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The hidden risks of programmatic advertising

Last updated: October 7, 2024

In February, many of the world’s biggest media companies saw their ads come to a standstill as their bid requests for programmatic ads kept turning up 503 errors. This left publishers, advertisers and executives scrambling to switch up their advertising models and preserve their relationships with advertisers.  

The culprit: The bankruptcy of ad tech vendor EMX Digital, which managed programmatic ads for Reuters, AP News, Al Jazeera, VentureBeat and other big name media brands.  

The sudden collapse of EMX Digital — and the resulting chaos — illustrates the importance of diversifying your advertising model. It also exposed the vulnerabilities of the programmatic advertising model as a whole.  

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In this post, we’re presenting some of the biggest risks of programmatic advertising — and telling you how to diversify your ad strategy without sacrificing the time savings provided by programmatic. More on that next:    

What is programmatic advertising and why is it so popular?   

Programmatic advertising uses software to instantly decide when and where to place ads in front of specific audiences. (Some prime examples: the banner display ads or videos shown along the side and top panels of publisher websites.)   

The goal, as you can imagine, is to place the right ad in front of the right audience at a time that they’re most likely to buy the product. So how does the programmatic ads “decide” when and where to place ads? Some key variables include:  

• The user’s browsing history. 
• How much the advertising merchant bid for the ad space through the demand-side platform (DSP). 
• Keywords associated with the user’s browsing/recent search history and the website being browsed. 

Among publishers, programmatic advertising has emerged as a cost-effective alternative to traditional advertising methods: It boasts an average cost-per-lead (CPL) of $38 compared to $619 for traditional advertising channels like TV and radio. Its use of automated placements has also appealed to time- and resource-strapped media organizations, particularly as ad budgets have shrunk in recent years,   

But in advertising, you get what you pay for. And although programmatic is a useful, efficient alternative to more time-consuming traditional methods, this model also comes with downside risks that can’t be ignored.  

What are the risks of programmatic advertising?   

1. You can’t control where your ads appear  

Since programmatic advertising is automated, marketers can’t control where their ads end up. You might find that you’re paying for placements that aren’t especially effective or they don’t quite line up with your target demographic.  

Or, as companies have discovered in memorable and nightmarish detail, it could get a whole lot worse. Your ads might appear next to offensive content or be associated with fake news. In one noteworthy example, JP Morgan Chase had its ads run on a site called Hillary4Prison, just below a prominent headline claiming Elijah Wood spilled the beans on Satanic liberal perverts who run Hollywood. (Which, if it needs clarification, was a fake site.)  

Whatever time and money JP Morgan might’ve saved from outsourcing that ad was more than outweighed by the PR backlash that ensued.  

2. Your ad might not get delivered at all  

But not everyone ends up like JP Morgan, you might think. If you’re low on time and resources? You might be fine sacrificing a little creative control for the sake of convenience and speed to market. And that’s a valid choice.  

But what if your ads don’t get shown at all? If you’re using programmatic, that’s a real risk: Auctions for programmatic ad space take place in real time, so if you’ve based your bid on historical audience data, your ads might not get delivered. That adds another layer of unpredictability to an already opaque process  

3. Programmatic might not be a good fit for new businesses 

Programmatic, too, is an effective way to learn every detail about your audience. But new entrants may have a difficult time getting results from programmatic as they’re starting from scratch when it comes to their datasets.  

Services like Facebook come with internal data, allowing brands to leverage the platform’s insights to connect with new audiences, while Google offers insights that delve deeper into audience patterns as they begin to emerge. 

Programmatic advertising currently lacks the reporting tools and transparency that you’d find with other paid advertising opportunities–meaning new businesses miss out on an opportunity to learn more about their advertising efforts or why certain ad placements cost a certain amount.  

4. Programmatic ad fraud is real — and getting worse   

Programmatic advertising is popular because it’s a pretty hands-off process. The advertiser creates a bid, but then it’s auctioned and placed in real time. And often, advertisers don’t know where their ads are placed for hours or days after the fact.  

