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Try This Quick Programmatic Digital “Transparency” Test

16 Aug

exam resultsIf you’re like most marketers, your organization is spending considerably more of its media budget on programmatic digital media today than it did last year and certainly more than it did five years ago. The question is, “Are you getting value for that shift in media spend?

While agencies and ad tech firms have clearly benefited from the rapid growth of programmatic digital media many marketers have seen their working media levels languish due to the third-party costs and intermediary fees associated with programmatic media.

As marketers know all too well, every dollar invested programmatically is subject to what has been referred to as the “tech tax,” which according to David Kohl, CEO and President of TrustX this can account for over fifty cents of every dollar invested. In his article; “The High Cost of Low CPMs” written for AdExchanger, Mr. Kohl points out that “whether or not the ad reaches its target audience and whether or not it is served into the viewable window or below the fold, DSPs, SSPs, data providers, viewability and verification providers, tag managers, re-targeters and others all take their few cents.”

The question to be asked is; “To what extent is this happening to my organization?” Fortunately, there is a quick, three-step method for testing your risk profile when it comes to programmatic digital media.

Step 1 – Ask your accounts payable department to provide you with a few examples of the digital media invoices that comprise the billing from your digital media agency partners. Check if they have a description of the services provided and the type and level of media inventory purchased. The objective of this exercise is to determine whether the invoices are highly descriptive or general in nature and if a non-media reviewer would be able to ascertain the breakdown of “what” was actually provided for the amount being billed.

Step 2 – Review the third-party vendor invoices that accompany the billing from your agency. If supporting vendor documentation is not provided, ask your agency to provide detail for a handful of invoices. This detail should include the invoices from the actual media sellers, not the agency’s trading desk or an affiliate. Apply the same filter to your review of these invoices as you did for the agency’s billing, with regard to the adequacy of the descriptions breaking out the media purchased and all of the attendant costs (i.e. net media expense, agency campaign management fees, ad tech and data fees, etc.).

Step 3 – Evaluate both sets of invoices, agency and vendor, for an itemized list of the fees being charged such as:

  • Agency campaign management fees
  • Data fees
  • Pre-bid decision making/ targeting fees
  • Ad tech/ DSP fees
  • Publisher discrepancy fees
  • Ad verification fees
  • Bid clearing fees
  • Ad serving fees

If you find that invoice descriptions are less specific than you would like or that third-party vendor invoices don’t contain an itemized list of fees being charged, it is time to have a conversation with your agency partners.

The first topic to be discussed is establishing your position and preference for “How” your programmatic media buys are to be structured when your agency goes to market on your behalf. If it is transparency that you seek, they should be executing your programmatic buys on a “cost-disclosed” rather than a “non-disclosed” basis. This is the only way that you will be able to identify the net costs being assessed for the media inventory purchased and to calculate what percentage of your buys are going toward working media. Fraud and viewability concerns aside, advertisers have found that after fees are subtracted, they’re lucky if 50¢ of a dollar spent on programmatic digital media actually makes it to the publisher to fund the media that your consumers see.

Once you and your agency have agreed on the desired level of disclosure, conversation must necessarily turn to the need for updating client-agency agreements, statements-of-work and each of the media control documents utilized by the agency (i.e. media authorization form, electronic RFI templates, digital insertion orders, etc.). In spite of the ad industry’s efforts to reform what remains a murky digital media supply chain fraught with bad actors, questionable practices and a lack of transparency, advertisers remain at risk. Therefore, it is imperative to ensure all parties are held accountable that they employ the appropriate descriptive invoice detail, reporting requirements and itemized cost breakdowns mandated by the advertiser.

Testing the current state of your programmatic buys’ level of transparency is a necessary first step to stripping away the opacity that can surround digital media buying. In turn, the results of this self-examination will assist advertisers in both safeguarding and improving the return on their digital media investments. In the words of David Ogilvy:

“Never stop testing, and your advertising will never stop improving.”

