We've all spent money on things that were sold as "the next best thing," only to be disappointed when those promises aren't delivered or don't result in a return on our investment.

Now imagine spending millions of dollars on something that not only turns out to be fraudulent but also benefits your agency "partners" at your expense. That's the painful situation many chief marketing officers have been facing with programmatic display advertising.

It's a multibillion-dollar problem that's shaking the confidence of thousands of marketing decision-makers. But what is it, exactly, and why is it leaving CMOs fed up and frustrated?

The Broken Promises of Programmatic

"Programmatic" is a term used to describe the buying and placement of advertising using software and algorithms—bots, if you will.

The promise made to CMOs is that programmatic makes it possible to pay only for highly effective ads that are delivered to the right people at the right time: No longer does an ad buyer have to agree to run a specific number of ads with a publisher, or to be locked in to a contract.

Then, there's programmatic media buying, which is often done on exchanges where ads are bought and sold in real-time, like stocks. During that process, software is used to automate the buying and placement of media inventory via a bidding system. It's entirely automated.

Again, the promise is that this method for buying ads offers "precision" and "personalization of messaging and media," resulting in "more efficiently targeted campaigns."

Sounds like marketing Shangri-La, right?

Not quite.

The serious (and legitimate) concerns around programmatic marketing and media buying are largely associated with two major issues:

  1. Focused fraud
  2. Lack of transparency

Focused Fraud

When computerized ad placement and optimization came on to the marketing scene, the display industry (rebranded from "banner ads") decided to provide incentives to large advertising agencies to sell banner and video advertising to their high-end clients, offering a 20-30% commission on advertising sold. However, none of that commission was tied to performance or results; instead, it was attached to the amount of money—client money—that was spent.

In such a free-for-all environment, advertising agencies couldn't buy enough programmatic display space. They started purchasing it for their clients in huge quantities, and their reporting began to mix correlation with causation. Using "view through" metrics, agencies would attribute credit for ads supposedly shown to customers—even when it couldn't be proven that those ads either had been seen by a human or had any effect on driving sales.

With no oversight, a fraudulent industry flourished; a large percentage of display ads were being served only to computerized robots (bots) posing as potential customers. Today, it's estimated that as many as 30-50% of display ads are "seen" only by bots (particularly mobile display ads), and recent articles have postulated that ad fraud is now a major source of revenue for the Russian mob. The Methbot scam, for example, was the largest ad fraud in history, claiming $3-5 million per day in fraudulent impressions at its peak.

As more and more evidence comes to light that their money is being wasted with this marketing tactic, CMOs are starting to put their foot down, demanding answers and accountability.

Lack of Transparency

In this era of programmatic marketing and media buying, CMOs are increasingly finding that the agencies they hire are spending their money—lots of it—with no regard to whether that investment leads to increased revenue or improved ROI.

In addition to the notable ad fraud happening, the lack of transparency has also led to significant agency kickbacks: Large agencies are getting under-the-table rebates for their client's media dollars—while they are also being paid a fee to spend those media dollars. Many are double-dipping even when the client isn't receiving any value for the money being spent.

In a recent Marketing Week column, Mark Ritson suggested that such kickbacks encourage agencies to buy media that does not align with their client's strategy or target audience. Ritson's insights were followed by new publication guidelines put out by the ISBA, a British advertising trade body. Its report uncovered a significant lack of transparency in media buying in areas such as ad viewability, brand safety, and click fraud. The report also expressed concerns about the use of rebates.

When agencies are transparent about their own costs, they charge appropriately. When they aren't, it's more tempting for them to overcharge in other areas to make up the shortfall. It's just better business when all parties and partners are clear about what they are paying for. As Airbnb's chief marketing officer, Jonathan Mildenhall, commented recently, "If it's not based on transparency and trust and integrity, then it really [doesn't work]."

Authentic Outcomes

In the words of Proctor & Gamble's chief brand officer, Marc Pritchard, "The days of giving digital a pass are over. It's time to grow up. It's time for action."

In addition to making it clear that they will no longer work with partners who don't communicate transparently or act in their best interests, CMOs are also getting smarter and more strategic about who they partner with and how.

Partnership agreements are starting to be structured so that payments are only made when there's a clear connection between results and performance; brands seek a real relationship with their partners based on trust and respect; and in-house tracking platforms are now being used to handle operating agreements, tracking, and payments.

Although programmatic display marketing is fraught with problems, the industry is making strides in trying to fix them. Retailers are implementing profound changes in how they negotiate with agencies and publishers, more effectively providing incentives to partners, and in some cases shifting agency compensation toward a performance model—a stance that has significant implications for all facets of digital marketing.

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Programmatic Display Advertising: Why CMOs Are Fed Up

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image of Robert Glazer

Robert Glazer is the founder and managing partner of Acceleration Partners, founder & chairman of BrandCycle, and author of Performance Partnerships: The Checkered Past, Changing Present and Exciting Future of Affiliate Marketing.

LinkedIn: Robert Glazer

Twitter: @robert_glazer