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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.

If Not an RFP, Then What?

15 Mar

RFP ProcessIt was with great interest that I read a recent article on Digiday entitled; “End of an era: Media buyers are ditching the much-hated RFP” that heralded the demise of the digital RFP.

For those of us with a media background, we’re certainly familiar with the longstanding list of complaints leveled by media sellers at agencies on the multitude of abuses heaped upon them by what is perceived as an unfair or at least highly disorganized and inefficient RFP process. I get it and I empathize with the media sellers for the inequities which they have suffered at the hands of misguided or poorly trained media buyers.

Let’s face it, the RFP does serve an important role in allowing media agency buyers to gather the requisite detail from media sellers as it relates to their ability to deliver on the agency’s media plan and to solicit inventory, audience delivery and pricing feedback.

Yes, the standardization of RFP templates appears to be a pipedream and the resulting impact on the time and effort required by media sellers to complete these RFPs is onerous, the process cumbersome and meaningful feedback from agency media buyers rare. For these and other reasons, it is understood that agency media buyers and publishers alike dislike RFPs.

That said, some of the reasons cited in the aforementioned article to support the declining use of RFP’s should raise concerns among advertisers. I’m not talking about the reduced role of price negotiations due to the increased use of biddable media, but rather the notion that an uptick in the use of digital direct buying, agencies relying on meetings with sellers rather than an RFP or a seller’s ability to “figure out what the strategy is” do not support abandonment of this important tool.

Properly executed, the RFP process allows an agency buyer to communicate strategic and tactical instructions to the seller. In turn, asking sellers for feedback on how best to drive performance for the advertiser’s brand can yield a treasure trove of information. The RFP also provides an excellent opportunity for publishers to make a compelling case as to why they should be on the buy.

Additionally, RFPs serve as an ideal tool for establishing parameters on items such as site retargeting, frequency capping and content considerations (including restrictions). It allows media buyers to gather the requisite detail on items ranging from data segments and sources to audience specifications and universe estimates. How better to communicate creative unit specifications or cross device allocations and target consumption levels or to establish measurement requirements for everything from impressions and video completion rates to qualified site visitors, viewability levels and cost per completed view. What about identifying verification sources and costs, third-party tagging requirements and or establishing the level of reporting granularity.

Last, but certainly not least, the RFP serves a vital “accountability” role by clearly establishing advertiser expectations and communicating guidelines that a seller will need to adhere to, should a deal be transacted.

So while the RFP process is far from perfect, rather than scrapping it, I would advocate that the process be revamped to make it more relevant to all stakeholders, less onerous for media sellers and more productive for agency media buyers. In the words of the noted journalist George Will:

“The pursuit of perfection often impedes improvement.”

 

 

 

 

 

 

4 Questions That Can Impact Your Digital Buys

15 Nov

four

According to eMarketer, in 2017 advertisers will spend 38.3% of their ad budgets on digital media – in excess of $223 billion on a worldwide basis. Yet, in spite of the significant share-of-wallet represented by digital media, there is generally little introspection on the part of the advertiser.

Looking beyond the “Big 3” [ad fraud, safe brand environment and viewability concerns], the lack of introspection begins much closer to home. Simply, in our experience, client-agency Agreements do not adequately address digital media planning / placement roles, responsibilities, accountability or remuneration details.

Standard media Agreement language does not adequately cover digital media needs – specific rules and financial models need to be included in Agreement language that covering each potential intermediary involved in the buy process and to guarantee transparent reporting is provided to the advertiser. It is our experience that Agreement language gaps related to “controls” can be much costlier to advertisers than the aggregate negative impact of the Big 3.

And, regardless of Agreement language completeness, a compounding factor is that too few advertisers monitor their agencies compliance to these very important Agreement requirements.

To assess whether or not your organization is at risk, consider the following four questions:

  1. Can you identify each related parties or affiliate that your ad agency has deployed on your business to manage your digital spend?
  2. Does your Agreement include comprehensive compensation terms pertaining to related parties, affiliates and third-party intermediaries, that handle your digital ad spend?
  3. Is your agency acting as a Principal when buying any of your digital media?
  4. What line of sight do you have into your ACTUAL media placements and costs?

If you answered “No” to any of the questions, then there is a high likelihood that your digital media budget is not even close to being optimized. Why? Because the percentage of your digital media spend that pays for actual media is likely much lower than it should be, which is detrimental to the goal of effectively using media to drive brand growth.

