Our current descent into the long, dark nights of winter reminds us of just how much we value sunshine. It lifts the spirits and, as the saying goes, it’s the best disinfectant.

One area where we need more sunshine is in the increasingly complex world of digital adtech, where so much of advertisers’ media investments disappear.

These are companies that have been able to make incredibly high margins, without having to provide evidence of their role in making advertising work harder and be more successful.

The evidence that we do have is just how much money they are making from advertiser budgets.

The Trade Desk (TTD) is a good example. Its Q2 2021 financials showed that its revenue had doubled year-on-year. The really startling number is its EBITDA margin, a cool 42%.

All comparisons are odious but WPP is worth £12 billion while The Trade Desk is worth roughly double (£25 billion) on about 15% of WPP’s revenues.

Taboola’s maiden results showed a 35% margin (EBITDA ex traffic acquisition costs) with a current valuation of $2.3 billion, rewarding it for its contribution to global awareness of dental implants and funeral plans.

There are adtech companies that have dramatically under-performed since flotation, but Tom Triscari’s ‘Quo Vadis’ newsletter shows that adtech players in totality have dramatically outperformed the market since 2018. (Disclosure: Tom and I are advising the ANA on its current Programmatic Transparency study).

Investors in these adtech success stories may be happy with their gains, but any truthful analysis of the long-term sustainability of the adtech bubble suggests that they should take their money out now.

Few analysts provide unbiased insight into this crazy bubble, but one independent player, Arete Research, truly knows this space and its latest coverage of this sector (‘Between a Rock and a Hard Place’) should be read by advertisers.

It’s hard to summarise such a majestic overview in a few paragraphs, but its review of the industry includes the damning: “Billions of dollars were wasted buying open-web inventory largely to the benefit of independent adtech players as well as unscrupulous publishers”.

It argues that the independent adtech industry (and specifically, the recently floated companies with sky-high valuations) is in for a big correction. 

Many advertisers have either been unaware of the extent of the raid on their media investments or turned a blind eye. Arete talks about ‘FOFO’, the fear of finding out (also used in a good paper from R3 in August) because of the potential extent of the wastage. 

A recent ‘Morning Brew’ article lays bare the sharp practices and unacceptable milking of advertisers’ budgets in the ‘content discovery’ world where the bad actors go out of their way to disguise where advertising really ends up.

Investors may be happy to take the money and not ask too many questions but advertisers need to follow the money. Many rely on other parties to advise them on these matters, but that advice is rarely pure.

These issues are complex, delicate and require a degree of technical expertise, but solutions do exist. There has, until recently, been a dearth of independent advisors who know where the bodies are buried and have the technical know-how to exhume them.

Advisors need to be part of the solution, not part of the problem. Any advisor who in some way benefits from the ‘money-go-round’ cannot provide the objectivity advertisers need. 

This situation has gone on for long enough and the various initiatives from ISBA in 2020 and the current ANA study are good steps in the right direction, but ultimately progress has to come from the advertisers themselves through their support of trade body initiatives and, crucially, through their own endeavours.

They need to declare amnesties for their own people and external partners and dig in the right places.

They should read the reports by hugely expert analysts who are truly independent, such as Arete, and ask more questions about the workings of the market, not just their own small part of it.

The truth is out there and it’s ugly, but solutions also exist in better supply paths and technology that simply produce better results, more accountability and real transparency.

You may have to go off the well-worn path to find these answers but the journey is worth it.

It’s time to let the sunshine in, even if it’s dark and cold outside.

This article is an abridged version of the opinion published by Mediatel here.