Transparency in the Advertising Business

No wonder it has been so difficult to establish transparency in the advertising industry. From its very inception  advertising’s business model was based on secrecy. A history of more than 150 years is difficult to erase.

The first advertising “agent,”  Volney Palmer, opened a shop in Philadelphia in 1843. Palmer essentially worked as a lead generation service for local publishers, sending ad copy written by the advertiser along with collected payment to the newspapers for which it was intended. There was no copy-checking, and no “truth in advertising” standard, and no creativity. If you paid for the space in the newspaper, the ad ran.

Palmer did not work on behalf of the advertiser at all. However, some time later, a man named Samuel Pettingill opened an agency in New York and changed the model to one of an independent space broker, taking his payment as a commission on the fees paid to publishers. Naturally the agent wanted to buy space from the publisher as inexpensively as possible and sell it to advertisers for as much as possible, without revealing the numbers to either party.

Because of this lack of transparency, neither side trusted the advertising agent in the 19th century. In The Mirror Makers , Stephen Fox says that the early agents only “owed their lives to the fact that their was a law against killing them.”!

For the publishers, the ad agent was a nuisance to be tolerated; newspapers then derived about a third of their revenues from advertising and national magazines even less. For the advertiser, things were even more murky; a business risked its credit rating by advertising. It was seen as a sign of potential financial weakness. Only suspect businesses advertised.

To compound ethical doubts about advertising, many of the early advertisers were the 19th century equivalent of pharmaceutical companies, only they were patent medicines like Lydia Pinkham’s vegetable compound whose claims had never been tested. The biggest advertisers at the end of the century were “quack” doctors who advertised their preparations in the newspaper and traveled the country holding events at which they sold directly.

But in the 20th century all that changed when emphasis shifted from the publisher side and the size of the budget to the quality of the ad itself. That’s when agencies began to get creative, and the modern agency format evolved — the one in which an agency was a trusted counselor to advertisers. J. Walter Thompson invented the account executive and we all know the rest. The job of the account executive was to keep the advertiser happy and keep him spending.

Unfortunately, ad tech so far has not served to uncloak the mystery of ad budgets — where they go and what ROI they produce. In fact, because there are now so many vendors between buyer and seller (the buyer now being the agency) things have only gotten more obscure. In the early days of programmatic, many media buyers didn’t even know where their ads were appearing.

But things are looking up. More and more testing and reporting mechanisms have evolved, and it’s now possible for someone who really wants to know what things cost, who gets a piece of the action, and whether that cost is ultimately “worth it”  to examine the data and arrive at an opinion. Vendor consolidations in the space this year and next, along with stiffer requirements by the people with the money (marketers) to know where and how that money is spent will yield better information and better decisions by marketers.