Dollars that marketers are investing to drive demand are simply not making their way to the marketplace. Often a high percentage of an advertiser’s digital media spend is stripped off by agencies, in-house trading desks and intermediaries who have been entrusted to manage those media buys. A recent study conducted by AD/FIN and Ebiquity on behalf of the Association of National Advertisers (ANA) estimated that fees claimed by digital agencies and ad tech intermediaries, which it dubbed the programmatic “technology tax” could exceed 60% of an advertiser’s media budget. This suggests that less than 40 cents of an advertiser’s investment is actually spent on consumer media.

A good place to begin is to ask your agency to identify any and all related parties that play a role when it comes to the planning, placement and distribution of your digital media investment. This includes trading desk operations, affiliates specializing in certain types of digital media (i.e. social, mobile) and third-party intermediaries being utilized by the agency (i.e. DSPs, Exchanges, Ad Networks, etc.). The goal is to then assess whether or not the agency and or its holding company has a financial interest in these organizations or are earning financial incentives for media activity booked through those entities.

Why should an advertiser care whether or not their agency is tapping affiliates or focusing on select intermediaries to handle their digital media? Because each of those parties are charging fees, commissions or mark-ups for services provided, most of which are not readily detectable. This raises the question of whether or not the advertiser is even aware charges are being levied against data, technology, campaign management fees, bid management fees and other transactional activities. Are such fees appropriate? Duplicative? Competitive? All good questions to be addressed.

When it comes to how an agency may have structured an advertiser’s digital media buys, there is ample room for concern. Is the affiliate is engaged in Principal-based buying (media arbitrage)?  Is digital media being placed on a non-disclosed basis, versus a “cost-disclosed” basis where the advertiser has knowledge of the actual media costs being charged by the digital media owner?

Evaluating your organization’s “risk” when it comes to digital media is important, particularly in light of the findings of the Association of National Advertiser’s (ANA) “Media Transparency” study released in 2016, which identified agency practices regarding non-transparent revenue generation that reduces an advertiser’s working media investment.

The best place to start is a review of your current client-agency Agreements, to ensure that the appropriate language safeguards are incorporated into the agreement in a clear, non-ambivalent manner. Once in place, monitoring your agency and its affiliates compliance to those contract terms and financial management standards is imperative if you want to assure compliance, while significantly boosting performance.  

“Today, knowledge has power. It controls access to opportunity and advancement.” ~ Peter Drucker                                                                                                                    

Interested in learning more about safeguarding your digital media investment? Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

Are We Missing the Real Issue with Ad Blockers?

26 Oct

blockerThe advertising industry is rightly concerned about the financial impact related to consumers growing use of ad blockers, which can filter out ads before users ever see them. A recent study by OnAudience.com highlights the reasons why:

  • 26% of U.S. consumers now use ad blockers, resulting in lost publisher revenues of $15.8 billion in 2016, up from $11.0 billion in 2015. The U.S. represents approximately $45 billion of the $100 billion global display market.
  • Internationally, the loss of publisher revenue from ad blocking is projected to rise to $42 billion, up from $28 billion in 2016.

In addition, Google has announced that the 2018 version of its Chrome web browser will allow consumers to automatically block “annoying, intrusive” ads, which will accelerate the financial impact of this trend given that Chrome represents approximately 60% of the desktop/mobile/tablet browser market (source: NETMARKETSHARE, September 2017). Google’s motivation, it claims, is that they are simply introducing the Coalition for Better Ads recently announced best practices standards to enhance the consumer’s web browsing experience.

It is no surprise how we got where we are. Advertisers wanted to improve consumer engagement and publishers wanted to drive revenues. This, in turn, led to publishers placing more ads on a web page, including higher paying video units, making ads larger or forcing visitors to somehow interact with these ads to get to the content. This involves video ads that automatically refresh or blast audio automatically or force consumers to wait for :05 to :10 seconds before they can access the content they seek.

In the end, advertisers and publishers have not realized greater levels of engagement, but rather helped to fuel greater levels of consumer irritation and therefore ad blocker usage.

Thus far, the industry has been focused on blocking the ad blockers. It is true that many publishers believe that being exposed to ads is a user’s obligation if they want their content to be free. Others, however, share the consumer’s disdain for obnoxious, intrusive ads, and would like to see them banned from their sites. The problem is that ad blockers tend to block all ads.

