"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 Mike Romoff, head of global agency and channel sales at LinkedIn.
Ad agencies face an existential crisis, years in the making, and it feels particularly urgent at this moment.
There has been a decline in advertising jobs for the first time since the US government started tracking the industry. In February, the US Bureau of Labor Statistics released data showing a net loss of 5,000 ad agency jobs in 2017 – despite overall economic and employment growth.
Marketers are abandoning traditional agency models and looking to gain greater control and transparency by ramping up their internal expertise. Last fall, Sprint became the latest brand to bring part of its digital advertising in-house, joining a roster of companies, including Allstate, StubHub, Unilever and Netflix, that have done the same in recent years.
An ANA report found that 35% of brands had cut back on media agencies running their programmatic campaigns over the previous year, shifting their resources toward more sophisticated in-house teams. From 2016 to 2017, the average new agency contract fell by 38%. Meanwhile, agencies are up against competitive forces on a few fronts: namely, publishers that are bringing creative services in-house and consultancies acquiring digital shops.
Agencies will only survive in this environment by treating transparency as more than a buzzword. This is not about adopting a shiny new business model – it’s about walking the walk. An agency’s business and purpose must be one and the same: helping brands build trust with their audiences and doing it in the most transparent way possible.
What does this look like? I see three ways agencies will embody transparency in the new media and brand environment.
1. Realign incentives
Agency businesses have been built on arbitrage, which means their incentives haven’t always aligned with clients’ goals. The opaque and automated nature of programmatic ad buying only made the system more problematic.
Now that brands have woken up to this reality, the black-box approach of advertising trading desks no longer flies. Take Adidas, which now owns the contracts for most of its partnerships with demand-side platforms, as it seeks to move the industry toward universal viewability, transparency and brand-safety standards.
Moving forward, agencies can only build trust through transparency, leaning into the practices that give clients insight into their supply chain, billing model and definition of success for both sides of the partnership. Ultimately, this involves moving from non-disclosed models or black boxes toward disclosed models where agencies, in clear view, can earn fees for planning and optimization services. This system should also align incentives to hit and exceed KPIs rather than trying to simply find the most profitable ways to run a campaign.
Ad buyers should be able to see whether campaigns were seen by actual humans, how many viewers were exposed, the complete financials of the transaction and, perhaps most importantly, whether KPIs were met. These data-based concepts should become commonplace offerings for agencies that want to survive as we head toward the 2020s.
I believe we will also see more openness around post-engagement metrics, such as lifetime value and renewal rates, in the near future. Agencies can play a big role and benefit financially from this shift by driving results or taking a commission on spend – or making deals that combine both.
2. Prioritize quality partnerships
Brand marketers are in the business of building trusted relationships with consumers. Today, it’s all too easy for brand messages to be muddled by content that conflicts with a brand’s values.
I expect brands will look to make media sellers accountable for delivering campaign goals. In this environment, there’s a bright future for publishers that sell directly to agencies, and for marketers who are laser-focused on brand health via quality ad buys.
What does “quality” mean in today’s media landscape? Increasingly, it is the ability to control the contexts in which ads appear. We are beginning to see a bifurcation between commoditized media on the one hand and publishers such as Quartz, Axios, The Wall Street Journal, The New York Times and The Washington Post on the other. These publishers have demonstrated their value to advertisers by consistently delivering premium content to their audiences and ensuring that branded experiences appear in the context their readers have come to expect and trust.
Agencies will need to be strategic about partnering with publishers that provide differentiated value. They must be more involved in securing this high-quality media, which likely means cutting back on automated, long-tail ad buys and focusing more on programmatic direct.
Also, agencies are moving toward more directly integrating with publishers by using either tags on the page or header bidding, cutting out multiple middlemen from the process. That simplification eliminates a lot of the obfuscation and fraud in the exchange environment, and it brings agencies and advertisers back to a more direct relationship with publishers instead of with the aggregators.
These kinds of direct relationships are gaining momentum. Last year was the third consecutive year that programmatic direct made gains on real-time bidding, as direct purchases accounted for 56% of programmatic ad spend compared to 53% in 2016, according to eMarketer. This trend represents an opportunity for agencies to set themselves apart from the competition and to be stewards of media-buying transparency.
3. Measure against business results
Agencies must also provide visibility into how ads influence their clients’ business growth. This means evolving measurement practices to track results, such as customer acquisitions and revenue, rather than superficial metrics, such as clicks and impressions.
I’m hopeful that the call for transparency in advertising will spur a real change in how our ecosystem operates and that the industry will be better for it. No single actor can be responsible for making this change, but the immediate pressure is on agencies to prioritize trustworthy practices, quality media and transparent measurement. Their future depends on it.