The digital ad business is broken, says former Forbes.com CEO
Jim Spanfeller, ex-CEO of Forbes.com, former publisher of Yahoo Internet Life, and chairman emeritus of the Internet Advertising Bureau, discusses the problems occurring in the digital advertising space.&nbsp;Spanfeller has said automated ad tech is too complex, providing too little transparency into who's buying what, with even 10% of "premium" inventory thought to be made up of ad bots and fraudulent impressions.
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“The onion is slowly and surely getting peeled back.”

Jim Spanfeller isn’t talking about how he’s making onion soup, although he does run The Daily Meal, a popular site about food and drink. This ex-CEO of Forbes.com, former publisher of Yahoo Internet Life, and chairman emeritus of the Internet Advertising Bureau is talking about how the problems in the current digital ad ecosystem are revealing themselves.

The industry is in what charitably might be called a dilemma — and uncharitably, a crisis.

Last year, Google reported that 56.1 percent of all ads served were not measured viewable by humans.

Last December, the Association of National Advertisers and security firm WhiteOps estimated that up to a quarter of video ad views were fraudulent and resulting from software bots. It also said that as much as half of publisher traffic is from bots. This represents a projected $6 billion-plus in wasted ad spend this year.

Spanfeller sees the current system as a big part of the problem.

Automated adtech, he noted, “takes a complex activity [of buying and selling digital ads] and makes it more effective and efficient, radically increasing ROI [return-on-investment],” compared to direct sales between an advertiser and a publisher.

But the full picture, he told me, is “a different storyline than what the industry would paint.”

‘Some brushmyteeth.com’

Essentially, Spanfeller said, the resulting digital ecosystem — with massive, real-time buying, selling, and deployment of ad space inventory and ads across a wide array of platforms — is too complex, with too little transparency into who’s buying what.

Some industry observers go further than that, arguing that the digital ad industry is beset by traffic and other fraud because there’s a sort of arbitrage going on. Some exchanges, publishers, and ad networks are looking the other way, this argument goes, because they can make money on fraudulent traffic and fake ads.

The main losers are the advertisers themselves. But the publishers are getting shafted as well, Spanfeller said, since advertisers are paying $10 per thousand impressions while some publishers “get a buck.”

“I’m not suggesting there’s an evil effort by agencies or exchanges,” Spanfeller said. “But here’s what happens with an ad exchange … [it needs] lots of impressions to scale [and] you lose control over who’s on the exchange.”

Some site can pop up, he said — “some brushmyteeth.com” that no one ever heard of — and find its way into an exchange.

“By buying through this arcane, byzantine system,” he said, “you end up buying a lot of things that aren’t real.” A frequent complaint about programmatic ad buying, for instance, is the lack of control over where ads are placed.

And bad publishers can spoil the pot. Google’s 2014 viewability study, for instance, found that a minority of publishers serve most of the non-viewable impressions, dragging down the served impression viewability average by almost 6 percent.

Buying premium

The idea behind online advertising is that there is a limitless amount of ad space inventory, Spanfeller said, but it’s “not a limitless amount if you define it as premium.”

Working with premium publishers is the high end of the digital ad world, and you frequently hear observers of the ad industry say that, if you want to avoid fraud and other issues, buy premium inventory.

When you do so, this theory goes, the chances are less that you’ll sell ads to that brushmyteeth.com site that employs software-created traffic to drive up their impressions. However, the Association of National Advertisers/WhiteOps report found that bots create as much as 10 percent of “ad impressions even in premium direct campaigns on well-known publishers.”

Spanfeller backs the premium approach. If you know from whom you’re buying, he said, “it will solve 80 percent of the issues.” But he noted that this “doesn’t preclude programmatic” or automatic buying and selling. He described himself as “a believer” in programmatic, but said the existing version is too complex.

Private marketplaces, he said, are one step in the direction of transparency. Additionally, some ad networks offer viewability guarantees, although it’s harder to get such guarantees from exchanges.

But it’s not only the complexity, the lack of transparency, the unknown places where ads reside. It’s also that the ad system is using massive amounts of third-party data to direct where ads will be placed.

And third-party data, Spanfeller said, “is fundamentally useless.”

Buying the environment

First-party data is from a brand’s own users or customers. Third-party data is anonymous information obtained about users to augment or substitute for first-party data. It can be, for instance, anonymous profiles about people who drive a car, based on cookie-tracked visits to car sites and other behavioral data.

While acknowledging that first-party data can be quite useful, Spanfeller cited conversations with data scientists who privately confide that third-party data lacks usefulness. One such expert, he said, contended that third-party data can have a 50 percent accuracy rate — but just for gender.

Ari Brandt, CEO of mobile ad network MediaBrix, recently told me, “Third-party providers of device-ID data for in-app targeting that rely on IP addresses are highly inaccurate,” in part because a number of different people might be associated with the same IP address.

But VentureBeat VP of research John Koetsier is more sanguine about third-party data, especially if an advertiser doesn’t rely on device IP.

“Better targeting and identification data services rely on device fingerprinting,” he told me, because it “looks at a wider assortment of variables, including location, of course, IP, sure, and device information, time, carrier, language, and easily 20 more.”

But, he pointed out, device fingerprinting does not age well. “So using data from last week or last month is not going to be effective in a lot of cases.”

“For mobile-only ads, of course, advertisers can insist on using Apple’s and Google’s technologies for advertising identifiers. Then you don’t even need device fingerprinting.”

Third-party data can get better, Spanfeller speculated: “At some point there will be a tipping point” when advertisers require better data.

Increasingly, one hears comments like Spanfeller’s about the advantages of buying premium publisher ad inventory, of knowing whom you’re dealing with, of the overall system’s opacity, and of new — often proprietary — ways to deal with ad traffic fraud and viewability issues.

In the old days, Brandt recalled, advertisers would “buy environments” — placement in a magazine, a TV show — to get the audience they wanted.

These days, the key environment affecting the effectiveness of your digital ads may be the one where you’re buying and selling them.