** This article was originally published on thedrum.com on January 7, 2019. **
The revenue sharing agreement Google recently struck with Marin Software is the first time in Google’s history it’s given money to a platform rather than a publisher. This suggests that the economics of the digital advertising management company are similar to that of a publisher and telling of the profitability opportunity for Google to keep Marin afloat. If it’s more profitable for advertising channels to share revenues with management platforms like Marin than to let them fail, the profit margins must be attractive.
End wasteful digital ad spending and take control of campaigns.
As an advertiser, your primary aim is to drive results for the lowest cost. This historic partnership is a significant milestone in the digital advertising industry which brands should take notice of and be asking themselves, “What are the default settings across our ad channels and are they earning us the most efficient advertising spend?”
Google Offers a Lifeboat
The deal announced on December 17 with Marin is the first time Google or any of the dominant ad channels (Facebook or Amazon) has agreed to share revenues with a platform, an exchange typically reserved for publishers. MarinOne, the long-awaited SaaS ad management platform from Marin, claims to unify your Google, Facebook, and Amazon advertising efforts as well as optimize your budget allocation across channels. It’s designed to save brands time and money while driving revenues more efficiently, and yet valuable enough for Google to toss out a lifeboat.
Think about that
Marin's revenues have been ailing for some time while its business portfolio had also been steadily declining and their revenues had reached half their 2015 peak. Their stock (MRIN) was barely hovering above their 52-week low of $2, and their significant cash burn in 2018 left them with just $13.4m in unrestricted cash at the end of Q3. Then Google’s revenue sharing deal came in to save the day with original Q4 revenue expectations down almost 35% from last year, with a range of $11.6 to $12.1m and an operating loss of $5.4 to $5.9m.
Marin has since adjusted their expectations, now a range of $14.6 to $15.1m in fourth-quarter revenues and an adjusted operating loss of $2.4 to $2.9m. Their stock price quickly surged to $12 within the week and is now hovering around $6 per share. As outlined in the agreement, much of the estimated $3m in revenue payments from Google in Q4 has been earmarked for reinvestment into the development and expansion of Marin’s enterprise tech platform. Another sign of just how essential ad platforms are to the continued growth of advertising channels.
The revenue sharing agreement is set to expire on September 30, 2021, with the possibility for renewal.
Who’s Benefitting Who?
Marin will collect payments from Google during the three-year agreement based on revenue generated through their platform in connection with their clients’ spend on Search Ads appearing on Google and Non-Google Search. While Google continues to dominate in the search engine arena, they’re required to pay for Non-Google Search revenue as well, mainly from Microsoft Bing. In other words, Google is paying Marin a kickback for all revenue-generating search traffic.
Are our ad channels earning us the most efficient advertising spend?
It’s clear how the revenue sharing deal benefits Marin Software and why they’re motivated to partner with Google. To decipher what Google will gain, you have to read between the lines. One assumption is if Marin were to close up shop, their customers would eventually find their way back to Google Ads. But the disruption to Google’s ad revenue would have been significant enough that they chose to profit share with Marin to avoid any interruption to their ad business.
This agreement is intriguing from a historical viewpoint signaling that we are entering a new stage of how online business is generated and rewarded, but also unique in that Google has a competing product, Google Ad Manager. Even though Google has a conflict of interest in partnering with Marin, the deal still makes financial sense for the search engine giant.
Who’s Looking Out for You?
What’s creating such fat profit margins? It’s because Marin’s clients and others using Google Ad Manager are likely not spending their advertising budgets wisely and efficiently.
Case in point: Google reduced the amount of exact match keyword control by now allowing for similar words to match on exact match keywords instead of strictly the exact match. For example, "flowers online" and "flower online" which are high search volume terms, have surprisingly different conversion rates and therefore deserve different CPCs, yet Google has now removed this feature, in theory, to make it easy for the user, but in reality, Google ultimately benefits.
Digital advertising is vastly complex with endless variables that must be managed across multiple channels, making it easy to overspend on ads that are underperforming. Because results vary wildly between platforms and brands, ad channels end up controlling an advertiser's spending instead of the other way around – with you at the helm.
The Marin-Google deal is likely just the tip of the iceberg.
All companies are driven to maximize profits, and the digital advertising industry is no exception. Which means advertisers shouldn’t assume an ad channel is looking out for them and it’s more important than ever they make sure ad platforms and publishers aren’t inadvertently taking advantaging of them, the advertiser or brand. Since the Marin-Google deal is likely just the tip of the iceberg, they should keep an eye out for similar deals to emerge this year.
However, they shouldn't yet panic. Instead, this should be seen by advertisers as another warning to end wasteful digital ad spending and take control of campaigns. However, first, they have to recognize there’s a problem and then they need to stop relying on ad publishers and dig deeper into their ad spending and campaigns. Third, they should take advantage of the tools and services available to help them gain back control and win in digital advertising.
The biggest mistake they can potentially make is not acting upon yet another warning sign about the big ad publishers. So as 2019 kicks off, advertisers should start executing on their marketing plan but they should remember there’s no better time than now to take a closer look at their digital marketing and make the changes that will positively impact growth and revenue.