Why Advertisers Aren't Asking for Transparency and How Facebook May Change That

FILE - In this Oct. 10, 2011 file photo, a magnifying glass is posed over a monitor displaying a Facebook page in Munich. Fac
FILE - In this Oct. 10, 2011 file photo, a magnifying glass is posed over a monitor displaying a Facebook page in Munich. Facebook is proposing to end its practice of letting users vote on changes to its privacy policies, though it will continue to let users comment on proposed updates. The world's biggest social media company said in a blog post Wednesday, Nov. 21, 2012, that its voting mechanism, which is triggered only if enough people comment on proposed changes, has become a system that emphasizes quantity of responses over quality of discussion. Users tend to leave one or two-word comments objecting to changes instead of more in-depth responses. (AP Photo/dapd, Joerg Koch, File)

I've always had a desire for fairness and transparency that takes many forms. I grew up in South Africa, which in the 1980's and 1990's heavily censored the press, and I think it added to my desire to be totally clear and upfront with anyone I work with, about what services they're paying for and why.

Flash forward 20 years later, and I work in online advertising technology, running a startup called Optimal we started in 2008. Not everyone in our industry feels the same desire for transparency. While some provide welcome services to take risk on media buys to provide alternative pricing models like cost per click (CPC) or cost per sale or acquisition (CPA), many others simply obfuscate the true price of media and tack on huge amounts of margin because their customers don't know or don't want to know.

Many firms who originally positioned themselves as software vendors essentially became ad networks and arbitrageurs, and the true cost of media was seldom disclosed. Many ad tech vendors instead now operate with ad agency or ad network business models, and bank those media dollars. If an entity is collecting media dollars (to pay to publishers) and fee dollars at the same time, it's easy to blur the lines to the customer about which is which.

A senior executive at one of the largest "demand side platforms" (DSP) told me that a lot of their customers "thought they wanted transparency but didn't really want transparency". He said that they, "we were transparent to our lack of transparency" - that their customers knew they were making big profits from them, but they valued it because it removed some of the variability from daily results which left less to explain to bosses, clients, or partners. "If you want to hit a $40 CPA, sometimes you get a $12 CPA and the next day a $90 CPA - a lot of these agencies can't handle this variability. But this is life. Sometimes it's just easier to have a fixed CPM or CPA or number of impressions. Many of their systems are not set up for variable amounts."

The 10-year old adserving technology from Atlas or Doubleclick has to shoulder some of the blame. Media with variable CPMs created a problem for agencies who had to go in and manually input fixed CPMs into their systems on the bidded, variable cost media they were buying. Only in 2012 did Doubleclick start offering reporting tools that dynamically synchronize with their own ad buying exchange. For many companies it's just easier to charge a specific price (for example, a $2.00 CPM) and make variable profits based on how well your technology works.

My firm, Optimal, started by running display ads on Google and Yahoo! programmatically for lots of customers and had to write one big check every month to Google, and one to Yahoo!. With Facebook ads, we were very happy about the fact that advertisers and agencies typically brought their own advertising accounts to our software platform, which connects to and manages those accounts on their behalf. Our fees are separate and don't show up in their ad accounts. Vendors like us don't want to be a bank, and prefer instead to be a software company letting partners like Facebook and Google (or credit card companies!) decide who deserves credit terms and go and collect their funds.

And yet, advertisers buying ads on Facebook through vendors like us could have a lot more transparency than they're getting right now. These rules from Facebook are not new, but very few advertisers appear to be aware of them and/or to ever take advantage of them. Facebook is a large percentage of the online and mobile ad impression market and climbing, especially also now with the Facebook Exchange (FBX) as a real-time ad buying marketplace. In 2011, Grady Burnett, Facebook's vice-president of global marketing, said: "The primary thing we care about is making sure people understand when they're paying for media on Facebook and when they're paying for something else." **

The Facebook Exchange was the catalyst for many DSPs, ad tech vendors, and ad networks to enter the more-transparent Facebook ad ecosystem in 2012, tapping into the retargeted ads available on FBX. They are now beholden to the Facebook Preferred Marketing Developers Guidelines (link here), which require the developer "to use separate ad accounts for each client" and to "never combine multiple end-advertisers within the same ad account". More importantly it states:

Pricing transparency: You must disclose to end-advertisers the actual amount that you spent on Facebook advertising based on the auction pricing, including the actual Facebook metrics (e.g. CPC, CPM rate) and the amount you charged as fees. We reserve the right to request documentation from you to ensure your compliance with this policy.

Many providers don't like this but won't often go on the record to say this. A C-level exec at a DSP that is participant in FBX commented in an email sent to a group: "Facebook is a bit onerous in requiring that vendors provide actual media costs for FBX campaigns; we've told them so and hope they'll come around to our view, which is that they can't expect us to grow the market for their high-ROAS new marketing channel without the ability to sell on value rather than lowest cost." Facebook is not saying you can't sell on value, but just that it needs to stand up to scrutiny when the media costs are examined.

It's still early days for FBX, but transparency is not the mere fact of telling an advertiser what you are charging them in an online report before you send them an invoice or charge their credit card. That's the naïve, ad network version. The ad network version of FBX involves creating and funding vendor-controlled ad accounts on behalf of your advertisers, instead of enabling their existing Facebook ads accounts to run both FBX ads and other Facebook ads under the vendor's control (which they should be able to easily take away from you), with a nice side-effect that the vendor can now report inflated gross revenue numbers. More substantively, not only should the advertiser have the right to see their data, but they should own the account they're using to run the ads.

Facebook is asking vendors and agencies to be price-transparent, and also providing mechanisms for advertisers to confirm this. Not enough have shown they care, yet. Advertisers should run all their Facebook ads in an account they can log into, ideally the same one where they manage their Facebook pages and can run newsfeed ads from since there are real synergies there. Or, if an advertiser is big enough to care but too big to look at reports, just give their Facebook rep a call and ask them how much they are spending. It's time for advertisers to actually start asking for this data, and start getting rid of the low-value ad networks hanging around collecting their excess rents.

Vendors who truly add value don't need to hide behind opacity.

**Note: This is not only Facebook. In 2010 Google added transparency requirements related to aggregators using Adwords, including requiring them to link to a disclosure document and display underlying cost, clicks and impression data.