Should Every Agency Build A Trading Desk?

brian-stempeck-ddt“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 Brian Stempeck, SVP of Strategic Business Development at The Trade Desk.

About three times a week, I hear the same question from presidents, media directors or technology directors of various mid-sized agencies: “Should we be building an agency trading desk internally?”

It’s a very real strategic question a lot of agencies face right now. Here’s how I’d weigh the decision.

What’s The Business Case?

A quick look at the financials of a publicly traded ad network makes a pretty strong case for why agencies are considering bringing media in-house. Take Interclick, for example, prior to its acquisition by Yahoo. In 2010, Interclick logged $101 million in revenue. Of that, it paid $58 million to publishers, leaving $43 million in gross profit, or a whopping 42.6%. Dang! Most agency media teams I know aren’t charging fees anywhere close to that, and even fewer realize how profitable their IOs have made the ad networks.

Some agency media teams prickle at the idea of managing media without disclosing their fees to their clients, as ad networks do. But there’s a middle path. I know many agencies today that are transparent with their advertisers. They’re able to charge higher fees for managing RTB campaigns than for other forms of media. The reason? Those RTB campaigns are typically driving better insights – and better performance – and the agencies are passing on significant cost savings to their advertisers.

What Does The Internal Team Look Like?

The circa-2010 demand-side platform pitch went something like this:  “Click this one optimization button and the entire campaign will hit its CPA goal in 32 minutes!” I don’t know many media planners who are buying that anymore.

We’ve all learned by now that a “set it and forget it” approach to buying RTB (or any media) rarely works. Algorithms and machine learning are a huge part of the puzzle, but so are buyers and agency teams who can hypothesize about what strategies and tactics work best for a longtime client.

I always suggest to agency leaders that when they bring a DSP in-house, they commit some of their media team’s time to really learn and manage the technology. Contrary to some of the pitches out there, using a DSP doesn’t have to be rocket science. There are many capable media-buyer Excel Gurus who can master a DSP in a matter of hours, but they need the dedicated time to learn and to optimize campaigns.

Where Is RTB Headed Next?
For many agencies, the biggest question of all is whether RTB will remain one digital tactic among many in the media plan, or whether it will rule the roost. I’d bet on the latter.

Three years ago, when I started working at The Trade Desk, RTB meant one thing: remnant display ads. Today, RTB powers display as well as premium publishers through private exchange deals, the Facebook Exchange, pre-roll video and mobile – and it will soon also power addressable and even linear TV. Within the next 18 months, I’d bet that people stop using the holy trinity of ad tech acronyms (DSP, SSP, RTB) quite as often. Sometime soon, RTB will just be accepted as how most online media is purchased.

As RTB grows, so will the companies managing RTB campaigns. In a lot of ways, I think RTB will evolve like search. Take a company like iCrossing. It started out as a niche player in the SEM space in 1998. Twelve years later, Hearst bought iCrossing for $325 million, and today its campaigns for clients like Williams-Sonoma and AAA aren’t just in search but have expanded across the rest of the digital plane. In fact, less than half of iCrossing’s revenue now comes from SEM.

Of course, there were also plenty of agencies who decided to never manage search, instead turning to a specialist, which is also a viable approach. As I look around the ecosystem at emerging independent trading teams like Goodway Group, Accordant and The Exchange Lab, I see managed service providers who are providing valuable RTB services for agencies.

For agencies still sitting on the sidelines, I’d listen to your clients. As RTB increasingly becomes the technology foundation for media, even the most traditional, offline, old-school advertisers are going to be asking about RTB campaigns. Every agency with significant media dollars needs to start considering its strategy, whether it’s bringing media in-house or opting for a close partnership with an independent trading specialist.

Follow Brian Stempeck (@brianstempeck) and AdExchanger (@adexchanger) on Twitter.

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  1. Calvin

    So a trading desk is basically an ad network?

  2. Brian

    Not necessarily. Some trading teams are opaque about their markup; others are transparent. That’s totally up to the agency. I think there’s room to be transparent with clients and still have a strong business case for trading.

  3. Transparency down to client level about rates , sites, quality of inventory etc will be key if RTB is to continue the growth it has seen it the last few years. This is when the real value of using RTB as a channel is emphasized most. Thanks for a good read Brian.