Ad tech tax: the cost of doing business

Estimated reading time:

6 minutes

The rising Ad Tech Tax has forced industry players to rationalize and optimize their media spend to cut out intermediaries. And as advertisers and brands are rethinking their buying strategies, publishers are simultaneously looking to adapt their monetization strategies.

At Cannes Lions 2022, Ogury hosted a panel titled “The Ad Tech Tax: How advertisers and publishers can join forces with active curation,” moderated by Jonathon Matthews, Ogury VP Publisher Development U.S. The panel included three industry players who discussed the ad tech tax and how it affects their business operations. The advertising and media experts included:

Mike Brooks, SVP of Revenue and Marketing at WeatherBug
Oleg Korenfeld, CTO of CMI Media Group
Alex Payne, VP Ad Operations at Vice Media Group.

This panel shed light on common obstacles faced by buyers and sellers in the industry and how a seemingly fragmented system has forced both the supply and demand sides to reassess their methodologies and question the solutions available.

Don’t miss Bridging the gap between supply and demand and Where is the trust? Transparency (or lack thereof) of the supply chain in this three-part series.

What is the Ad Tech Tax?

How much money do you spend on digital advertising? How much of that budget goes toward your campaign, and how much is absorbed by fees? Perhaps more than you think.

Each ad dollar must travel down the supply chain before it reaches the publisher, who owns the inventory, and the ad tech companies who are responsible for distributing the ads to the target audience. But because the supply chain comprises an extensive list of players and vendors, it becomes challenging to measure just how much of that budget is spent on fees and how much is sent to the publisher. Those fees are the ad tech tax.

While this ad tech tax may seem like something suffered by advertisers alone, since the dollar starts on the demand side, it is also a pain point for publishers. From the demand side, this tax is similar to a premium, where advertisers are not getting their money’s worth since the full budget is not “working media.” Instead, working media is the starting budget minus the fees that pay the middlemen. What’s left can be used to push their advertisement. From the supply side, this tax is not unlike the compulsory contribution we make to state revenue. It is perceived as payment required to service clients, or otherwise, fees needed to compete with fellow publishers – “the cost of doing business.”

However, this cost is not working for most industry players due to a very apparent lack of transparency and trust. To be sustainable in the future, digital advertising will rely on a mutually beneficial solution for both advertisers and publishers in a cookieless world. This synergy will involve several factors, including but not limited to the deprecation of third-party cookies, the desire to cut off intermediaries, and the shrinking working media.

What does the Ad Tech Tax mean to you?

While it would be next to impossible to fully dissect the ad tech tax and its impact on the advertising ecosystem in a forty-minute conversation, our panelists delivered truly compelling insight. The conversation was jam-packed with thought-provoking perspectives on the complex nature of this tax and the varying degrees at which it impacts all layers of the ad ecosystem.

Brooks, who works on the Publisher side, described the ad tech tax as something akin to sending mail and the inadvertent waste associated. “When I think about the ad tech tax, I think about it like an envelope and stamps. You want to send the right amount of stamps – but at some point it’s too many, and you’re just wasting money. So, what is the right amount of money that has to go in your buy, not to a publisher, to get it where you want it, the way you want it while minimizing that waste and sending that envelope efficiently.”

To Korenfeld, who works on the agency side, the ad tech tax is what the buyer is willing to spend compared to what the publisher gets to see in the end, after all the fees are taken out. Is the working media that reaches the publisher incentive enough to give the demand side the impression they were willing to buy in the first place? “That gap between what I was willing to pay and what the publisher finally got is the ad tech tax,” he explained.

Payne, who works on the publisher side, feels that the ad tech tax itself has become fixated on the technology, leading to the overengineering of what inevitably becomes duplicative solutions. As the overall ad tech between the buyer and seller continues to grow, so does the lack of understanding and duplication on either side of the fence. The waste that Brooks refers to can be attributed to this over-construction of ad tech stacks, where platforms do not talk to one another, thus creating fragmentation.

The panelists agreed that the ad tech tax should benefit both the supply and demand sides. It should be understandable and justifiable – something that doesn’t require added explanation but rather reads clearly and adds up both logically and financially.

And without a certain level of cohesion and transparency across platforms and players, the role of the ad tech tax and its toll on the industry will continue to be an ongoing debate.

What’s the solution?

Payne expressed the need to focus more on the people and brands behind the supply and demand. “We’ve neglected the human side of the ad tech tax – the human relationships, the publisher development, the brand to publisher relationship. An ad tech tax through a partner can be very worthwhile.” Could this tax be reasonable if advertisers were to establish a rapport with publishers, where both parties are clear on the players involved and their overall function? For example, a peer-to-peer connection could create opportunities for advertisers and publishers to discuss potential redundancies, with the ultimate goal of reducing or eliminating them and establishing a more seamless workflow for all.

And as we rapidly progress toward a digital advertising landscape without cookies and IDs, it’s that much more critical that systems communicate and maintain transparency. Ogury predicts there will be a crackdown, and soon enough, advertisers will only wish to work with solution providers who respect consumer privacy entirely. But unfortunately, privacy cannot be guaranteed with countless – seemingly hidden – vendors on the supply chain.

Matthews reinforced how Ogury aims to be the intermediary, a singular middleman, between advertisers and publishers, thus negating the need for multiple players. It may also boil down to the curation of the supply, as Korenfeld states. Ogury is proud to be a comprehensive solution provider that delivers superior and sustainable ad results for advertisers and publishers using active curation without the use of cookies or IDs.

“From an Ogury perspective, we’ve been preparing for the cookieless world for quite some time,” Matthews remarked. “We don’t have memberships to use to collect data, but we’ve run regular engagement units. Inventory to authenticate and validate the audiences and their interests. And that’s worked for us. We’ve been able to build our own audience segments to use in targeting.”

Watch the full conversation here.

Learn more about the ad tech tax in this three-part series: