The Disintermediation of Ad Agencies

The Disintermediation of Ad AgenciesDarren Herman of MDC Partners‘ Varick Media Management recently published his thoughts on the disintermediation of online display advertising and, by extension, ad networks.

Though it cannot be said we’re in complete agreement, it is a well-conceived argument that plots a path to success for savvy ad agencies who are ready to bring ad exchange technology and thinking to their media buying.

Unfortunately, most agencies will not follow Darren and MDC’s path. And, clients, networks and technology providers will realize that the expertise of the exchange trader has been largely dismissed, if not reviled, by their former agency partners. (For proof, just go to an IAB event to hear the vitriol sometime.)

Oddly, many agencies appear annoyed by the prospect that technology can affect their futures and, most importantly, their margins, which agencies are accustomed to taking for granted.

Agency stubbornness in maintaining proprietary, walled garden strategies will create the next big change in digital media buying: ad networks will bring their expertise, service and technology directly to clients who are looking for a bigger bang for their marketing dollar with the transparency and control of the exchange.

Networks such as Platform-A’s, SpecificMedia, ValueClick, Casale Media, TribalFusion, InterClick, Federated Media, Undertone Networks, and Revenue Science (or do you say, Audience Science) will have the opportunity to fill the void as ad exchange liquidity improves and begins to traffic a larger share of online media.

Replacing Media Buying Agencies

In his white paper, Darren Herman suggests that the better networks will become data providers and cites the superior data on the automotive vertical captured by SpecificMedia. In our opinion, this is exactly why SpecificMedia will be able to replace relationships in the supply chain that many agencies fill today by providing directly to clients the data, analysis and delivery they need without the agency mark-up.

And, SpecificMedia can still sell the data separately on the exchange, too. Ch-ching.

The account management side of ad networks will no doubt grow in response to the steady migration of marketers working directly with networks who are using the latest technology and the ad exchange to implement efficient, digital strategies. Also, marketers will begin hiring in-house ad exchange managers who can interface between the “exchange agency” (the ad network) and creative.

Most media buying agencies will respond to the continuing advancement of technology and advertising exchanges and fall into two buckets:

  • Reject technology advances and/or move way too slowly to take advantage of it.
  • Try to build their own own proprietary system a la WPP Group, Group M and 24/7 Media.

Both are closed paths traveling in the opposite, open-to-all direction of the ad exchange model that provides unparalleled insight on media and improves ROI for all parties. By not partnering with technology and members of the exchange, many “closed path” agencies will not have time on their side.

For networks, a natural transition is ahead as the disintermediation of agencies brings networks – the super traders of the exchange – and clients together.

We welcome your comments.

Final tally of “Who will be disintermediated?”:

  • Agencies (49%, 24 Votes)
  • No one (27%, 13 Votes)
  • Networks (24%, 12 Votes)

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  1. Thanks for the insight re: my white paper. I do not think that ad networks are going to go away in mass, I do think that they are going to have to change their business model to service agencies. Agencies won’t go away either – after all, ad networks don’t know how to plan big ideas around television, radio, print, ooh, and again, digital.

    The ecosystem is changing – and that’s the goal of this white paper.

  2. FM is really a different animal than the ad networks and exchanges you list in the post above. FM is a media company that works with a small exclusive group of independent publishers.

    That said, I don’t think that ad agencies are going away. They’ll have to evolve just like the rest of us, but their duties are much needed by large brands with multifaceted marketing and advertising programs. At FM we work with smart ad agencies everyday and their value for brand marketers is apparent.

  3. I think it’s more the “Evolution” rather than the Disintermediation of Ad Agencies. The agencies will evolve. Many of them are in talks w/platform companies that will allow them to see more and buy efficiently on exchanges as well as w/ direct publisher partners. And agencies that are adopting solutions to see and transact on data points for their brands (in some cases across multiple media outlets) will win. The lines are getting blurred, the titles are getting stripped away: agencies are becoming ad networks and ad networks are becoming agencies. There are some networks and agencies that won’t make it, but those that have technology, data and deep relationships will provide value to the ecosystem and have the option to break out of their traditional classification.

  4. Great post, Joe. And kudos to Darren for putting his white paper out there. I’m a little concerned that there is almost too much focus on agencies and ad networks – and not enough on the publisher.

    Where are the opinion pieces and white papers arguing the case for publisher using the exchanges? In the midst of all this excitable talk about agencies, networks and disintermediation, we are forgetting who actually owns the inventory – eh, the publishers.

    Maybe they will decide to band together and sell their inventory on the exchanges, cutting out the ad networks all together. Maybe some big publishers in particular verticals might think that they don’t need the ad networks. They might hire specialist ad exchange traders to sell their unsold ad space for the best price available – and wrest the bargaining power from ad networks and ad agencies.

    If we are going to make the exchange model work, the case for the publisher needs to be made. And I would say to publishers that they need to start properly investing in this area, getting the right expertise to help monetize their unsold inventory. While ad agencies and ad networks scramble for media buying budget, the publishers will hopefully wise up tot he changing times.

  5. Interesting post, I think the way that things will go lies somewhere in the middle as Darren has commented here. The reality is that networks and agencies are converging in to a middle ground where they both have a valuable role to play depending on the advertiser needs. Our agency, Infectious Media, is starting to pitch an exchange product and the reality is that it’s most appealing to advanced clients who spend large DR budgets on networks. It’s a more complex process for a client to work with an agency rather than with a network and for many who don’t spend huge amounts they would rather this type of activity stayed as a nicely packaged up ‘media buy’ rather than something that takes up a lot of their time to implement.

    I do think however that networks without optimisation technology or a data source that rely on pure media arbitrage will soon become a thing of the past and leave smart networks to dominate that side of the space.