Marketers: Are you Optimizing Your Data?

16 Aug

Vision MissionWith the dramatic expansion of data availability and the explosion in marketing technology solutions ranging from Data Management Platforms (DMPs), Demand Side Platforms (DSPs) and A/B Testing Platforms to name a few, the opportunity for marketers to optimize the data available to them to improve execution has never been greater.

Yet, too few marketers and their agencies are fully utilizing these tools to synthesize this data to drive marketing insights that can boost the efficacy of their marketing investment. Mass personalization, the mapping of customer journeys and the ability to improve the organization’s responsivity to competitor actions and market conditions are all possibilities if these tools are properly deployed.

If you feel as though your company could deliver greater value from the investment it has already made in martech, you will want to read this article from McKinsey & Company entitled; “Making the Most of Marketing Technology to Drive Growth.” Read More

Don’t Start There

25 Jul

contract complianceMost would agree that the days of conducting business on a handshake are long gone. Make no mistake, honesty, forthrightness, trust and respectability are still qualities that we look for in our professional relationships. However, when it comes to transacting business the protection afforded to all parties is greatly enhanced with the use of a contract versus a verbal agreement marked by a handshake.

A verbal contract isnt worth the paper its written on.” ~ Samuel Goldwyn

The good news when it comes to the advertising industry, most client-agency relationships are governed by a contractual agreement. That said, there is one common mistake made by many advertisers when it comes to contracting with their agency partners… they start with the agency’s base contract.

Unfortunately, this creates a handful of challenges beginning with the fact that by its nature, agency contract templates are not client-centric. Then, when the advertiser turns the draft agreement over to counsel for review the document will likely require major modifications or, depending on counsel’s degree of advertising industry knowledge, there is a risk that key terms and conditions, which safeguard the advertiser’s interest will not be included in the agreement.

For advertisers, getting the contract “right” is important for two reasons. Firstly, the client-agency agreement establishes the legal nature of the relationship (e.g. principal-agent), while clearly articulating both stakeholders’ roles, responsibilities and rights. Secondly, the agreement establishes expectations and guidelines related to key aspects of the relationship, including; agency performance, staffing, remuneration, reporting, audit and record retention and intellectual property and data rights.

Over the course of the last several years the nature of client-agency relationships has certainly evolved with the advent of emerging technologies, changes in the regulatory environment and a move away from principal-agency relationships, which once held agencies to a much higher fiduciary standard. Thus it comes as no surprise that the complexity of the legal agreements that govern these relationships has increased dramatically.

Larger advertisers certainly benefit from working with marketing procurement departments and in-house counsel that are adept at contracting with a myriad of marketing vendors. Many organizations have developed standardized marketing vendor Master Services Agreements (MSAs) that can be used across their agency network, with some modification. These are typically “evergreen” agreements that don’t need to be renegotiated on an annual basis. Complimentary annual Statements of Work (SOW), which include key deliverables, agency staffing plans and remuneration program details are designed to be reviewed every year.

Additionally, the Association of National Advertisers (ANA) and The Incorporated Society of British Advertisers (ISBA) have both developed comprehensive, client-agency contract templates for use by their members that reflect industry “Best Practice” trends in this area. For small advertisers, or relationships with smaller, independent agency partners, the ANA and ISBA contract templates may not be wholly appropriate, but will provide a worthwhile guide for key terms and conditions that will certainly be applicable.

In our experience, advertisers will be much better served by taking this approach as opposed to accepting or attempting to retro-fit an agency’s base contract.

Of course, once the contract has been executed, marketing and advertising team personnel have an obligation to their organizations… monitoring contract compliance and financial management across each of their agency partners. The first step in this process, one which is often overlooked, is to socialize the agreement. Since an agreement is intended to serve as the basis for the client-agency relationship, it is important to share a summation of this agreement with those client-side individuals responsible for managing these important relationships.

