After The ANA Storm, Agency Trading Desks Invite Scrutiny

StructureWhile it’s still too early to assess the repercussions of the Association of National Advertisers’ (ANA) media transparency report issued Tuesday, industry analysts expect the dynamics between advertisers and their programmatic trading desks to bear the burden of the impact.

Though the 62-page report didn’t name names, it cited instances of non-transparent practices among agency trading desks.

“This release puts flesh on the bones of a skeleton we already knew was in the closet,” said Brian Wieser, a senior analyst at Pivotal Research Group, who noted holding company stock has, ironically, been trading up all week despite Tuesday’s bomb drop.

“Marketers will get more aggressive on squeezing fees than they already were, offset by the agencies efforts to find new revenue streams,” Wieser predicted. But even he admits it’s difficult to gauge the impact because “different trading desks have different practices. The one thing that seems likely is that clients will want to take more control of the billings.”

Holding companies reportedly pressure their agencies to direct spend to internal trading desks, according to anonymous sources that spoke with K2 Intelligence, the investigative firm hired by the ANA.

For instance, one former C-level holding company executive claimed agency management demanded planners allocate more spend to media sellers who had negotiated rebates with that agency in turn for large volumes of spend.

K2 also found instances where the trading desk marked up inventory that had been procured and resold by its sister agencies.

And in some instances, advertisers felt bullied or pressured into using their agency’s trading desk, making it likely marketers will scrutinize – or amend – their agreements in the months following K2 (and Ebiquity’s) findings.

“Advertisers ideally have to get terms and practices written into their contracts so [details of pricing, fees and services are] fully disclosed,” said Craig Huber, an independent media analyst at investment research and advisory firm Huber Research Partners. “I think this whole thing will force both sides to look at these accusations internally with their customers.” 

Yet despite all the recent hype, marketers still value their trading desk relationships, said Richard Joyce, a senior research analyst at Forrester, who formerly worked at Omnicom and Interpublic trading desks.

He cited an ANA-commissioned Forrester report showing 86% of marketers reported they haven’t eliminated or reduced agency responsibilities despite having their own in-house programmatic capabilities.

Still, one plausible outcome of the ANA report is that it spurs advertisers to reduce their dependence on the external trading desk altogether.

“We are already seeing marketers create more direct relationships with ad tech,” Joyce said. “If that trend continues, you’ll start to see agency trading desk fees decline, since those fees take into account the tech fees that they would typically have to pay. Marketers will want to pay agencies and their desks for executional services vs. service plus tech.”

The current relationship between the holding company, the agency trading desk and their vendor partners is a tough one to unpack.

One US agency cited a companywide mandate six years ago requiring programmatic spend over a certain threshold automatically go to the trading desk rather than third-party ad networks, according to a former digital investment exec that K2 interviewed.

In another instance alleged in K2’s report, after one advertiser audited its agency’s trading desk, it decided to build its own.

But some advertisers aren’t at the level where it would make financial or operational sense to build one’s own private trading desk or to issue their own RFP for third-party tech since this has historically been the agency partner’s purview.

Since the agency may have one or several “preferred” vendor partnerships (with details of arrangements cloaked within a services agreement), more often than not the preferred vendor would automatically win that business.

One former ATD exec argued the ATD model can be tailored to an advertiser’s needs. For instance, an advertiser can pay a flat rate to meet specific performance objectives as opposed to a volume-based percentage of media spend. (Advertisers, however, had been reluctant to pay tech subscription fees to certain buying platforms).

But whether pricing is CPM-based, flat fee or charged as a percentage of media, marketers should demand transparency into what constitutes those terms, Joyce said.

“If anything, as an advertiser I would talk to the vendors about self service fees vs. managed service fees and what goes into those for the vendors,” Joyce said. “ATDs have to be doing a lot more for you as an advertiser to warrant anything higher than the difference between those fees.”

Although Wieser doesn’t predict some big marketer migration to build programmatic trading units in-house – at least in response to the highly charged report – “advertisers know one of the factors that contributes to the solution is to be more involved in the vendor selection process and run billings through themselves,” he added, where even on the ad tech side, “no DSP gets kicks without the marketer getting actually participating in that diligence themselves.”

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1 Comment

  1. As the industry continues to develop and ad tech firms consolidate, how likely is it that some of the tech providers – DSP, DMP – will be acquired outright by agency holding companies and then have their operations merged with the trading desks? This would reduce the number of intermediaries, and cost elements in the overall media spend. This is not to suggest it is an ideal solution, or will be universally adopted. But a growing number of ad tech providers are under pressure from backers who want to cash in , and DSPs in particular are becoming commodities. So is this a likely next step as the industry matures?