Recently, I read this article on Expedia’s open criticism of the massive cost inefficiencies of programmatic ads where only 40 cents on the dollar was actually being spent on serving ads for acquisition. Roughly 60 cents was going to the middleman, ad tech firms and vendors.
Now let’s back this train up and explain why this is a huge issues for Expedia. Expedia is a massive affiliate machine. They aggregate travel deals from all over the web, some direct from actual hotels and airlines, and some deals from their distributors, but Expedia doesn’t actually own any of the products. What they have built is one if the easiest trip planners ever where you can bundle air tickets, hotel reservations, and car rentals for the best price guaranteed. They also have strong presence both with content and reviews.
Now back to the economics. Because Expedia doesn’t own any of the products they are actually selling, they have to share their small rev share with Ad Tech Firms where less than half of their spend is used to actually promote their deals! It’s due to this inefficiency that Expedia and probably tons of other brands will never commit more than a portion of their marketing budget. In fact, probably any brand with the resources will take this in-house. The more brands do this, the more obsolete tech firms will become. Ad tech firms will have to start targeting smaller companies and startups without resources and probably smaller budgets. Inevitably, a marketplace will open to disrupt this relationship even more.
Take aways:
- Ad tech firms only actually use 40% of a brand’s budget on programmatic spending. 60% goes direct into their pockets
- Shocked Expedia, a huge company hasn’t taken this in-house, where they can control spending themselves More companies will start moving towards in-house capabilities
- Ad tech firms will either need to become more efficient, ,more transparency and show that they are battling fraud if they want to stay relevant
- This is a good opportunity for marketplace disruption
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@samanthalewe 