in publisher agreements, most have neatly tucked this into their buyer agreements, under the guise of terms like “technology costs” or “platform fees,” in hopes that low visibility equals little-to-no pushback.
So far, they’ve been right. Since this is never a line item on any invoice reading “transaction vig,” many buyers don’t realize how much exchanges are taxing their bids when they go to publishers, or that they are even taxed in the first place. Conversely, in this model, publishers are rarely seeing the true demand from buyers since they only see the net bid–not the gross–from buyers.
Since contractually these fees are variable, it’s impossible for buyers to have accurate price discovery. The percent they pay to the exchange for any given impression will move based on its SSP’s own yield management, internal revenue pressures, and ability to judge what the traffic will bear. Many have already mechanized this tax and used algorithms to charge as high of a percentage as possible, without adversely affecting fill rates and hurting their overall yield.
Long story short, some exchanges are skimming a fee off the top of the revenue from the buyer, reporting a lower number to the publisher, and then getting a rev share on that lower number. In the most extreme cases, this double-dipping can almost double the amount going into the exchange’s pocket. Publishers simply aren’t being exposed to the true value of their inventory or the profits it generates for the exchange.
Many will argue these variable fees are clearly stated in their agreements. And they are right. I am not questioning their legality, but I am questioning their function.
Why Aren't Fees Disclosed?
If the fees are there to offset the cost of running the exchange, then why aren’t they disclosed, transparently, to buyer and seller? Why is there a need to adjust the percentage they take from every sold impression without notifying the buyer and seller? Why disclose one fee to seller, and one to buyer, but both to neither?
If you haven’t used this fee to create profits at the expense of buyers and sellers, then why is it obfuscated? What are these exchanges hiding? A profit center? Either way, the lack of transparency is indefensible.
The next phase in the programmatic ecosystem will largely depend on the industry’s ability to move the direct IO business into our existing infrastructure. In order to do this, the current fee system needs to be transparent and non-variable. Both buyer and seller need to be able to accurately develop pricing relationships. Fax machines, paper, and PDFs do not cost buyer and seller a large percentage of the overall transaction. Which is why, despite the automation in the ecosystem, they prevail.
In order to secure the next phase of investment from brands and marketers, we have to be transparent about the cost across the entire chain–from buyer to seller. And judging from the environment right now, that transparency isn’t universally coming from exchanges yet, but going forward, it has to.
So today’s to-do list? Buyers, get a full accounting of your fees! Sit down with your rep and go over the last few months of bills. Sellers, get a full accounting of the revenue your exchange is claiming. Confirm whether your rev share starts at the buyer's gross price, or the exchange’s net price after deducting additional fees. And then decide if you’re comfortable based on that knowledge. If we want sunlight on this issue, both buyers and publishers will have to open the shades.