The Lure of Transparency

Two weeks ago, we covered one of the more fundamental topics in the world of performance marketing – transparency. We didn’t call it transparency then; instead, the article described one of the unsung heroes in the performance marketing world, sub id tracking. We can easily take for granted the power of sub id tracking to the advertiser, publisher, and networks that service both. From the advertiser perspective, having additional data passed means crucial insight into understanding the performance by traffic source. For the network, it means using fewer system resources to meet the almost infinite tracking needs of publishers and the added detail for the advertiser. For the publisher, the sub id mirrors the functionality and benefit to the advertiser, making sure they spend wisely, buying what they should, reducing spend on what doesn’t offer the yields. For all parties that rely on it, the sub id performs the same function, increasing transparency to make better decisions. And, like a cell phone in today’s world, the majority of people we know couldn’t imagine operating in a world without sub id tracking. Given that sub ids play such a large role in tracking and that they create transparency, that should mean transparency is a good thing, that people would welcome more transparency. Just look at our social lives – everything shared, overflowing with data points for those with whom we interact. Not so in the business world. At a point, too much transparency seems to create friction rather than the other way around.

I remember when LeadPoint first came out. It was at a time when the mortgage lead generation market still had strength. Their model of transparency radically altered the way publishers sold traffic. Prior to LeadPoint, almost all leads were treated equal. One publisher received the same amount as another. Yet, those familiar with the mortgage market know that leads, especially mortgage leads, can trade within a huge range – almost one thousand percent. Having each publisher receive the blended average of the whole meant those with lower quality earned more than they should, and those with good quality subsidized the lower quality guys. Only the large players with the robust sales force knew the real value of each of their leads. LeadPoint changed that, allowing any publisher who sold to them to earn the true value of their lead, as a percentage of what LeadPoint made, showing the lead seller exactly what transpired with their lead. All of a sudden, those with great quality earned what they should, and it allowed them to compete more effectively in the higher priced inventory where they previously could not, due to a blended payout. For those with lower quality though, such transparency did exactly the wrong thing. They now made some significant percentage less.

• The simple rule of performance marketing is that advertisers want to pay as little as possible and publishers want to make as much as possible. Except for the small handful of truly high quality performance sites, nobody wants to make what they are worth, and while advertisers say they want to pay the right amount, they have a mental barrier in doing so. Transparency should solve this, but it doesn’t. Transparency only highlights the current market inefficiency. It’s like sticker shock for some.

Going back to lead generation as a way to explain this, imagine a site that converted at 100%. Every lead turned into a sale. Let’s say that the buyer currently saw an average lead to sale conversion rate of five percent, and they paid 20 dollars per lead, or 1000 per sale. They might pay a high quality site 60, maybe 80 per lead, but even if they knew that this site converted at 100%, they couldn’t pay the 1000. They would still think they could get it for less. And, so long as sellers will offer them for cheaper, they will try even if the end result means a higher overall cost. Thus, they settle on the blended average, continually buying different sources, saying they want only the best ones but hoping the next cheapest one will be that undiscovered source of high quality. It doesn’t differ much from a parking lot, where people would save time by finding the first space, but we so like the variable payout and frequency (ala slot machines), we drive around convinced that this time might be the time. What results is a certain amount of money dedicated to waste – money spent in the belief that things should cost a certain amount, but ultimately paying more than it might because what it costs seems higher than you’d like and you think more should exist than actually does.

The advertiser doesn’t have all the culpability. The publisher and the networks do as well. People want to make money, and they want to make more than they are worth. The sub id which helps with transparency has a fundamental flaw. It tends to only help one part of the equation with transparency. It helps the advertiser see the advertiser side and the publisher see their side. It doesn’t do what LeadPoint’s exchange did and let each side see the other on a transaction level. Unlike the exchange which takes a flat fee per transaction like Visa, the network’s act like any network would, maximizing revenue and profit for it by manipulating the two sides of the equation. Think of a crab cake. The best crab cakes use very little filler. The network continually tweaks with how much filler it can insert while still charging the customer a premium rate. They know filler exists, but they know that they will make more money by balancing the filler than charging the right price. They will sell more cakes using the same amount of crab for a higher total. Their job is to balance the filler per cake; if one cake is too much filler, it hurts them, and if one is all crab, they’ve provided too much for the price.