So what is the ad industry to do? Busting the use of ad blockers or implementing web browser workarounds would appear to be somewhat short-sighted. Consumers have clearly signaled that they find the level, number, positioning and type of online ads served to them on a regular basis to be discordant with their intended browsing habits. Pursuing a more measured approach on the part of the industry is warranted. As Supreme Court Justice Ruth Bader Ginsburg intoned:

“Reacting in anger or annoyance will not advance one’s ability to persuade.”

The challenge is clear, finding a mechanism for publishers to fund their content creation at least in part through the use of online advertising. The answer, however, is not so readily apparent.

Let’s face it, by in large, consumers do not want to view online advertising. This can be evidenced by plummeting open and click-through rates, reductions in conversion rates and declines in average viewing times. Advertisers and publishers want “engagement” and sadly, consumers want nothing to do with most of the advertising foisted on them.

Is the answer better creative that informs, educates and entertains in the hope that users will both notice the ads and choose to interact with them? Or is it fewer, less intrusive ads that can take away from a user’s web browsing experience? Or will publishers finally have to solve the “pay to view” content dilemma, which consumers have largely been resistant to thus far?

If consumer engagement is the goal, the answer is likely “Yes” to all of the above.

 

Lawsuits Expose the Seemly Underbelly of Programmatic Digital

25 Sep

fraudsterAt the rate things are progressing in digital media and programmatic trading, the tenuous relationships between advertisers, agencies, ad tech providers, exchanges and publishers are about to come unglued.

While many in the ad industry have had their doubts about programmatic digital, this sector has grown unabated for the last several years. According to eMarketer in 2014 advertisers invested 28.3% of their ad budget in digital media. Their projection is that this will grow to 44.9% in 2020, likely topping $100 billion in total spend. eMarketer estimates that 80% of U.S. digital display activity in 2017 will be transacted programmatically. 

Interestingly, since 2014 the industry has become much more attuned to the risks encountered by advertisers when it comes to optimizing (or should we say safeguarding) their digital media investment. Yet in spite of the findings regarding unsavory practices emanating from the ANA’s seminal 2016 study on “Media Transparency” advertisers continue to pour an increasing share of their advertising spend into this media channel.

However, not all advertisers are continuing to embrace digital media quite as readily as they once did. A handful of progressives, namely Procter & Gamble, have begun to rethink the share of wallet being allocated to digital media and programmatic trading. Marc Pritchard, P&G’s Chief Marketing Officer, has been very outspoken in summing up his company’s position quite succinctly; “The reality is that in 2017 the bloom came off the rose for digital media. We had substantial waste in a fraudulent media supply chain. As little as 25% of the money spent in digital media actually made it to consumers.”

Given Mr. Pritchard’s comments it has been quite intriguing to monitor the legal developments in two high profile lawsuits that have recently been filed.

In the first case, Uber is suing Fetch Media, its digital agency suggesting that it had “squandered” tens of millions of dollars to “purchase non-existent, non-viewable and/ or fraudulent advertising” on its behalf. Uber has further alleged that the agency “nurtured an environment of obfuscation and fraud for its own personal benefit” and that of its parent company, Dentsu Aegis Network. To be fair, Fetch Media has denied what it says are “unsubstantiated” claims by Uber which it claims is designed to draw attention away from their “failure to pay suppliers.”  Allegations include that the agency acted as agent for Uber in some markets and executed principal-based buys in others and that they earned and retained undisclosed rebates tied to Uber’s media spend.

The second case involves RhythmOne, a technology enabled media company and its partner dataxu, a programmatic buy-side platform/ applications provider. RhythmOne originally filed suit regarding $1.9 million worth of unpaid invoices. Dataxu filed a counterclaim alleging that RhythmOne “used a fake auction to consistently overcharge” them and suggested that RhythmOne also “procured inventory from other exchanges, and then marked it up,” both violations of their partnership agreement. As an aside, for the $1.9 million in payments that dataxu admittedly and intentionally withheld from RhythmOne, going back to January, 2017, it is likely that dataxu’s clients had been billed and remitted payment to them. Which raises questions as to how and when their clients will be made whole.

