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WTF are traffic acquisition costs?

Nothing focuses your brain on financials as an economic downturn. However don’t assume all financial figure is really as revealing since it sounds. Take Traffic Acquisition Costs (TAC), for instance.

There is a period when these costs were a genuine bellwether for the financial sustainability of an internet marketing company. These were essentially a method to observe how those businesses bought traffic they might monetize at the same time when it had been its primary revenue source. In case a company spent a lot more than it made on TAC then it had been a sure bet that the business enterprise wouldnt be sustainable for long. Times change, though. Nowadays, TAC is similar to office gossip: good to learn, nonetheless it doesnt always matter.

Thats about as complicated as things will get. Heres a brief, digestible break down of what TAC means.

WTF is TAC?

Basically, TAC is just how much an ad tech company pays to get revenue; its the variable pass-through costs ad tech vendors pay to the exchanges, publishers and data providers that help them sell more impressions. Its lots that reveals how much cash an ad tech vendor had to invest at confirmed time to earn more income. This will theoretically be considered a useful number given ad tech vendors should do two things continuously: attract ad budgets with their platform and extract fees as a result.

The truth, however, is that TAC has its limitations. Anyone curious about just how much ad tech vendors are paying publishers for the inventory with respect to their end clients or advertisers can look at TAC. It’ll only reveal so much, though. Most ad tech businesses arent just in ecommerce of arbitrage. Theyre also platforms that connect publishers with marketers along with provide services to the latter such as for example strategy development,reporting tools and analytics. So TAC at a push makes up about a marginalized section of a far more nebulous ad tech revenue stream.

Arrived at think about it, TAC could be downright confusing. Don’t assume all ad tech vendor reports TAC and those that dont necessarily achieve this just as.

Hold on, TAC isnt exactly the same number for each and every ad tech vendor?

No. But that shouldnt be considered a surprise. You can find a wide variety of ways ad tech vendors spend cash to create money given that TAC is merely section of a spend cash to create money playbook. Remember, ad tech vendors book revenue if they owe the duty to someone (just like a publisher) to satisfy a sale of media, however they also book revenue for software. Dont your investment revenue booked for sales to an advertiser or a company. To state nothing of the revenue from the ad exchange an organization may be running in the center of an auction. And onto it goes.

Examples?

Certainly. Lets zoom in on the financials of two ad tech companies that at the very least at first glance are in exactly the same business: selling impressions with respect to publishers. One of these brilliant businesses reports TAC; another doesnt.

The business enterprise that does report TAC is Magnite. Also it does so for about 36% of its revenue, or those promotional initiatives transacted through insertion deals, which includes increased since its acquisition of SpotX. In its last financial quarter, the ad tech vendors TAC was $50 million.

Conversely, all the best looking for that number in Pubmatics financial statements. It doesnt report TAC at all its only a tech platform that facilitates bidding and transactions and isnt acting because the obligor (to utilize the accountant parlance).

Still confused? Think about it such as this: whether an ad tech vendor reports TAC depends upon whether theyre providing some form of service to the advertiser along with facilitating ad-buying being an obligor. These services often include helping your client regulate how and where you can spend their advertising budget along with purchasing the ads with the person.

Wait, whats an obligor?

So obligors will be the party that the client looks to to be primarily in charge of providing the services/goods; these parties control the products or services before they’re delivered to the client. Again, most ad tech vendors would say that is an extremely marginalized section of their business.

So TAC is arguably an overhyped metric that doesnt necessarily relate with an ad tech companys profitability in the manner it once did?

Thats a little harsh. Tracking TAC isnt the worst thing an ad tech exec could do making use of their time, however they shouldnt skip the forest for the trees. To be clear, the quantity has its uses. To begin with, it could let you know just how much an ad tech vendor makes by selling inventory to advertisers in a managed services capacity via their platforms or via reseller relationships. Thats handy given many ad tech vendors will say theyre platforms for publishers and marketers to trade internet marketing. But those uses only stretch up to now given were discussing a financial number that cant be legitimately in comparison to anything. Instead, it might be better to concentrate on the revenue number that the ad tech vendor reaches keep, not spread.

Wait, what number is this?

Well, its similar to two numbers which are simply the same: net revenue and contribution ex-TAC. Regardless of the accounting lingo, both numbers (if reported) reveal the money an ad tech vendor reaches keep following its paid the expenses to secure increased traffic.

So companies like Outbrain and Taboola, which pay publishers a set rate on a per page load basis to resell those impressions, must have relatively high TAC?

Yes they do. Both companies derive nearly all their revenue from being in charge of the ad inventory before its sold. Outbrain reported TAC of $192 million in its latest financial quarter, while Taboola posted $199 over an identical period. Put another way: Outbrains TAC is 76% of its revenue, while Taboolas TAC is 58%. Despite having similar business models, one business seems much healthier compared to the other, based on the numbers.

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