Don’t Just Think Digitally, Act Digitally

“Ad Agents” is a new column written by the agency-side of the digital media community.

Greg Hills is platform analyst of media trading agency, Varick Media Management.

Digital media has caused huge shifts in the advertising industry, including the rise of the Digital-Driven Media Agency — media shops that have identified digital media as the key strategic focus for their organization. Management teams at these agencies have set aggressive goals to increase the share of billings coming from digital. Many agencies have collapsed separate print, broadcast, and online divisions, instead forming integrated planning groups led by “digital thinking.”

Agencies have recognized that in a landscape where consumers control their own media consumption, brands need to be authentic, interesting, and useful. In response, they’ve formed branded entertainment and social media teams to help brands thrive in this – the new landscape.

Now it is time for agencies to go beyond thinking digitally and begin acting digitally. Agencies have embraced digital in terms of high-level corporate strategy but technology isn’t woven into the operational fabric. Planners think digitally, but often only have dated tools like phone and fax available for actual execution. As a result, it is an outside vendor who is actually integrating the data feed for the dynamic ad, determining the optimal frequency and optimizing the targeting parameters. Of course, it’s in neither the agency’s nor the client’s best interests to have the agency do everything. But to act as effective stewards of the client’s interests, and to make a compelling profit while doing so, agencies need to bring more technology within the walls of their own organizations.

Fragmentation, for example, is a defining trait of digital media, and agencies have not adopted significant technology to buy this fragmented channel effectively. Purchasing media over phone, fax, and e-mail introduces a major constraint on how many sites can be included on a media plan. Agencies themselves can’t aggregate a digital audience that is both sufficiently large and sufficiently targeted so they turn to ad networks. Once ad networks are responsible for a portion of spend they are also responsible for the optimization of that spend, which they are well-equipped to do.

Agencies have handed two key business opportunities around digital media: aggregating audiences and optimizing spend based on response to outside partners with the required technology. The most important issue here isn’t even that agencies are passing over two very high-value activities at a time when they are struggling to achieve acceptable profit margins. What is most problematic is that audiences are being aggregated and campaigns are being optimized based on sell-side interests, instead of aligned client and agency interests. Mike Nolet of Appnexus does a fantastic job of explaining the implications of this flawed incentive structure. (See the post.)

To be clear, I am not suggesting that agencies become technology companies or masquerade as such. Instead, I am saying that agencies have not adopted sufficient technology to continue in their historic role of reasonably compensated agents of the client’s interest. It is a positive indicator that forward-thinking agencies are spinning out separate business units focused on data-driven targeting, just as aQuantive did with DrivePM in 2004. But the real victory isn’t creating island of excellence where a select few are able to leverage technology, sometimes proprietary, on behalf of clients. The real victory, and the greater challenge, will be deeply integrating technology into the day to day activities of everyone at the agency who is thinking digitally.

Follow Greg Hills (@gregoryhills) and AdExchanger.com (@adexchanger) on Twitter.