The advertising technique that funds most of the internet is grossly flawed: study

Key Points
  • Programmatic ad buying allows brands to buy mostly online advertising using data targeting and technology.
  • A new report shows there are many non-disclosed deals, as well as a lack of understanding about how programmatic works. Brands also are not sure about what they are paying for and how effective the advertising is.
  • The report authors called for more transparency in the process, as well as for companies to "trust but verify" advertising purchases
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A new study shows a popular automated method to buy online advertising has big problems: Advertisers don't know what they're buying and have no clear way to measure if they're getting their money's worth.

Several organizations that represent advertisers -- the Association of National Advertisers (ANA), the Association of Canadian Advertisers (ACA), Ebiquity and AD/FIN -- completed a study called "Programmatic: Seeing Through the Financial Fog" to further look into the technology-based ad buying process. It analyzed more than 16 billion programmatic transactions.

Programmatic advertising lets brands buy ads using data targeting and technology. Though most programmatic ad buying is for online ads, some services also let advertisers buy TV commercials. Companies like Google run programmatic ad exchanges, which allow advertisers to bid on ad placements on sites and platforms. Other services like Facebook Audience Network use a company's internal data — in this case Facebook profiles and activity — to target users across the entire internet and show them ads.

The programmatic study concluded that cross-industry standards were missing to show companies how much ads are costing them and how effective they are. It also found evidence of undisclosed deals between marketers and agencies. In addition, a lot of advertisers didn't really understand how programmatic advertising works.

"Programmatic media buying is becoming the most dominant approach because it offers targeting precision, scalability, cost efficiency, real-time optimization, and unprecedented leverage of big data for advertisers," ANA CEO Bob Liodice said in a statement. "However, programmatic buying remains complex and often non-transparent. Our study revealed that this lack of transparency makes it difficult for advertisers to manage, measure, and audit programmatic media investments with the same rigor as traditional media investments."

The report comes at a time when brands are asking digital platforms to provide more information on their ads. Google was involved in an ad scandal in March when some of its ads were shown running next to jihadist and neo-Nazi content on YouTube and other websites whose advertising was placed by its programmatic ad technology.

Advertisers have also called on Snap to provide more information on the effectiveness of ads on its platform.

There are also questions over the accuracy of internally reported metrics. Facebook admitted it overstated the amount of time users viewed video on its platform in September 2016, as well as a few more measurement errors in the following months. On Tuesday, the company said a "bug" caused some clicks on its video carousels to count as ad click links.

The report authors said if current methods prevail, brands will have a hard time managing programmatic advertising compared to traditional ad buying methods. They included an list of recommendations, including a call for more "transparency" in the process, and for companies to "trust but verify" their ad purchases. They also called for more disclosure about conflicts of interest for all parties.