Lesson 2 of 5 · 8 min read · advanced
How ad tech companies make money
Take rates, CPM fees, subscriptions and ex-TAC: the handful of business models behind almost every ad tech company, explained with simple examples.
The ad tech map looks like thousands of companies, but most of them make money in one of only a few ways. Once you can spot the model, you can predict how a company behaves: what it wants you to buy more of, what worries it, and which numbers it shows off to investors.
Picture a busy market square. Some people charge a percentage of every sale they help close, like an estate agent. Some charge a flat fee per item they inspect, like a quality checker at the gate. Some rent out stalls for a monthly fee. And some buy goods wholesale and sell them at a markup. Ad tech has all four, and a few companies mix them.
Model 1: the take rate (a cut of the spend)
A DSP or SSP sits in the flow of money and keeps a percentage of it, called the take rate. If a DSP handles $100 of an advertiser’s budget and keeps $15, its take rate is 15%. The $100 is the platform’s gross spend; the $15 is what it actually earns.
How that is reported matters. The Trade Desk, for example, says in its filings that it reports revenue on a net basis, meaning revenue is its fee, not the full media cost that passes through it. Other companies that take on more risk, for instance buying inventory upfront and reselling it, may report the full amount as revenue and the payments to publishers as costs. This is the gross vs net revenue question, and it can make two similar-sized businesses look wildly different on paper.
| Reported on a net basis | Reported on a gross basis | |
|---|---|---|
| Advertiser pays | $100 | $100 |
| Paid to publishers and others | $85 (not shown as a cost) | $85 (shown as cost of revenue) |
| Revenue reported | $15 | $100 |
| Gross profit | About $15, minus hosting | About $15, minus hosting |
Model 2: the per-thousand fee
Ad verification and measurement companies usually charge a small fee per thousand impressions they check, quoted as a CPM. Their income rises with the number of ads measured rather than the price of those ads. That is why verification firms push to be added to more channels, such as CTV and social platforms: more impressions measured means more revenue, even if ad prices fall.
Model 3: software subscriptions (SaaS)
Some companies sell software licences: a publisher pays a monthly fee for an ad server, a consent tool or an analytics dashboard. Subscription revenue is prized by investors because it is predictable. Companies with this model like to report net revenue retention, which shows whether existing customers are spending more each year.
Model 4: revenue share and ex-TAC
Recommendation networks such as Taboola and Teads (formerly Outbrain) place those “around the web” content links on publisher pages. They collect money from advertisers and pay a large share to the publishers who host the widgets. That payment is called traffic acquisition cost, or TAC. Because it is so large, these companies report gross revenue but steer investors to a metric that subtracts it: revenue Revenue ex-TAC (Taboola calls its version ex-TAC gross profit). The Contribution ex-TAC family of metrics answers one question: after paying the publishers, what is left for us?
Model 5: markup and principal buying
Some agencies and resellers buy inventory in bulk at one price and sell it to clients at another, keeping the difference. This is principal-based buying. It is legal when disclosed, but it changes the relationship: the seller is no longer only an agent acting for the client, it is also a trader with its own margin. Media rebates, where a media owner pays money back to an agency for volume, are another quiet source of income that transparency studies have repeatedly flagged.
| Model | Typical players | Grows when… | Watch out for… |
|---|---|---|---|
| Take rate on spend | DSPs, SSPs, exchanges | More spend flows through | Fee stacking, hidden add-ons |
| CPM fee | Verification, measurement, data | More impressions are measured | Fees on impressions that were wasted anyway |
| Subscription (SaaS) | Ad servers, CMPs, analytics | Customers stay and expand | Lock-in and price rises |
| Revenue share / TAC | Recommendation networks, ad networks | Publisher partners grow traffic | Clickbait incentives |
| Markup / principal | Agencies, resellers | Spread between buy and sell price | Undisclosed margins |
Walled gardens such as Google, Meta and Amazon blur these lines: they own the inventory, the buying tools and often the measurement, so the “fee” is hidden inside the ad price. That integration is one reason they earn so much, and one reason regulators look at them closely.
Key takeaways
- Most ad tech revenue comes from a few models: a take rate on spend, CPM fees, subscriptions, revenue share and markup.
- Gross spend is the money flowing through; revenue may be only the platform’s cut, depending on gross or net reporting.
- Recommendation networks report ex-TAC metrics because most of their gross revenue is paid out to publishers.
- How a company is paid shapes what it pushes for, so read the business model before the pitch.
Questions people ask
How do DSPs make money?
Most DSPs keep a percentage of the media spend that advertisers run through them, known as the take rate, and may add charges for data, brand-safety tools or premium features. Some also offer managed service, where their staff run campaigns for a higher fee. Many, such as The Trade Desk, report only their fee as revenue rather than the full media cost.
What does ex-TAC mean?
Ex-TAC means excluding traffic acquisition costs, the money a company pays to publishers or partners who supply the traffic where its ads appear. Recommendation networks like Taboola and Teads pay out a large share of gross revenue as TAC, so they highlight ex-TAC figures to show what the business keeps. It is a non-GAAP metric, so each company defines it slightly differently.
Why do verification companies charge per thousand impressions?
Verification vendors check each impression for fraud, viewability and brand safety, so their costs scale with the number of impressions they process. Charging a small CPM fee ties price to that workload. It also means their revenue grows with measured volume rather than ad prices, which is why they seek to cover new channels such as CTV, social and retail media.