As it relates to ongoing contract compliance monitoring tactics, these can include the tracking and reviewing agency time-of-staff commitments, retainer fee “burn” rates, budget control and project status reports and annual fee reconciliations. Progressive advertisers compliment these efforts with periodic business review meetings (i.e. quarterly or semi-annually) and by conducting independent agency contract compliance audits every year or two.

Good contracts can be the building block for great relationships. The time and effort invested in fashioning them and insuring compliance to them will yield dividends and across an advertiser’s agency network.

 

 

 

 

4 Keys for Optimizing Direct Labor Based Remuneration Systems

9 Jul

punch clockAttorneys do it. So do accountants, consultants, architects and engineers.

What are these firms doing? Tracking billable hours. Why? Because time and material based compensation remains the predominant method of billing for professional services firms and this includes advertising agencies. In fact, according to the Association of National Advertisers’ 2017 “Trends in Agency Compensation” study, labor-based fees remained the “most used” method of remuneration for marketers of their ad agency partners.

There are many inherent benefits to direct labor based compensation systems from both an agency and advertiser perspective including simplicity and clarity, particularly for marketers utilizing multiple agency partners that may be collaborating on overarching campaigns or playing specific roles on comprehensive, integrated projects.

We believe there are four key steps to successfully implementing and managing direct labor based remuneration systems:

  1. Establishment of a clear, concise Statement of Work (SOW), with specific deliverables and estimated timelines.
  2. An agency Staffing Plan that identifies the individuals that will be assigned to the client’s business along with information detailing their department, title, bill rate and utilization rate.
  3. Build-up detail supporting the agency’s suggested billable hourly rate (i.e. direct labor, overhead, profit margin) to accompany the agency’s annual fee proposal.
  4. Timely, accurate time-of-staff reporting to facilitate the monitoring of burn rates and to support the fee reconciliation process.

While there are contractual language considerations that will also help to insure transparency and establish client and agency expectations, including limiting agency revenue to that which is agreed upon as part of the remuneration program, we want to focus our thoughts and recommendations on tracking billable hours.

Aligning advertiser expectations with agency resource requirements is the basis for any compensation system. Thus collaborating on an annual Statement of Work, complete with detailed deliverables and timelines is a critical first step in the process. The resulting document will inform the agency’s efforts to construct its Staffing Plan, which in turn will form the basis for its fee proposal.

Experience suggests that conversations should be had in advance of the agency’s development of its Staffing Plan. Specifically, the parties will need to agree upon the basis for the annual full-time equivalent (FTE) calculation and the rules related to the application of agency employee time in excess of the FTE standard for fully-utilized employees and how utilization rates are impacted by an employee’s “total” annual recorded time. As it relates to FTE standard, there is no normative data for the advertising industry. That said, an 1,800 to 1,875-hour standard (35 hours per week, multiplied by 50 weeks per year) represents a typical FTE range.

Once the SOW and Staffing Plan have been agreed to, reviewing and coming to agreement on the basis for the proposed billable rates is the next step in the fee negotiation process. The basic formula for calculating a billable hourly rate is as follows:

Billable Rate = (Direct Labor Costs + Overhead + Profit) / Total Projected Annual Hours

Ideally, billable hourly rates would be calculated by employee or by function, without revealing specific employee salary detail. As a fall back, calculating billable hourly rates by department are clearly preferable to a blended hourly rate for the agency as a whole. Thus for an agency associate with direct labor costs (salary + benefits) of $100,000 per year, an overhead factor of 1.0 x direct laborpunch clock, a target profit percentage of 15% and an 1,875 FTE standard, the billable hourly rate calculation would look as follows:

Billable Rate of $114.67 = ($100,000 + $100,000 + $15,000) / 1,875 hours                                                                                                                                             

From a reporting perspective, monthly time-of-staff reports detailing “actual” versus “planned” hours by individual are ideal to serve as the basis for regular discussions between client and agency on burn rates and what, if any, course corrections are required. The goal of the reporting and resulting conversations are to ensure that there are “no surprises” that would adversely impact either party. A formal time-of-staff reconciliation should be conducted annually, preferably by an independent third-party to validate that the time reported by the agency is consistent with the time in the agency’s time-keeping system.

