Advertisers Taking Programmatic In-House Is Short-Sighted

jayfriedmannew“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 Jay Friedman, COO at Goodway Group.

I see a concerning pattern forming in the marketplace.

Agencies are bracing for change as advertisers heavy up on programmatic, often in-house, according to a recent report. But that wasn’t the first piece to addressthistopic.

I believe this is a troubling trend for all parties, not just agencies.

There are three primary causes driving this trend. First, it is so white-hot that advertisers feel the need to touch it directly and not be left behind. I wasn’t working when cable stormed onto the scene in the early 1980s, or even online in the mid-1990s, but I haven’t seen evidence of clients taking either of those submedia in-house. So why programmatic specifically?

Second, we have decoupling. In the early 1980s, creative and media were integrated together at agencies. The idea of decoupling media and creative took hold in the mid-1990s, but at least all media planning was still handled holistically. Today, the agency holding companies have created trading desks that are an additional step removed from the client. Now we have a white-hot trend paired with clients’ inability to feel they have a direct line to the expert.

Finally, look at the cause of any trend in media, and cost is always among the top reasons. In this case, I believe it’s a penny-wise, pound-foolish approach where advertisers believe they can skirt the agency trading-desk fee – and perhaps the agency fee altogether – by doing it themselves.

There are dozens of professions that exist with one of the primary benefits being coordination. Could you buy the flowers cheaper than the wedding planner if you took out his or her fee just for that purchase? Probably, but there’s a good chance those flowers wouldn’t match the decor or arrive at the right time or place.

Could you save the 1% your financial adviser charges you if you purchase all of your investments directly? Sure, but you probably wouldn’t balance your portfolio right and may make bad investment decisions.

Media planning and buying are no different. You, the advertiser, may save some money specifically within your programmatic by cutting out the agency fee, but is this media then out of sync with the rest of your plan? What if the cost of that lack of coordination is actually greater than the agency fee? Agency fee too high, you say?

You Don’t Know What You Don’t Know

Maslow’s four stages of competence suggest not knowing what you don’t know (unconscious incompetence) is the first stage of learning, right before conscious incompetence, or “knowing what you don’t know.” If we look at the causes of this trend among advertisers and project the outcomes, we would likely see a lot of advertisers in this first stage. While I don’t want to simply repeat Netflix’s Mike Zeman’s article, it’s worth realigning his dead-on reasons advertisers should think twice before bringing programmatic in-house with the outlook of this piece.

Costs: “But the agency is charging us so much.” Compared to what? Compared to having to hire an engineering team, build a data warehouse, purchase business-intelligence software licenses and take a year to get this all deployed? A good agency will already have all of this deployed with its associated costs baked into your fee. For any larger advertiser, these costs will be in the many millions. Are you taking these costs into account when determining if there are savings?

Integration: The biggest potential benefit from building the data warehouse and corralling all of your data will be the lessons you derive from cross-channel data. Whether it’s spending optimization, cross-channel attribution or simple frequency management, integrated media management is a must. Will you be bringing search, social and other media in-house, too?

Long-term plan: Do you see having this department in 10 years? If so, by then, will it have grown and expanded to other media? If not, why take the time to build it now to potentially dismantle it later? Make sure this is thought through long-term, too.

A Road Map

While success in this space comes from working together, the prescription for success involves each side looking at the situation differently. Advertisers need to think hard about what actual problem they’re trying to solve. Once they’ve determined this, they must work to determine the quickest, highest ROI solution. If the problem you’re trying to solve is proximity to the tech and data, that’s likely much better worked out with your agency rather than by bringing tech and data in-house without a real long-term plan. If it’s cost, now seems like as good of a time as any to address agency compensation.

There are people in certain professions I actively want to pay better than they may deserve because it aligns our motivations. A financial adviser is one: If I pay him 0% for a loss, 1% for a gain up to and even with the S&P and 2% for beating the S&P, we win and lose together. A salesperson is another. Motivations are aligned when salespeople are paid more than market value. Imagine a big CPG brand’s salespeople who sell to retailers. They’re certainly well compensated, most often with a base salary plus upside for beating goals. But who is that CPG brand’s single largest salesperson? Who holds an advertiser’s loudest megaphone? The agency. But rather than advertisers paying the agency a healthy base plus attractive commission like they would their salespeople, they put the agency through procurement. Imagine putting a salesperson through procurement.

Agencies often tell me, “We’re put through procurement because the minute we say no, there’s another agency down the street that will take it at that price.”

That’s only possible if you can’t differentiate your services or business. There are four realities you need to live with and adapt to going forward to be sure you can.

First, reporting and data intelligence are as core to your agency as creative. Do things with your data your clients wouldn’t have dreamed. Show your clients things they can take back and share to get promoted. Uncover opportunities that make your clients stars, and it’s unlikely they will have any desire to bring any aspect of what you’re doing in-house.

Reintegrate, at least within media. By separating search, social, site-direct and programmatic, you actually make it easier for your clients to peel off parts of what you do and bring them in-house. Be the integration magician to awe your clients instead.

Don’t forget you’re in the innovation business. Think about the life of a pharmaceutical company: It’s perpetually “innovate or go bankrupt,” yet under all that pressure, the innovations keep coming. Agencies are now in that business, too. Innovate for your clients; innovate ways to buy media, ways to report on data, ways to target on behalf of your vendors that no one has thought of before. Great insights aren’t just for creatives anymore.

Finally, be so amazing you can only hope your clients try to bring “what you do” in-house. This may sound crazy, but there is no better feeling than absolutely knowing you do something so well your clients can’t do it better and even if they try will still come right back to you.

Neither “side” has been perfect in creating the situation we’re in now. We can only fix the future, and it’s indeed fixable. Agencies and advertisers will almost always be better off working this out together rather than apart.

Follow Jay Friedman (@jaymfriedman) and AdExchanger (@adexchanger) on Twitter.

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  1. Jay, is it possible to both agree with you 100% and disagree with you 100%? We’ve offered programmatic self-serve for more than three years and in our experience, it can be a bust for some, but tremendously beneficial for others.

    It *is* a big undertaking and I think you ask an important question: “Do you see having this department in 10 years?” With some research firms predicting programmatic buying growing to 50% of digital by 2018, that suggests that answer is yes.

    I would argue that for now, the right decision will be idiosyncratic to the organization. We put together a short primer to help people assess their own companies’ readiness, and rightness, for in-house.

  2. Shane – I think it is possible! To clarify, I believe that bringing programmatic in-house – and only programmatic – is a mistake. For advertisers that have all media in-house, clearly it is the right thing. I’d stick to my point, though, about media needing to be holistic.