If that sounds like a recipe for fraud, well, you’d be right. With the rise of programmatic advertising has come programmatic-specific fraud schemes, which cost advertisers millions per year in lost ad spend and reputational damage.  

Some of the more common scams include:   

Spoofing website domains to drive up bid prices 

Essentially, a fraudster tries to disguise their website as a more valuable one so they can charge more for ad space. For example: someone says they’re from the Wall Street Journal in order to charge more for ads, but runs those ads on a site called WallStreetJourna.com, rather than the legit domain.  

Advertisers might pay a premium to secure a placement on what they think is a profitable site — only for their ads to underperform and attract the wrong prospects. That screws advertising networks and publishers out of ad revenue. And that’s only half the problem. These fake domains also tend to be stuffed with malware — and any ads on that site can become associated with it.  

Ad stacking and pixel stuffing  

There are two main ways to run a programmatic ad scam: Either you fake the website or you fake the ads. Bad actors have found many ways to perform the latter, including ad stacking and pixel stuffing. 

Ad stacking is the practice of hiding ads within a page so that they can maximize the number of impressions it earns while still saving space on the website. Only the top ad or two is visible to visitors. The others get buried on the bottom of the page, so they have no chance of actually reaching and converting visitors despite technically getting impressions.  

In the scenario above, a few advertisers can still win (as long as they get top billing on the webpage). Pixel stuffing goes a step further. In this practice, the ad seller shrinks the ad down to a single pixel on the page, so nobody can see it, much less click through to the advertiser’s site.  

 Clickbots

… and then there are good old fashioned bots. Although bots are lurking everywhere on the Internet, the automated nature of programmatic advertising makes it especially vulnerable to click bot activity and, in turn, click fraud.  

(Want to keep bots off your website and email? Check out our best practices on identifying and combating click bots here.)  

5. It’s not as hands-off as advertised

By now, even the biggest companies in the world have gotten in on the programmatic game (as you might’ve noticed when we mentioned JP Morgan Chase).  

So media companies relying on programmatic for revenue usually need to hire a programmatic advertising agency or consult an in-house team to manage the results manually.  

In order to drive sustainable sales through programmatic advertising, you need to invest in specialized staff and resources (just like you would for, say, traditional advertising).  

Now, that alone shouldn’t turn anyone off of programmatic. But since the biggest selling point of programmatic is its efficiency, those additional costs can be enough to turn a promising ad strategy into an unprofitable, risky venture.  

6. The phaseout of cookies will make programmatic less valuable  

The disappearance of third party cookies means that more walled gardens will be created within the programmatic ecosystem. Many programmatic vendors will lock down the data generated from the ads within their network, making it less scalable for advertisers and less profitable for publishers.  

But what’s the alternative, you ask? Build up your first party data and engagement with your audience via subtle ads, like custom content or recommended links. Besides avoiding the unpredictability and quality control issues of programmatic, these ads also generate data from people that have already chosen to engage with you. You might earn less impressions less quickly, but each of those impressions corresponds to a real possibility for business, not just a random impression stuffing your spreadsheets. Even better, the data generated from each ad tells you how to convert each one of those prospects into customers.  

What smart advertiser wouldn’t go for that?  

But what if your agency is programmatic-first (as many are)? Digital marketing agencies often push for programmatic programs because it helps them reach scale for their clients more quickly than they can achieve through other methods.  

If you’re working with such an agency, try to educate the media buyer about the value of direct buys instead. Not only can you control the quality of the placement, but you also create more value to the advertiser-client. It’s a win-win scenario — and one that puts you in position to make your media business more sustainable in a post-cookie world.  

Wrapping Up  

While programmatic comes with inherent risks, we’re not telling you to abandon it entirely. If the EMX meltdown taught us anything, it’s that you shouldn’t stake your entire advertising strategy around one channel. And that includes programmatic.  

We recommend using a combination a mix of traditional, digital and programmatic advertising to drive the most revenue and elicit the most useful insights about your audience. And as we get closer to the phaseout of cookies, prioritize channels and vendors that yield the most first party data about your audience. 

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