The Not-So-Secret Agent’s Dilemma

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ted"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Ted McConnell, a consultant at AudienceScience.

Lately, trade pundits are predicting the disintermediation of agencies at the hands of digital. Indeed, like Jurassic Park, the ecosystem will produce outcomes no one planned, but the interesting question is not what or when, but why.

For the record, what might be coming is not exactly disintermediation. It’s re-intermediation because it’s not like intermediaries will go away. Driving the trend is a simple meme: There are too many pigs at the trough.

Placement of a single impression might require a planning agency, buying agency, trading desk, DSP, exchange, DMP, SSP, publisher and two ad servers – that’s roughly 10 intermediaries. Miraculously, all mouths get fed and the ecosystem still manages to deliver good ROI.

These intermediaries provide essential functions, but their overheads compound. They all have sales forces, business development, marketing departments and so on. Advertisers find that the place to start looking for savings is the point where all overheads converge: the media agency.

How did we get here? To figure that out, turn back the clock. This might be a wee bit revisionist, but there’s a simple story.

Thirty years ago, media-buying agencies hummed along, creating value mainly by segmenting and aggregating audiences to meet advertiser needs and serving both sides of the market nicely. TV made so much money for advertisers that no one sweated the small stuff. Then came media-buying groups at advertisers, which squeezed profits of agencies by forbidding arbitrage and rebates. Walmart happened. Life got tougher for brands. Then came the Web.

At first, big agencies were nonplussed. It’s emblematic that it was P&G, an advertiser, that intervened in 1998 with its FAST summit to wrap process and structure around digital advertising. You would think that media agencies would have been all over it, but they were not incentivized to lead, and their revenue and margin requirements made digital look like small potatoes.

The posture of agents, generally, is that they do what they are paid to do. The posture of advertisers, at least where I worked, was that “the industry” would figure out how to send messages to consumers. So advertisers took a hands-off stance. Failure to incentivize agency investments made advertisers complicit regarding the lack of structure and process to manage digital media.

Making it worse, no one knew for sure if digital media worked for brands. So in 2001, we had what seemed like paralysis. It was a struggle even to measure digital media effectiveness, and the measurement in some cases cost more than the campaign.

Into the vacuum flew ad networks. Just as agencies had done with TV, the ad nets aggregated inventory across media properties and resold it at a handsome profit, regroomed and segmented. This is where the trouble began: Nets usurped the traditional role of agencies.

The agencies’ point of view on networks in those days was that nets were just like publishers – send an IO. Many were site representation firms so it made sense. But agencies were, in effect, outsourcing to nets what they did internally in the past.

Then as the consequences began to unfold, agencies tried to regain control by building trading desks for digital, or buying nets outright. However, when campaign control took place within agency walls, the price went up. Trading desks did not live inside the contractual walls of the agency of record, and so could take arbitrage margins. No secret.

On top of taking nontransparent arbitrage, trading desks often take data from one client’s campaign and use it for another. It’s an obvious scale advantage, available to any big player in the ecosystem. The term “transparently nontransparent” became an industry joke last year when one agency leader defended opacity as essential to the agency business. So the line in the sand was drawn. He was well within his rights, but perhaps he discounted the unrelenting ability of technology to reorder marketplaces.

So now advertisers are getting smart. They want trading desk margins back. CPG margins are squeezed beyond the pain point. Advertisers smell a tangled supply chain. CMOs are keeping their jobs by lowering the “I” in ROI because the “R” is so hard to prove. One obvious way to do that is to buy directly from a DSP or network, and maybe cut a data deal along the way.

Agencies could stem the tide by establishing clear accountability for learning, insights, data and waste. They could treat data as an advertiser asset, negotiate arbitrage margins and treat waste as a serious issue.

So why will re-intermediation be a trend next year? Maybe it’s the delayed but inevitable result of outsourcing your core value. Call it market forces, or maybe the invisible hand got caught in the cookie jar.

Follow AudienceScience (@audiencescience) and AdExchanger (@adexchanger) on Twitter.

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One Response to “The Not-So-Secret Agent’s Dilemma”


  1. Cameron says:

    Great thought piece. For ages people in the industry have been confounded by the fact that the agency model has prevailed, even under constant threat. The new entrants like Facebook and Google are looking to disintermediate and they have the hitting power to change the status quo, making this time different. Change is coming.

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