Following the aforementioned steps will help protect the interests of both client and agency and will lead to a compensation program that is both transparent and fair.

Media Agencies on Edge as Management Consultants Take Aim

1 Jun

Contract SigningIt came as no surprise to anyone in the industry when Accenture recently announced the launch of its programmatic ad unit. After all, weeks before Accenture had completed the acquisition of Meredith’s digital media unit MXM. Further, over the course of the last few years many of the large management consultancies, including Accenture, had acquired creative, design, digital, CRM, Social and full-service agencies as they looked to expand their presence in the marketing services sector.

The row over Accenture’s announcement, at least within the agency community, was focused on its Media Management practice and the work that they do globally in the media auditing and agency review space. The argument proffered by agencies and their associations, specifically the 4As and the UK’s IPA, was that it was inappropriate for Accenture to provide media auditing and search consulting services and programmatic media buying due to the potential for conflict of interest. In short, the agencies expressed concern that Accenture would utilize the data that is accesses in its media management practice to inform its work in the programmatic buying area.

Many would argue that the “conflict of interest” defense raised by the agency community rings hollow. This is due to the fact that Accenture and other management consulting firms routinely implement firewalls and processes to separate and protect data from one client or practice being co-mingled or misused intentionally or not by another.

Further, the agency community has had its share of “conflict of interest” challenges in the recent past ranging from its acceptance of AVBs to media arbitrage to ownership interests in intermediary firms not disclosed to clients that have served to undermine their credibility and the level of trust clients are willing to afford them. Thus, while Accenture’s announcement may be a sensitive topic for agencies, clients will likely have little concern.

Let’s face it, the world is changing and the media landscape has become more complex thanks in large to the growing impact of technology, accelerated levels of media fragmentation and fundamental shifts in consumer media consumption habits. Marketers in particular have become more highly focused on the effective use of data and insights to better target select audiences, geographies, behaviors, etc. Thus, organizations looking to boost their performance and to optimize their marketing investment, are seeking partners that can provide holistic, objective, strategic insights to guide their decision making.

Management Consultants are well positioned to provide the requisite marketplace, competitive and consumer assessments along with strategic recommendations and tactical implementation support across the evolving marketing funnel. Global in scope, the large consultancies have hundreds of thousands of employees, serving in a variety of specialized practices that can be tapped to work with marketers in the identification of problems and opportunities and the pursuit of strategies to achieve their business objectives. The addition of programmatic media capabilities to encompass planning and buying is a logical extension of the consultants service offerings.

Media agencies were long the profit engines for agency holding companies and the onset of digital media and the meteoric growth of programmatic buying represented a boon for media agency margins. Unfortunately, revelations about certain buying practices and growing advertiser concern over the lack of transparency surrounding their digital media investment ushered in a period in which advertisers began to actively evaluate new media agency partners, tighter client-agency contracts and new digital media models. It should be noted that among the new models that advertisers have pursued has been bringing aspects of the programmatic media buying process in-house, often with the counsel and assistance of management consulting firms. These trends have allowed the consultancies to curry favor with CEOs and CMOs and to expand their toe hold in what had been space traditionally dominated by ad agencies.

Given the size of the global programmatic marketplace, measured at $14.2 billion in 2015 and estimated to be $36.8 billion in 2019 (source: MAGNA Global, June, 2016), it is easy to see the appeal for the management consulting firms in general and Accenture in specific. As an aside, the market potential in this sector dwarfs the size of the media auditing and review market by a wide margin.

The media agency community would best be served by focusing on what it can do to leverage its position of strength to protect its share of the media planning and buying business. Time spent focused on “conflict of interest” claims as a defense against incursions from consultants or other non-traditional competitors will likely garner little support outside of the agency community and will therefore not be productive.

