Five Charts Explaining the Ad Tech Tax

The ad supply chain remains bewildering

The complicated nature of the ad supply chain makes it difficult for advertisers to determine how much money they send to vendors. While this makes it tough for researchers to quantify the “tech tax,” several companies have recently examined how much media spend winds up in the hands of ad tech firms.

After auditing the programmatic ecosystem in May, GroupM estimated that on average, demand-side platforms (DSPs) and supply-side platforms (SSPs) each take about a 10% cut of the ad spend flowing through their platforms. Collectively, these vendors receive about one-fifth of the overall spend advertisers send to publishers whenever they purchase their inventory.

The fees that some DSPs and SSPs charge are actually declining, but advertisers still face fees from data management platforms (DMPs) and other tech vendors. In March, Warc estimated that the total “tech tax” accounted for 55% of all programmatic spend worldwide.

The convoluted nature of the ad supply chain isn’t just bad for pricing transparency—it also provides nooks for fraudsters to hide their shady tricks.

In a recent Ad Lightning survey of 110 US ad operations professionals, 59% of respondents said that one of the top challenges of addressing ad quality problems is how hard it is to track down bad actors in the supply chain.

Some ad industry observers believe that blockchain’s open and distributed ledger could clear up some of these issues by making advertising transactions more transparent. But right now, blockchain doesn’t operate quickly enough to work in the fast-paced bidding world of programmatic advertising. Until the technology gets faster and more people adopt it, blockchain faces an uphill battle in fixing ad tech problems.

Another approach advertisers are taking to bring clarity to their tech fees is purging vendors.

Ad tracking firm Pathmatics analyzed the top 100 advertisers on its platform and found that the number of DSPs these advertisers use declined by about 40% between January 2016 and April 2018.