A float is a very simple financial concept: money that is double counted due to delays in processing a transfer of funds.
We know this concept well in ad tech. Advertisers negotiate payment terms. Publishers negotiate payment terms. The money can’t be transferred across all parties immediately and so someone has to float the delay.
There are business services founded on floating and recovering payments for a fee. I will argue one of these service providers is the SSP. The float is a big part of what publishers pay SSPs for. They facilitate the purchase of inventory via technical and business services. They connect to the publisher, they connect to the buyer, they host the auction, clear the bid, deliver the ad and collect payment from the buyer.
Who’s actually paying the SSP? The DSP. To buy media programatically, the advertiser has to pay the DSP. There could be reconciliation nuances based on fruad or ivt. That shouldn’t affect an above board pub or an SSP with a stand up customer base. Clawbacks reconcile the float retroactively and should reflect a very small and recoverable percent of the total float.
So if the advertiser has to pay the DSP and the DSP has to pay the SSP, why is the float contentious? Pub payment schedules are set back from the advertiser payment scedules to mitigate float accumulation and risk, right?
Why on earth would an SSP try to negotiate out of floating their advertiser partners? I’d love to hear from some SSPs but here are my assumptions:
1) the SSP isn’t consistently paid for every impression it sells
2) the SSP isn’t confident it will continue to be paid for every impression it sells
3) the SSP isn’t being paid on time and the float burden is putting too much pressure on their business
4) the SSP has weak payment schedules or terms with their buy side partners…maybe because they are leveraging extended payment schedules in exchange for something from the DSP.
At the end of the day, it doesn’t matter. The float doesn’t go away. The duration of the float can be managed and should be better than it is given the “efficiency” of programmatic. If the SSP doesn’t float the advertiser the publisher has to. How can the publisher do that without holding the relationship with the buyside? Without knowing who they are doing business with and managing those terms directly? If the the SSP doesn’t want to float they need to stick to a just the pipes service model and that doesn’t warrant a rev share. It warrants a very very low cost CPM IMO.
NEW INFORMATION
Since starting this conversation on LinkedIn, I learned a lot about the Agency/Holding Company business model. To my surprise, they are actually banks more so than marketing companies. Gareth Glaser and Jake Gardner schooled me on the world of day trading the float. I learned these large companies negotiate the broadest payment terms possible to bank interest on the cash they hold. It makes perfect sense to grow the money you hold. It doesn’t make sense to bankrupt companies who can only compete by offering unreasonable payment terms that over leverage their businesses and result in collapse if they are so much as sneezed on.
As an industry we can’t complain about predatory, monopolistic businesses and also crush room for competition among smaller companies that can’t sustain 120 day payment terms. As a publisher, I’m really sad we’re the one’s who are called sketchy…
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