One Question: Do You Think An Agency Trading Desk Can Be Successful?

One QuestionOften, a question doesn’t have an easy answer in the digital advertising business. This is a new column devoted to an answer to a single question – and providing a bit of space for it.

Today’s participant is Hooman Radfar, CEO of Clearspring, which provides content sharing platform AddThis. He recently answered the following question during a conversation with… Do you think an agency trading desk can be successful?

HR: It’s not going to be easy, but if you look at the fundamental economic shift corresponding to the rise of RTB platforms that is driving the growth of trading desks, and couple that with aggressive approaches to building out their capabilities, success is possible.

As exchanges and real-time bidding platforms enable a new ecosystem of DSPs, Data Platforms, and SSPs to replace the function once served only by ad networks, holding companies have the opportunity they’ve long hoped for – the chance to deliver better pricing and service to their clients while increasing their margin from media.

In the beginning the world was run by “Mad Men.” Agencies owned it all – from creative to media. As media purchasing has become increasingly technology-driven, however, the same technologies that have made purchasing at scale easier, have also resulted in greater value being captured by traditional third party networks. Third-party ad networks hired huge publisher teams to aggregate inventory, created yield optimization technologies to balance publisher payment with advertiser demand, and – of course – developed demand-side technology to fulfill insertion orders. This cost money. Now agencies have a chance to shift the scales back in their favor by purchasing media directly from publishers via real-time bidding platforms.

This change is not only good for the agency, but – in the long run – also the client. Not only should agencies be able to deliver the same results at a lower cost, but they will also be able to better understand what drives campaign success over time. They can pass that knowledge to clients as they are now in control of the purchases versus handing them to opaque ad networks.

The economics are critical. If there was not a significant and obvious dollar amount associated with their success, it would be exceedingly difficult for the trading desk to succeed. How else would they get budget to support moving this purchasing function back into the holding company without that economic case? But this is just part one.

Part two is execution. Now that the incentive structure is properly laid out and the prize has been defined, the question remains – do agency trading desks have the skill sets, the assets, and the competency for it to work?

Some of the holding companies, like WPP, have technology platforms and have made understanding technology part of their competency. They already have onsite engineers and staff with solid experience in ad tech. As a result, they were able to quickly establish their own B3 DSP platform at the MIG – their trading desk – and their media budgets are increasing dramatically as a result. Publicis is another example of a holding company that has done a great job building that competency with their trading desk VivaKi. They’ve done an excellent job working with 3rd party platforms like Google’s Invite Media to quickly get ramped and deliver.

The common denominator that we’ve seen working with trading desks is that the most successful of them are really run like start-ups. They’re scrappy. They’re bootstrapping. The people running the teams are incredibly energetic. You’ll see them up at all hours of the night. It’s almost like a new company.

Like a start-up, these trading desks have initial capital to fund themselves. But what’s really interesting is that, unlike a traditional start-up, the holding company funnels these trading desks a ton of new business from the start. And so far, it’s been working. Trading desks are rapidly growing budgets, expanding their teams by orders of magnitude, and gaining repeat customers.

In short, the incentive is there for them to succeed and to the extent that their existing traction is a predictor for how successful agencies can be at this, there’s a shot. But we’re in the first inning of a long ball game. There are already changes occurring as the application and management of data at scale becomes increasingly important. How they deal with these changes will determine the winners.

Follow Hooman Radfar (@hoomanradfar), Clearspring (@clearspring) and (@adexchanger) on Twitter.

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  1. Jyothikrish

    What essentially is a Trading Desk doing? Is it just that they aggregate all the demand they have access to and funnel it through a single pipe? And whom do they work with? With DSPs or Exchanges?

    If Trading Desks are licensing technology from DSP’s like InviteMedia, is agency an avatar of DSP, at the end of the day?

    • Ericka Sloan

      A trading desk is able to do quite a few things. The main goal is deliver a specific message to a specific audience and get the end result/goal that a team is looking for. Because they’re all on the same team all parties are striving towards a goal rather than a dollar amount. Using the exchange landscape they’re able to get very cheap inventory filtered down to the best performance. Because Trading desks reach such a large amount of users across multiple exchanges they can identify what type of audience is actually responding to the ad to get insights into sites, exchanges, DMAs, data providers, etc… that are working the best.

      Trading desks work with both DSPs and exchanges. If one DSP’s technology is able successfully execute a particular functionality that another one can’t the one that is more advanced will be the one used. Therefore they have multiple relationships and partnerships with both. The main concern is providing the correct technology to reach the campaign’s goals.

      • Techpilgrim

        Thanks, Eric for your note. That definitely help bring in some clarity.

        But then, a Trading Desk might license technology from a DSP but would typically work with multiple DSPs.

        But if a Trading Desk has to be neutral and is primarily goal-focused, licensing one DSP technology versus others, can it ensure a level playing field when it comes to executing to the client goal?

  2. I have thought long on hard on this question for the last two years, and I have concluded that the pro’s and con’s need to be weighted to help form my own opinion. To cut a long story short I believe the huge budgets holding companies control will completely overshadow many negatives at the trading desk level. The can’t all be successful but I would not bet against the purse strings of IPG and Publicis. Cadreon and Vivaki have so many more advantages than a cold start-up.