When ‘Programmatic In-House’ Is Really Not In-House

meganpagliucaupdatedData-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Todays column is by Megan Pagliuca, vice president and general manager for digital media at Merkle Inc.

The marketers that are truly taking digital media in-house are few and far between.

Those that are successful with in-house media tend to be the digitally native marketers for whom digital is already a core competency, such as Groupon or Amazon. These types of marketers have often built their own ad servers, web analytics platforms, demand-side platforms (DSP), preferred-marketing developers (PMD), data-management platforms and attribution methodologies. When Groupon says it does all of its digital media in-house, it means it.

I see a trend of marketers pushing back against a broken agency model and, rightfully, firing their agencies. However, the media-buying services aren’t being taken in-house. Instead, they are being moved directly to buy-side technology platforms.

One marketer that many say is taking digital media in-house is Procter & Gamble. P&G was, and remains, a true innovator in digital – this year it announced that it’s aiming for 70% of its budget to be run programmatically. In 2009, Right Media launched P&G’s programmatic initiative, known as Hawkeye. Right Media kicked off the project by hiring 15 people from agencies to provide media-buying services and trained them on programmatic. Programmatic media was not taken in-house, but certain functions were moved to Right Media. Today, we continue to see DSPs and PMDs developing large managed services organizations to support the marketers that are “going in-house.”

It’s not ideal for technology companies to also build managed-services arms. It distracts them from focusing on building best-of-breed technology. It can also negatively impact their valuations, which tend to be based on technology revenue rather than services revenue. Building agency-like media services is becoming a necessary evil and a distraction for many ad tech companies.

Marketers are right to push back against the current agency model, which is fundamentally broken in two ways. The first is transparency regarding cost. Agency trading desk double-dipping is well documented and is increasingly well-known and understood. For example, I’ve worked with a financial-services marketer that was paying a percentage of media to its agency (around 8%), the trading desk (around 30%) and then the trading desk leveraged DSP-managed services (10%). Nearly half of the marketer’s media spending went to service fees only.

The second problem is a shortage in the knowledge, skills and competency required to leverage programmatic within the agency, since those talents get siloed within the trading desk. This is particularly problematic when it comes to using the marketer’s first-party personally identifiable data. The point of programmatic is to enable an easier-to-establish and more scalable connection between marketers to publishers and audiences. Yet, as an example, I consistently see media plans that include big-name DSPs, like any other publisher. The media plan should still be about publishers and audiences. It would be ludicrous to put an ad server on a media plan as a publisher. But a demand-side platform, which is simply a technology to connect to publishers, is often included in agency media plans.

For marketers, moving their services to buy-side technology platforms doesn’t necessarily solve this problem. Marketers typically end up with one or more shared full-time-equivalent employees that don’t understand their business or broader media portfolio. The recommendations that the marketers receive are specific to the platform, and innovations are missed if that platform wasn’t first to market with them. It’s a siloed view within the channel, and then within the platform within the channel.

While I applaud marketers for pushing back against the broken status quo, moving their services layer to buying platforms is not necessarily in their best interest, either. Marketers should either build a true in-house capability or leverage a services provider that gives them the transparency and accountability that they require. Either way, marketers should demand cost transparency and clarity in their data usage. And they should understand their platform relationships, whether they own them directly or they are managed by their services provider.

Follow Megan Pagliuca (@meganpagliuca), Merkle (@merkleCRM) and AdExchanger (@adexchanger) on Twitter.

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