 

 

Life in a Post-GDPR World

28 May

GDPR LogoWhat can advertisers posit from the early market indicators in the wake of the May 25, 2018 enforcement of the European Union’s General Data Protection Regulation (GDPR)?

There are three takeaways that would seem to portend the near-term challenges for the ad industry:

  1. Consumers aren’t that interested in allowing companies to use their personally identifiable information to target them, contact them, monitor their online behavior or to profit from the sale of that information.
  2. The advertising industry as a whole was not prepared for the onset of the GDPR.
  3. Limitations on access to consumer data could greatly impair the efficacy of programmatic media.

The results of poll recently announced by TopLineComms found that 41% of those surveyed were “planning to opt out of current email subscriptions” with 82% indicating that they were “concerned about how companies use their data.” Many believe that the news surrounding the recent Cambridge Analytica scandal has helped to fuel consumer concerns about data privacy protection. Either way, consumers increasingly want their privacy protected and both marketers and publishers are going to have to find ways to deal with that concern and the growth in global regulatory actions in this area.

Adopted in April of 2016, the advertising industry had a two-year transition period too ready for the May 25, 2018 date, when the GDPR regulations would become enforceable. Unfortunately, too many companies proved to be lax in their preparations. According to a global study conducted by SAP Hybris, “49% of companies either have no plan for compliance or have not yet implemented one.” Readiness was made more complex because of different regulatory compliance burdens for data controllers and data processors and the role of third-party data processors. Gaining clarity among stakeholders as to who was responsible for what and how they were progressing on their compliance readiness proved challenging at best.

While early in the process, since GDPR went into effect, ad exchanges have seen dramatic drops in ad demand, with exchange volumes dropping up to 40%. According to digiday.com, “some U.S. publishers have halted all programmatic ads on their European sites.” In turn, this has led to a drop in publisher inventory in Europe. Of note, many within the industry are blaming Google for its lack of preparation and the company’s inability to vouch for whether or not its third-party exchange partners were compliant or not heading into May 25th. Unfortunately, Google did not notify advertisers of this issue until May 24th leaving them little “time to change media-buying tactics or inform clients.”

In addition, Google, Facebook and a couple of other internet portals have been hit with complaints and potential legal action by independent consumer advocacy groups over “forced consent,” claiming those entities threatened service cutoffs or restricted access if consumers did not consent to Google and Facebook’s privacy and data usage terms.

Near-term, organizations will have to focus on complying with GDPR. Looking ahead marketers, publishers and ad tech providers will need too ready for the likely expansion of privacy protection regulations to other countries and municipalities (e.g. California Consumer Privacy Act). After all, these new regulations are coming at a time when the importance of data and the value that it plays in an organization’s corporate strategy and marketing efforts has never been more critical. 

Perhaps most importantly, organizations will have to focus on developing sensible solutions to placate consumers that have legitimate concerns about how their personally identifiable information will be used. This is a necessary step if using first-party data to inform audience segmentation decisions, personalize consumer communications and monitor behavior is deemed a critical element in their marketing and content strategies.

Achieving these goals will require ongoing remediation efforts and will involve personnel from many disciplines within an organization. It is for this reason that many firms may turn to appointing a Data Protection “Tsar” to lead their efforts to embellish their consumer privacy protection policies, processes and compliance efforts. Not a bad move for companies that have the means to formalize this function.

In spite of the inauspicious start by many to comply with the GDPR regulations it is never too late to heed the old adage; “Proper preparation prevents poor performance.

 

 

 

 

AARM’s New Privacy Policy

28 May

Contract SigningYour Privacy is Important to Us

Marketers the world over are aware that on May 25th of this year the European Union implemented its new General Data Protection Regulation (GDPR) to enhance consumer privacy protection. As a result of these new regulations, Advertising Audit & Risk Management (AARM) has updated its Privacy Policy

AARM has and will remain committed to protecting your personal information. We believe that our updated policy further reinforces this pledge.

