The Funny Math That Underpins Programmatic Digital Advertising

The Funny Math That Underpins Programmatic Digital Advertising

Ad arbitrage doesn’t work without fraud. But yet, everyone’s doing it. And it is highly profitable for them. Note that instead of 1 ad on the page, those eager to earn more revenue can simply stick 100 ads on the page, or 1,000, whatevs. They’ve also renamed it “traffic arbitrage” because if you can buy traffic at $3 and sell ads at $5, you pocket $2. Traffic arbitrage is enabled by “guaranteed traffic” which sounds great, until you realize it’s impossible in real life.

by Dr. Augustine Foo

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I strongly suggest you read Dr. Foo’s article and you take the time to understand his math. I have to partially disagree with the importance of the fraud in his point. Yes, fraud contributes in bringing false results or boosted results. But I doubt every one is doing it for fraudulent purposes. The misinterpretation of the long tail and the continuous need for increasing revenue in a world where value is no longer recognized on real basis sets the table for such systems. We need to pay attention!

The challenge in front of trusting and clean publishers lies in the capacity to reestablish value of ad impressions. CPM’s have gone down with programmatic on the false impression of infinite supply. There is no such thing as endless supply if you take false impressions out of the equation. Already, many publishers have stop the practise of purchasing traffic, thus making ward on fraudulent impressions, but losing as much as 50%-60% of their ad inventory. Very important to understand that the loss is due to cuts on buying traffic outside their network and not because they had fraudulent traffic on their sites.

Now, as Dr. Fou states it, under 3$ CPM impressions being not sustainable, Publishers are facing an amazing challenge at bringing up value by possibly 5x and even 10x.

What I believe we should get out of this article:

  • Fraudulent impressions took advantage of the long tail
  • 3$ CPM ad impressions is not a sustainable model for any publisher; so if you buy it blindly, you most be purchasing a great deal of nothing
  • In order to bring back real value to ad impressions, advertisers and agencies need to pay attention and not be fooled by funny maths
  • Taking control over your programmatic buying is more about understanding in details what you are buying and why you are buying it than internalizing the operations into your organization.