Inside the Hidden Costs of Programmatic

Programmatic ad tech involves not just the ad inventory at the end, but a trail of fees and costs along the way to pay for expensive engineers and traders, data-management platforms, research and development and more. It adds up to make programmatic buying more expensive than ordering print ad pages or TV commercials through insertion orders and other routine methods.

Even when the ad inventory is cheaper through programmatic buys, in other words, everything it takes to get there makes the total outlay larger.

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"If we put $100 million into TV, we need 1% commission to break even. Print and outdoor need 2% to 2.5%. On local, we need about 3%." Buying digital media directly from a publisher, without the intervention of ad tech, requires about a 5% commission.

"And in programmatic, we need about 10% to 12%," he said. "That's 10 times more than TV, and that's just factoring in full-time employees and overhead."
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Who's collecting the "intermediary tax"? Not every transaction involves every kind of technology vendor, but ad exchanges that house media inventory, for example, charge 7% to 20% of media revenue they touch, according to the IAB report. Platforms that facilitate automated sales for media companies typically take 10% to 20% of the revenue that passes through their hands, according to the IAB report. Networks that service programmatic buys typically mark up inventory, citing the value that they add, by 30% to 50%.
http://adage.com/article/print-edition/inside-hidden-costs-programmatic/300340/