Shrinking budgets leave programmatic marketers with a raw deal

By Kimeko McCoy • May 31, 2024 •

Ivy Liu

Programmatic advertising — at least the open marketplace part of it — might be turning into the forgotten child of the marketing industry.

Chalk it up to a few reasons: Ad budgets are spread thin across channels these days. That means clients aren’t keen on dishing out enough cash for all the ad tech tools, staff time and commissions needed for programmatic buying.

Plus, they’re already facing challenges with generative AI, burnout from Google’s hurry up and wait (again) cookie deprecation, measurement, inventory and the list goes on.

That’s left programmatic buyers with the short end of the stick, raising challenges they got candid about at this year’s Digiday Programmatic Marketing Summit.

Despite these varied concerns, money was the common thread. Clients being stingier with their budgets has ripple effects throughout programmatic marketing, impacting commission rates, agency fees, and staffing.

“You’ll see a lot of times clients will try to normalize into really low commissions,” said one agency executive at this year’s DPMS closed-door town hall discussion. “But they don’t realize that what they’re doing is hurting the talent that’s trading their business, and then also getting their investment deep into an agency product that’s helping to make up the margin.”

The programmatic iceberg

It’s a bit of a chicken and the egg situation. Commission rates are difficult to negotiate because it’s difficult to prove the effectiveness of programmatic to stakeholders, who often only see it as a way to buy cheap reach from the open market of programmatic inventory, where prices are decided in real-time through an auction.

It’s no wonder some observers liken programmatic advertising to an iceberg.

Some channels, like search or social, have an easier time getting verifiable results that are easy to digest for the C-suite, said an exec who spoke to Digiday for this story anonymously. Programmatic is not one of those channels, given fragmentation across various channels in the space and the black box nature of it all. But neither is it the wild west it once was. Thanks to third-party measurement providers, Ads.txt, Sellers.json, and better fraud awareness, the open marketplace is safer and more effective. Yet, it could still improve, as recent mishaps painfully highlight.

“Programmatic sometimes has a difficult time standing out there. Even though it is having a pretty powerful effect, it’s under the waterline of the iceberg. We’ve got a lot of ice there, but ours is harder to parse and that squeezes the budget sometimes,” per the exec. Programmatic is an “everything else channel”, where media buys happen across audio, display, connected television and a slew of other mediums, making it hard to pin point conversions and measure campaign effectiveness, the exec added.

Meaning, agencies are having to rewrite the KPI playbook away from direct things like sales and conversions to more broad measurements, including brand lift, attribution and the like.

Agency fees and double dipping

Fees are another, enduring barrier to true reform. The tension between clients and ad agency over transparency in fees and services has been brewing for a while. If anything they’ve been compounded as agency margins have been squeezed. To make up the aforementioned margin, holding companies haven’t been so forthcoming about the exact breakdown of charged fees.

Some marketers accept this, others are pushing for more transparency — or at the very least more clarification on what they don’t know. Either way, there are questions over whether transparency concerns will ever reach a fever pitch, ultimately calling the attention of trade organizations. Notably, there has already been some attention on programmatic transparency from the Association of National Advertisers (ANA).

Increasingly, agencies are introducing new ways to “basically get the clients to pay for it [transparency],” said another agency exec, who spoke anonymously during the DPMS town hall. But these same agency execs say there’s no other way to do business but to resort to hidden fees.

“Clients started realizing these ad networks are charging me a $10 CPM, but they’re buying the media for $2 and they’re keeping $8, because that’s what an ad network would do,” said a second agency executive, who spoke with Digiday anonymously for this story. But instead of rallying against the ad networks, agencies made a similar move, going around the ad networks to access the same inventory as DSPs, charging less for CPMs and pocketing fees.

The pitch to clients is discounted CPMs and better impressions while creating “a new revenue stream to compensate for all the additional staff and labor and tools that we have to buy in order to do all this work,” said the second exec.

Claims like this prey on the ignorance of marketers. Being able to buy quality media cheaply is a slippery slope littered with a long tail of poorly targeted sites prone to advertising and all other kinds of shady practices. And yet, agency execs would argue they have little choice but to act like this. Clients are looking for the most bang for their buck, leaving little wiggle room for agencies to divvy up dollars between their media buys, tools, subscriptions and management fees to pay their own talent.

But the lack of transparency could backfire, said a third agency exec who spoke on the condition of anonymity for this story.

“The more that agencies have hidden fees like this or are skirting around, playing in what I would call a gray area, the more we’re going to tarnish the agency reputation, and in the end, the trust of our clients to us,” the third exec said.

Offshore and staffing

Staffing is another chicken and the egg problem, according to Dalia Youssefi, vp of retail media and data strategy at Mars United Commerce. Higher ups want to see the business points as to why in-house programmatic expertise is needed before being willing to invest in teams and resources, she added.

“No, you’re not going to get money in-house to do self-service solutions unless you have the staff. But you’re not going to get the staff unless the money comes up. It actually just starts with the money,” she said.

So another way to cut costs? Hire staff where the cost of living is significantly lower than it is here in the U.S., like India or a country in South America, per agency execs. It’s not exclusive to programmatic marketing, but it is another pain point expedited by economic hardship of the current economy and brands squeezing budgets.

As the trend continues, several DPMS attendees who spoke anonymously at the town hall said they were concerned about time zone differences and things getting lost in translation as their own agencies were working with offshore teams.

“There’s a bigger issue with the way that the industry is shifting and using nearshore and offshore. We’re not going to have American associates that know programmatic or have done hands-on keyboard,” said a third attendee who spoke at the town hall. “We’re losing a lot of programmatic knowledge that way.”

At best, the results have been mixed. In theory, offshoring saves money. But that’s not always the case said the third agency executive who spoke to Digiday for this story, adding that their agency doesn’t currently outsource work to offshore partners.

“Instead of saving money, you’re actually spending more time, going back and fixing and overseeing as [opposed to] actually letting the campaigns run and go from there,” the third exec said.

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