A manual for the brand-agency-vendor relationship
Articles By Dax Hamman on September 12, 2012
The constant shifts in relationships among brands, agencies, and media vendors can lead to confusion. But for those paying close attention in this evolving landscape, opportunity abounds. Here’s why.
The fall of the agency
Five years ago, I found myself as an executive of an ad serving business in Europe, competing against the likes of Atlas and DoubleClick for mostly agency clients. The pitch was about delivery speed, reporting functionality, and how quickly one could traffic 30 placements with 20 creatives after a martini lunch. The agencies spoke our language, and the brands did not, allowing the agencies to not only make a handsome profit from our technology (often $0.05 to $0.50 CPM above cost), but also to own the client’s data and the pixels on their sites, making it hard for the clients to move their accounts in the future.
Most clients failed to understand why that could become a problem, and most agencies failed to see how quickly it would change. By my estimation, ad serving contracts have gone from being 90 percent held by agencies just five years ago to perhaps only 30 to 40 percent today.
The enablers of this change are the demystification of what ad serving is and the influx of cheap labor that understands how to use it. Ask most CMOs and they can tell you their ad server gives them independent reporting, view-through measurement, and campaign management. And chances are they’ve found a low(er)-cost resource to manage the entire process for them.
More importantly, ask the smart CMOs and they will tell you that taking control of their ad serving gives them the power to switch agencies if and when they want to without losing historical data or needing to re-pixel their website. To this day, Dart does not have a feature for porting a client out of one agency’s account into another’s, and probably with good reason.
Meanwhile, ad serving isn’t the only aspect of digital marketing that CMOs are looking to bring in house. Brands are now also well positioned to negotiate the best rates. While some agencies still hold guaranteed access to certain inventory sources at preferred rates, the percentage of media that is being bought through auction tools is rising sharply, and where an auction exists, so does “equal” access (and therefore CPMs).
The rise of the vendor
Of course, if brands are successfully managing their digital advertising without agencies, it’s in part because media vendors are picking up the slack. Media vendors today build complex algorithms to match creative to placement, to cookie, to time of day, and they often use their own dynamic creative engine. To remain competitive against other types of spend, they’ve rolled out performance models to replace the typical CPM, charging only for incremental performance they drive. And, of course, to manage all of these moving parts, they’ve hired account managers who hold weekly calls and status meetings to liaise with the client (be it a brand or an agency).
How is that any different from what an agency does? It’s not. In many respects, the line has disappeared between an agency and a media vendor. To take just one example, about 18 months ago, when I was on the agency side, a long-standing travel client asked us to build the media plans for another season, which we did, expecting an auto renewal on the contract, only to watch them take those same plans, hire a media planner for $60,000, and execute everything themselves. I tried to express my anger to the vendors we had chosen for their media plans, but who can blame them for taking the revenue?
Still, this doesn’t mean that eliminating the agency is always the best outcome for a vendor. When you get a smart client and you have smart client-facing people, it is to the vendor’s advantage to act as much like an agency as possible. Primarily, it reduces the risk of being cut from a media plan, but, additionally, the better relationship leads to better revenue opportunities and deeper integration.
However, get a client who is not so experienced, and it can lead to the worst situation for the vendor. It must now provide the campaign and hold the brand’s hand just as the agency would. All the calls about pixels and tagging fall on their shoulders, and they must provide the same weekly calls the brand expected from the agency — but without the nice 12 percent management fee on top! And within a competitive space like ours, where so many of us are younger companies fighting for the sunlight, we must do this at the sacrifice of some margin. (And whilst we at Chango work with both agencies and brands on search retargeting, more brands are beginning the conversation directly and sometimes looping the agency back in.)
The agency strikes back
Let’s also remember that the disappearing line between media vendors and agencies doesn’t mean all is lost for the agencies; far from it, in fact. Many agencies are now becoming the media vendors themselves. We primarily see this with the holding companies that have been creating trading desks through which they buy “raw” media from the exchanges, package it up in some way with data and optimization, and offer it to the brands that engage them.
And it’s not just the “big” agencies. Look at an agency running a simple technique like site retargeting by using a demand side platform, and they too are being vendor-like. The advantage is control and margin. Buy your site retargeting campaign through an end-solution vendor, and you pay their profit margin. But buy it as close to source as possible, and you get to keep that margin for yourself. Interestingly, the brand always ends up paying the margin, of course unless they themselves choose to bring the technology in-house — something I predict will occur a lot more over the coming 24 months.
What’s a brand to do?
In short, brands have taken control and are causing media agencies and vendors to redefine their behaviors, whether they realize it or not. Right now, it is to the brand’s advantage, as they are often getting good service for less cost. But the transition hasn’t been entirely smooth and simple for the brands themselves.
Indeed, the rapidly changing world of digital advertising has exposed even broader challenges in the client-agency relationship. Clients who haven’t done their research are often convinced they want an agency that can offer “strategic thinking,” when what they actually want is help with execution. By contrast, sometimes clients can beat an agency down for being an execution shop when they’re really in need of a strategic plan. The key for brands is to understand whether they need specific technologies or strategies and then to select agencies based on those individual needs — as opposed to looking for a hyped-up agency trying to catch the eye of all brands and services.
If all of these blurring lines are starting to make you a little dizzy, be warned: The roles and relationships of these businesses will only continue to shift as technology advances and the ad space branches out. But while the evolving landscape can sometimes lead to confusion, for those brands, agencies, and media vendors paying close attention, it’s also a great opportunity.
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