AdTech tax taking toll on programmatic in India?

The TAM AdEX report for January-June 2024 showed that programmatic dominated digital ad channels in India, making up a formidable 88% of digital ad spend, a segment which itself has become the largest shareholder of India’s lucrative media market.

As we’ve covered previously, while the adtech ecosystem has evolved, offering more sophisticated tools like supply-path optimization (SPO) and blockchain-based solutions, advertisers still grapple with a concerning lack of clarity. This opacity, often referred to as the “ad tech tax,” has created trust issues for advertisers, many of whom feel left in the dark regarding how much of their budget truly reaches the publisher.

It is a term that is coming up with increasing frequency across board rooms and conference halls, in private media briefings as well as larger industry symposia, as Indian advertising advances into diverse digital domains, in leaps, bounds, and the occasional stumble. The presence of numerous intermediaries—demand-side platforms (DSPs), supply-side platforms (SSPs), data management platforms (DMPs), and various third-party vendors—continues to obscure where ad dollars are spent, how fees are distributed, and the actual return on investment (ROI).

Vaibhav Kandpal, CEO and Founder of Lead Experts, sheds light on how these layers consume significant portions of the digital advertising budget. “When an advertiser invests in programmatic advertising , the spend is divided across multiple platforms and services,” he explains. DSPs and SSPs each take between 10-20%, while ad exchanges typically absorb another 5-10%. Adding to this, data providers and verification services further cut into the budget, consuming 10-15% by themselves. What’s left is finally what reaches the publisher—the actual digital real estate provider.

Amit Verma, co-founder and CEO of DigitUp, expands on this, saying, “The cost is divided into several services: tracking technologies help monitor ads, placement technologies automate the process based on ad inventory, and viewability technologies measure impressions and ad success. Additionally, reputation management ensures that ads aren’t placed in harmful environments, and ad fraud detection tools deal with bots creating fake clicks and impressions. But what's concerning is that approximately 15% of the cost has no label. It’s completely opaque, and better regulation is likely needed to address this lack of transparency.” Verma emphasizes that while not all costs are unnecessary, the so-called 'ghost cost' reflects how the industry is still maturing.

This breakdown closely mirrors findings from global studies. According to a 2020 report by ISBA and PwC, only 51% of advertiser spend actually reaches publishers, with 15% vanishing into what has been labeled the “unknown delta”—funds that are untraceable within the programmatic supply chain. These additional services, while necessary for ensuring brand safety and audience targeting, add layers of cost that advertisers sometimes overlook.

Saurabh Gupta, CEO and Founder of VeriSmart AI, highlights the practical impact of this adtech tax, stating, “Adtech tax is nothing but intermediation money getting wasted, because of too many manual interventions and a lack of transparency in the ecosystem.” He points to how platforms sometimes abuse both advertisers and publishers by directing cheap traffic, resulting in fake signups that don't convert. This not only wastes advertisers' budgets but also leads to publishers receiving lower payouts.

“A technology layer, especially blockchain, can solve this transparency issue and bring more credibility to the programmatic world,” Gupta adds.

Globally, the programmatic advertising industry is on an upward trajectory, with estimates by Statista forecasting the global programmatic ad market to reach $725 billion by 2026.

In India, the industry is experiencing similar growth, with programmatic ad spending projected to grow at a compound annual growth rate (CAGR) of 20-25%. However, as the market expands, so do concerns about ad tech inefficiencies.

Sandiip Kapur, Founder and President of Promodome Group, points out: “The ad tech tax can consume anywhere between 30% - 50% of programmatic advertising budgets. This means that, in some cases, less than half of the total ad spend is allocated toward the actual placement of the ad on a publisher's site or app.” Kapur stresses that this inefficiency in the ecosystem has led to greater scrutiny, especially as advertisers demand more insight into how much of their spend results in actual impressions and conversions.

This rise in ad spend is coupled with the increasing prevalence of ad fraud . Juniper Research estimates global losses from ad fraud will reach $100 billion annually by 2024. In India, ad fraud rates hover around 25-30%, further compounding the frustration for advertisers. This not only raises the stakes but also adds another layer of opacity, as many advertisers struggle to quantify their ROI amid rampant ad fraud.

For advertisers seeking transparency, blockchain solutions, as Gupta suggests, may indeed offer a way forward. Additionally, supply-path optimization (SPO) tools have become crucial, allowing brands to minimize the number of intermediaries involved in the ad-buying process. However, despite these innovations, advertisers remain cautious. A recent World Federation of Advertisers (WFA) study revealed that only 12% of programmatic advertisers had full transparency into their supply chains. This lack of visibility is one of the main drivers behind the increasing use of terms like the adtech tax.

In a digital-first world, where programmatic is poised to dominate the future of advertising, whether blockchain or other tech innovations become the standard solution remains to be seen, but one thing is certain—without greater clarity, the adtech tax will continue to burden advertisers and impede the industry's full potential.