Our new Privacy Policy clearly articulates what information we collect from you, how that information is used and the steps that we take to safeguard your personal information. Please visit our website to review our new Privacy Policy and to gain an understanding of our practices in this important area. By visiting our website after May 25, 2018 you are indicating that you are in agreement with the terms of our updated Privacy Policy.

Best regards,

AARM | Advertising Audit & Risk Management

Will the Media Industry Find Its Way?

27 Apr

agencies as media ownersThere was a time when ad agencies represented an advertiser’s interest when interacting with media sellers to secure time and or space for the conveyance of the advertiser’s messaging. The media supply chain was uncluttered, machine-to-machine buying was not even a distant thought and the roles of the various players were understood by all parties.

As the media industry has evolved, the complexities of the supply chain and the clarity of “what” each intermediary does, what they are responsible for and what they earn have sown confusion, limited advertiser transparency and eroded stakeholder trust.

One of the key drivers of supply chain complexity, and all that comes with it, has been the rapid growth of digital media in general and specifically the expansion of programmatic buying. Thus, there may be no better barometer of this dynamic than the “Marketing Technology Landscape” prepared annually by Scott Brinker. Mr. Brinker’s landscape chart incorporates the logos of each available advertising, marketing and search solution. This year’s version contains logos for over 6,800 solutions, up from 150 in 2011. That is a staggering number of ad tech and mar tech solutions vying for a slice of an advertiser’s digital media dollar.

In spite of the dramatic increase in the number of marketing technology solutions and the exponential increase in the level of data available to inform practitioners media decisions, the industry is still grappling with issues that negatively impact media performance. Issues that include ongoing limitations in attribution modeling, difficulties with omnichannel measurement, a lack of standardization in assessing audience delivery and continued concerns regarding ad viewability, fraud, ad blocking and privacy.

Many would agree that the current state of affairs is not healthy for the global media industry which totaled $500 billion in 2017 (source: MAGNA Global Advertising Forecast, December, 2017).

Marketers, who are under increasing pressure to improve performance, are clearly not satisfied with the status quo within the media supply chain, which many describe as “murky” and “inefficient.” These marketers are committed to seeking out new partners, processes, tools and solutions that can improve working media and increase the chance that each dollar they invest in media has the opportunity to positively impact business outcomes.

Media agencies, for their part are increasingly being challenged to improve both transparency and the cost effectiveness of their clients’ media spend. Sadly, many agencies have taken the stance that there is a cost to be paid for improved transparency, enhanced viewability and brand safety and believe that these costs should be borne by the advertiser. Advertisers rightly disagree with this position.

Let’s be clear. When agencies strayed from a singular focus on their fiduciary responsibility to their clients, they did so at their own risk. Their pursuit of principal based media buys, non-disclosed relationships with other commercial entities in the media supply chain (including their own affiliates) and the myriad of unauthorized, non-transparent revenue generation practices employed by some agencies netted them significant profit gains… in the short-term.

However, as advertisers became aware of these practices and began to understand the negative impact on their business this created a crisis in confidence among advertisers and lessened the level trust that they had in their agency partners. In turn, this has created opportunities for management and technology consultants to make inroads with CMO’s as it relates to their media business and incented many advertisers to begin looking at taking control over portions of their media business, including bringing work in-house.

These trends coupled with the corresponding reduction in non-sanctioned revenue opportunities resulting from greater levels of advertiser transparency have constrained agency margins. How agencies positon themselves for the future in light of the evolving competitive set, while rethinking their service offerings and charging practices remains to be seen, but will be of critical importance.

As for the ad tech sector, there will surely be a shakeout that will result in a reduction in the number of vendors (over 6,200 in 2018) providing solutions. This will be driven in part by consolidation due to the convergence of ad tech and mar tech solutions and the dominance of large players, such as Google, Facebook and Amazon. In addition, the emergence of consumer privacy protection regulatory actions and the eventual emergence of blockchain technology within the media market has the potential for significant disruption.

