In a media announcement released in December, the ANA (Association of National Advertisers) declared that this year’s marketing word of the year, as chosen by its members, is… (drum roll)… TRANSPARENCY! Transparency, or the lack of it, was abuzz across the media community, from marketers to publishers and consumers. Although transparency malpractices are creating chaos in the digital eco-system, few are willing to tackle the efficiency of the ad-tech revenue share model, a cradle for hidden costs and limited visibility.
With the media evolution, the fragmentation of technologies and the inevitable rise in ad fraud, the relevance of a percentage-based fee is beginning to fade. Meanwhile, the SaaS-based model in the ad-tech offering is maturing and starting to show results.
The CPM-based media revenue percentage model has been widely accepted to date because marketers and publishers are used to buying and selling ads based on media awareness. But with ad fraud and dubious trading practices wreaking havoc and costing billions, 2017 could be a good time to consider a more transparent, more efficient and business savvy SaaS model that aligns fees with use.
Listed below are five top advantages of running ad-tech on a SaaS based model:
SaaS in ad-tech provides more visibility and more objective assessment
In an era of insufficient accountability, many publishers are earning less while a high percentage of marketers are paying more for exposure and second-rate results. Too often media or data costs are factored in without exposing the true cost of technology fees.
Companies that get paid for media, or a percentage of, are often more biased. There’s an inherent temptation to influence the customer into running higher margin campaigns or clouding the real deal through blind transactions. Black-box operations are frequently cited by CMOs as a reason to leave the traditional advertising model behind.
Compare this to a clear SaaS-based monthly service fee, with no hidden mark-ups, and an ability to deliver 100% unbiased reporting and analytics including viewability and verification.
Predictable contractual and recurring revenue model
In a SaaS model the unit of pricing is usually a monthly set fee enabling more data ownership and budget control. In ad-tech the service can be itemized as a consistent technology cost, not a media cost. The departure from campaign budgets makes it possible for customers to better control inventory and campaigns, reduce risk, reduce fake traffic and save significant costs.
A SaaS-based model also helps to facilitate a long-lasting customer relationship, which can be translated into a predictable and recurring revenue stream. It also solves the stickiness problem whereby customers charged through a revenue share model tend to move in a mercurial fashion to the next ‘shiny thing’ that promises more features or better return.
Finally, publishers and marketers working with SaaS-based suppliers have the choice between building teams in-house or outsourcing to an ad-tech offering which can be integrated into their technology stack.
More focus on customer service and better support
When working with a SaaS provider, the SaaS customer support essentially functions as an extension of the customer’s ad-op or IT department. By eliminating ad-tech issues such as media bias, SaaS can provide a streamlined focus on the customer’s needs while reacting more quickly to maintenance and support issues.
Zendesk, for instance, found that “69% of surveyed customers associated their positive customer service experience with the quick resolution of their issue” (Source: Subex.com).
SaaS helps to create a simpler media agnostic model in programmatic processes
John Wanamaker’s famous quote: “I know half of my advertising isn’t working, I just don’t know which half,” resonates well today, as it did more than a hundred years ago.
In advertising, as in most industries, the concept of buying cheap and selling high is part and parcel of the business model. In ad-tech there are a growing number of entities taking advantage of programmatic margin opportunities.
Middle-players have increasingly edged into the equation, beyond agencies and networks. The complex algorithms in RTB exchanges and the ability to repackage traffic across exchanges also made it possible for some players to take advantage of network latency.
In the video technology sphere, and in particular in programmatic video, transparency issues are even more severe, as conveyed in a comScore 2016 report. In this marketplace transparency is complicated by the fragmentation of different video ad technologies and the adaptation demands resulting from an ever-growing range of devices and systems.
The mounting frustration was pointed out in a Forrester – ANA survey last year. The significance of transparency on ad-tech trading effectiveness grew from 37% in 2014 to 64% in 2016, sparking a debate on financial transparency in the US, according to an Accenture report based on the ANA results.
The scalability of SaaS models raises ad-tech companies’ market valuation
Companies that offer visibility into product usage, while running on a well-managed SaaS model tend to exist longer as a software business. Since the products are itemized as a technology cost, SaaS-based companies fall under the evergreen economy. The “evergreen effect” is attractive to both marketing and technology partners as well as investors.
Conversely, ad-tech companies are often undervalued in Wall Street. Earlier this year, Louise Moynihan, VP Product Innovation at Demandbase, pointed out in AdExchanger that a move to a SaaS model could increase valuation up to 10 times.
Joanne Chen, a partner at Foundation Capital and , an investor in adRise, AdRoll, FreeWheel, TubeMogul and more, offered some insights into a VC perspective: “We try to find companies that have more of a focus on a software-oriented business model, whether that means working with brands or working with media.” (Video Ad News)
It may come as no surprise that throughout 2016 marketers and publishers increasingly demanded transparency and efficiency from their technology partners. But complaining about the lack of visibility in the supply chain, yet resisting business model changes can be counterproductive.
In video advertising specifically, transparency is complicated by the breakup of video ad technologies across separate silos. The adaptation demands more solutions for mobile devices and operating systems.
Aligned on the supply and demand side, a SaaS-based model can offer a consistent monthly fee that provides a media agnostic service with complete transparency. Ad-tech players that transition successfully to SaaS also have a better chance to position themselves as long term partners.
Despite the temptation, here at Cedato we chose to implement an open, flat-fee SaaS-based model instead of the standard revenue share route. The decision to date has delighted partners, disrupted the market and expedited the company’s traction.