This guest post is written by Ollie Henderson, Founder of engagement marketplace, Silence Media
As digital ad spend reached a record high in 2015, the cost of ad fraud also rose to an estimated $18.5 billion – accounting for 34% of overall digital expenditure. It’s hardly surprising, therefore, that ad fraud and viewability remain at the top of the agenda as the new year begins.
Studies from eMarketer to Google show that on average only half of digital ads are viewable. In other words, only half of digital ads even have a chance of being seen by a human. So why are meagre levels of viewability still so prevalent? The answer is simple – in its current state, the market for page impressions is a 'market for lemons'.
The ‘market for lemons’ theory was developed by the economist George Akerlof in 1970 to explain why new products that should sell for a price reflective of their high quality are often bought at a much lower value. The reason for this phenomenon: when sellers know more than the buyer about their products, buyers will pay what they believe to be a fair price, without knowing whether they will get a ‘peach’ or a ‘lemon’ – with this information asymmetry forcing prices down.
The same economic dynamic can be applied to digital advertising. Buyers (advertisers) are unable to distinguish between a superior impression, a peach, and an inferior impression, a lemon.
In addition, a recent study found that almost half of advertisers admit to knowing very little or nothing about how programmatic buying actually works – including 29% of advertisers who have already adopted the technology. Yet as programmatic advertising continues to grow and technology becomes more sophisticated, new tools are emerging that can help advertisers accurately distinguish between lemons and peaches.
So, how can we increase the availability of digital peaches, ensuring both buyers and sellers can realise equal value?
To start with, there is an urgent need for publishers to improve how they signal the quality of the audience they are offering to advertisers. To achieve this, publishers must begin by better understanding their own users. Instead of just using anonymous data to make assumptions about site visitors, publishers need to engage with them to have a clearer understanding of their intention, the type of advertising that interests them, and the advertisers they prefer to receive it from.
In this way, publishers can create a detailed picture of their audience, enabling them to not only segment audiences more effectively and enhance targeting options for advertisers, but also offer deeper insights that will inform advertising decisions.
Buyers are already beginning to use ad viewability and brand safety tools to screen the impressions they are buying and improve the probability of purchasing a digital peach. But while this does go some way towards combatting outright ad fraud, these actions alone are not enough to — in the words of author Tim Harford in The Undercover Economist — “get rid of the bitter aftertaste”.
So, we come to the second part of the solution: the role of the intermediary. Whether the ‘middle-man’ is an agency, trading desk or technology partner, there is a responsibility to bridge the knowledge gap between buyer and seller. To create maximum transparency, intermediaries must not only use reliable data and verification tools, but also more effective performance measurements, such as whether the ad creative engaged a user or inspired them to follow its call-to-action.
Although the market for page impressions displays characteristics of a market for lemons, with a greater focus on transparency, understanding of the user and accurate measurement, both buyers and sellers can create value and grow digital peaches.