Clearly, there are uncertainties and challenges facing the media industry and the myriad of supply chain participants. That said, while continued change will be the norm and course corrections required, there will be winners that are able to navigate these turbulent times and position their organizations for future success.

“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” ~ Charles Darwin

 

Advertisers Beware: Agency Margin Optimization Efforts

19 Apr

Traffic LightIt was with great interest that I read an article on Digiday dealing with “key issues” facing ad agencies and, ostensibly, the “agency model” ranging from transparency to in-housing.

Masked behind the author’s perspective that transparency comes at a high cost was the reality that marketers remain at risk to the predatory non-transparent revenue practices applied by certain agencies.

Why? With marketers demanding more transparent ad buying practices and transitioning certain tasks and or ownership of elements of the tech stack in-house, agency gross margins are under pressure. In turn, this has created an environment where agencies attempt to make up for the margin shortfall from clients that don’t actively monitor agency contract compliance, financial management or media performance.

Of note, one anonymous agency executive went so far as to suggest that some agencies use a “traffic-light system to determine how knowledgeable the procurement teams at clients are.” This guidepost allows the agencies to assess how much margin they can make on a given account.

This certainly reinforces the reality of the old adage; “Where there is mystery, there is margin” and signals the importance for all marketers to get up to speed on both the potential benefits and the pitfalls related to their digital and other advertising investments. For client organizations, most of which do not have the bandwidth or subject matter expertise in-house, engaging an independent contract compliance or media performance auditor or consultant could greatly help to mitigate risks in this area.

In spite of the potential for efficiencies that fueled the rise of programmatic media buying, what we have all come to realize is that the costs related to algorithmic, machine-to-machine buying have far outweighed these efficiencies. One dynamic, which drives costs is the number of agent firms involved in a typical programmatic digital media buy and the fees that each charge for their role. Below is an overview of typical fees or mark-ups that are charged by those on the demand-side of a programmatic transaction.

Digital Dollar

Source: Industry Experts

As is readily apparent, the dollar dissipation that occurs between the advertiser’s initial investment and the money that actually ends up with the publisher is significant. Industry studies have consistently shown that less than forty cents of each digital dollar invested makes its way to the publisher.

To combat this trend, rightly or wrongly, marketers have focused on reducing the number of intermediaries and the fees charged by each, with the goal of improving working media ratios and ultimately the performance of their digital campaigns. Thus, the agency margin squeeze.

That said, the agency practice described in the aforementioned Digiday.com article of taking advantage of unsuspecting, less knowledgeable clients to make up for the margin lost on those that have moved to transparent buying models, is neither appropriate nor sustainable. Agencies conducting themselves in this manner may want to reflect on the words of the renowned physicist, Stephen Hawking:

Intelligence is the ability to adapt to change.”

This is particularly true given the competitive inroads being made by the management consultant and tech consultancies that are focusing on the digital media segment of the market. The best path forward for agencies is to actively engage their clients in an open dialog about mutually beneficial remuneration methodologies.

In our opinion, it is right and just to eliminate the potential for media arbitrage, non-disclosed fees, no charge media weight and volume-based rebates that often accrue to agencies, and much of the time without the advertiser’s knowledge. Further, we also don’t believe that clients are obligated to make up the gap in lost agency revenue tied to transparency reforms. That said, we are fully supportive of an agency’s right to earn a fair and reasonable profit and to have the potential for incremental gains tied to extraordinary performance.

Near-term, the best way to balance an advertiser’s quest for transparency and an agency’s ability to generate a reasonable profit will likely be a compensation schema that incorporates a base fee using a direct-labor or cost-plus methodology with an outcome-based performance incentive. This approach is particularly apropos for advertisers that are leaning toward a managed-service model. With this approach, ownership of the tech stack and or tech platform licensing agreements transition from agency to advertiser; and the agency is then engaged to oversee the digital planning, buying and ad operations chores associated with programmatic media.

