The ad tech tax: where the advertiser’s dollar goes

Imagine a brand hands its agency one dollar to buy an ad on a news website. By the time that dollar arrives at the news site, a good chunk of it has been kept by the companies in between. The industry nickname for that shrinkage is the ad tech tax. It is not a tax in the legal sense. It is the sum of every fee, margin and leak between the buyer’s wallet and the seller’s bank account.

Think of sending a parcel across the world through several couriers. Each one charges a handling fee, some add insurance, and one of them loses a few items on the way without telling anyone. The parcel still arrives, but it is lighter than when it left. Programmatic advertising works the same way, and for years nobody weighed the parcel at both ends.

Who takes a slice

1. Agency and trading deskThe agency charges a fee or commission for planning and buying. Some agencies also run a trading desk or buy media as principal and resell it (principal-based buying), which adds a margin the brand may not see.
2. Demand-side platformThe DSP is the buying software. It usually keeps a percentage of what flows through it, its take rate, plus extra charges for data, brand-safety filters or premium features.
3. Data and verificationAudience data segments, ad verification vendors and fraud filters are typically billed on a CPM basis, a small fixed amount per thousand impressions, on top of the media cost.
4. Supply-side platform and exchangeThe SSP or ad exchange runs the auction for the publisher and keeps its own percentage of the clearing price before paying the publisher.
5. The publisherWhat is left is the publisher’s revenue. Out of that, the publisher also pays for its own ad server and any header-bidding tooling.

1. A brand spends a dollar: A brand sets aside $1.00 for programmatic display. It hopes that dollar buys attention from real people on quality sites.
2. Agency and platform fees: The agency and the DSP each take a share for planning, buying and running the technology. The DSP’s cut is its take rate.
3. Data and verification: Audience data, Ad verification and brand-safety tools charge per thousand impressions. These can be small individually and add up together.
4. The sell side takes its cut: The SSP or exchange keeps a fee before paying the publisher. Resellers in the chain can add more hops.
5. The mystery slice: In the ISBA/PwC 2020 study, about 15% of spend could not be traced to any party: the unknown delta. Later studies found better matching data shrinks it a lot.
6. What reaches the publisher: In that study, publishers received about half of the advertiser’s spend. The rest is the ad tech tax: the price of automation, data and intermediaries.
7. And was it even a person?: Even the part that reaches a site only works if a human sees the ad. MFA sites and invalid traffic can soak up spend without reaching anyone real.

The study that weighed the parcel

In 2020 the UK advertisers’ trade body ISBA and the accounting firm PwC did something nobody had done at scale: they matched individual impressions from the advertiser’s side all the way to the publisher’s side. The study covered 15 advertisers, 8 agencies, 5 DSPs, 6 SSPs and 12 publishers. Only about 12% of the spend could be matched end to end, which itself tells you how messy the data was.

The unknown delta is the scary part. Fees you can see can be negotiated. Money that simply cannot be traced is harder to fix, because it could be data mismatches, undisclosed fees, or both. ISBA ran a second study, published in January 2023, and reported the unknown delta had fallen to 3% and that the publisher share had risen, showing that when buyers demand log-level data, the leak shrinks. Read ISBA’s second study summary.

The American version: from fees to waste

In December 2023 the US Association of National Advertisers (ANA) published its own Programmatic Media Supply Chain Transparency Study, based on log-level data from 21 advertisers and about $123 million of spend. The ANA went a step further than counting fees. It also asked how much of what was bought was actually worth buying.

The ANA split the missing 64 cents into two buckets. About 29 cents went on transaction costs, mostly DSP and SSP fees. About 35 cents was lost to what it called media productivity problems: impressions that were not viewable, were invalid traffic, could not be measured for viewability, or ran on made-for-advertising sites. The ANA estimated $22 billion of efficiency gains were available across the US market if advertisers followed best practice, and has since published quarterly benchmark updates.

Why the tax exists at all

Not every cent in the middle is waste. Auctions have to be run, fraud has to be filtered, servers cost money, and a DSP that lets a brand reach millions of sites from one screen is doing real work. The problem is opacity. When a buyer cannot see each fee, they cannot tell a fair price for a useful service from a hidden margin. That is why the fixes are mostly about visibility: log-level data, supply path optimization to cut unnecessary resellers, and contracts that ban undisclosed media rebates.

• Ask for log-level data from your DSP and match it with the SSP’s logs.
• Shorten the path: buy directly from the SSPs a publisher actually uses.
• Separate fees from media in contracts so every layer is itemised.
• Measure quality, not just price: a cheap impression that is fraudulent or unseen costs the most of all.