Will Facebook Go the Way of Myspace? And Can Regulation Be Far Behind?

21 Mar

facebookIt wasn’t long ago that the world’s largest social networking site was overtaken by a rival and lapsed into irrelevancy. Will the same fate befall its successor?

Many will remember that from 2005 to 2008, Myspace was the number one social-networking site in the world and the most visited website in the U.S. Aside from the emergence of new competitors, analysts have cited factors such as Myspace’s inability to enhance their users social networking experience, an over proliferation of advertising (which slowed the site down) and the inability to effectively filter inappropriate content or to limit phishing, spam and malware, as reasons for its demise. 

It was Facebook, the shiny new object with expanded social-networking apps that succeeded Myspace as the world’s largest social media platform. At the time, social networking was immensely popular with young people, and Facebook was no different, building its fortune by focusing on 18 – 24 year olds in general and college students in particular.

Over time, older adults began to flock to Facebook in record numbers driving both platform usage and advertiser appeal. However, the growing presence of GenXers and Boomers on Facebook caused many younger users to lose interest, turning to alternatives such as Instagram, a Facebook owned company, and Snapchat. Ironically, the dynamic of having this younger user base abandon Myspace for Facebook is what precipitated its decline from the number one website in the world to its current rank of 4,446 based on total web traffic (source: Alexa Traffic Ranks).

Are we beginning to see chinks in the Facebook armor?

Of note, on a recent earnings call, Facebook executives indicated that the organization had experienced declines in both the number of daily users and time spent on the site. The negative indicators for these two key metrics caused the stock price to fall and analyst to begin to question Facebook’s stranglehold on its social networking position. As an interesting corollary, the duopoly of Facebook and Google, which is projected to account for a 56.8% share of digital media spending in the U.S. in 2018 (source: eMarketer) is expected to see its share of “new” digital media spend drop to 48% from a high of 73% in 2016.

Fast forward a few weeks and Facebook has been hit broadside by a data scandal stemming from the actions of a political behavioral research firm, Cambridge Analytica that secretly “scraped” the personal data of up to 50 million Facebook users, without the accountholders permission. Once again, the financial markets reacted quickly, with Facebook shares falling more than 12.0% over a two-day period, wiping out billions of dollars in shareholder value.

However, the bigger risk resulting from the Cambridge Analytica scandal is not the near-term impact on share price, but concerns regarding “trust” and the lack of data and privacy protection for users, advertisers and government regulators. Facebook users will surely be upset that Facebook was seen to be not only lax in protecting their privacy, but greedy in aligning themselves with and profiting from a relationship with a firm like Cambridge that is involved in nefarious activities designed to impact political elections in various countries around the world.

Further, lawmakers in both the U.K. and the U.S. are moving forward with requests to compel Facebook’s chairman, Mark Zuckerberg to appear before the appropriate parliamentary and senatorial committees to answer questions about the company’s recent lapses in data security and privacy controls along with the firm’s ongoing lack of transparency and or cooperation with government regulators.

Beyond the recent consumer privacy protection shortcomings, Facebook’s acceptance of fraudulent advertising during the 2016 presidential election in the U.S. and its lack of screening controls for fake ads and inappropriate content had already raised the specter of U.S. regulatory involvement.  The Federal Trade Commission’s (FTC) Bureau of Consumer Protection has indicated that there is a “strong possibility” that it will be launching an investigation into whether or not the company violated federal rules prohibiting “unfair, deceptive acts or practices.”

Unfortunately for Facebook, its ongoing indifference toward lawmakers and the lack of sensitivity it has demonstrated or sense of ownership that it has taken regarding the aforementioned issues are not winning it many friends.

Of note, neither Facebook’s CEO, COO or Chief Privacy Officer have provided public commentary on the Cambridge Analytica situation as of this writing.

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