Of note, both of these lawsuits delve into a range of topical issues that pose risks to most programmatic digital advertisers:

  • Agencies executing principal-based buys, rather than acting as agent for the advertiser.
  • The retention of undisclosed rebates tied to an agency’s use of advertiser funds.
  • Non-transparent fees and mark-ups being tacked on to the actual cost of media inventory by multiple middlemen (i.e. agencies, DSPs, exchanges).

These are issues that advertisers should familiarize themselves with and address through the development of a comprehensive client/ agency contract. In addition, advertisers must vigilantly monitor supplier compliance with the terms of those agreements to insure full transparency and, importantly, accountability when it comes to the stewardship of their digital media investment.

As these two cases highlight it is dam difficult for an advertiser to accurately assess the value of digital inventory that is being proffered on their behalf by their agency and adtech partners. Beyond establishing what percentage of an advertiser’s digital dollar actually goes toward media inventory, these separate, but related legal actions demonstrate that it is not just a lack of transparency that advertisers must worry about, but a lack of ethics. When it comes to programmatic digital media the American artist, John Knoll, may have said it best;

“Any tool can be used for good or bad. It’s really the ethics of the artist using it.”

There are steps that advertisers can take to both safeguard and optimize their digital media investment. If you are interested in learning more, contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

Will AI Render Media Agencies Obsolete?

11 Sep

artificial_intelligenceArtificial intelligence (AI) is already reshaping how advertising is developed, planned and placed. The marketing applications being envisioned and adopted by agencies, consultancies, publishers and advertisers are nothing short of remarkable.

From the onset of “Big Data” it stood to reason that the concept of predictive analysis, the act of mining diverse sets of data to generate recommendations wouldn’t be far behind. Layer on natural language processing, which converts text into structured data, and it is clear to see that “deep learning” is on the verge of revolutionizing the ad industry. As it stands, algorithms are currently optimizing bids for media buying, utilizing custom and syndicated data to match audience desires (or at least experiences) with available inventory.

Effective, efficient, automated methodologies for sorting through vast volumes of data to evaluate and establish patterns that reflect customer behavior for use in segmenting audiences and customizing message construction and delivery holds obvious promise.

So, what does this mean for media agencies? Will they be at the forefront of automation technology? Or will they be swept away by the consultancies and ad tech providers that are already investing here?

If media agencies desire to remain in control as the industry evolves, there are real challenges that they will have to address to remain viable:

  • Re-establish role as “trusted advisor” with the advertiser community. Recent concerns over transparency, unsavory revenue generation practices and a failure to pro-actively safeguard advertisers’ media investments from fraud and from running in inappropriate environments have created serious client/ agency relationship concerns.
  • Attract, train and retain top-level talent to re-staff media planning and buying departments. The focus will need to be on bridging the gap between developing, and applying automation technology and providing high-level consulting support focused on brand growth to their clients. Presently, media agencies are not effectively competing for talent, whether in the context of compensation and or personal and career development options being offered by their non-traditional competitors.
  • Provide a framework for addressing the compensation conundrum. Whether this is in the form of cost-based or performance-based fees tied to project outcomes, commissions or hybrid remuneration systems, tomorrow’s successful media agencies will need to establish clear, compelling compensation systems. These systems will need to reflect value propositions that will differentiate them from an expanded base of competitors, while offsetting (to some extent) non-transparent sources of revenue that many media shops have come to rely on in recent years.

This will not be an easy path for media agencies, particularly for those that are hampered by legacy systems, processes and management perspectives that may limit their ability to more broadly envision and ultimately, assist client organizations addressing their needs and expectations.

Either way, the race is on, as management consulting firms are acquiring various marketing and digital media specialist firms and as media agencies raid the consultancies for personnel to build out their strategic consulting capabilities. The key question will likely be, “Which business model holds the greatest promise, in the eyes of the Chief Marketing Officer, for improving brand performance?

 

 

 

Increase Your Digital Coverage by 40% In One-Easy-Step

1 Aug

simpleisgoodConfucius once said that “Life is really simple, but we insist on making it complicated.”

Perhaps the same can be said of digital media buying. Too often it seems as though the onset and rapid growth of programmatic buying has created more problems than solutions. An expanded media supply chain with multiple layers of costs, increased levels of fraud, brand safety concerns, visibility challenges, a lack of transparency and perhaps most troubling, eroding levels of trust between advertisers and their agencies.

Growing pains? Perhaps. But something needs to change and this author would like to suggest one potential solution… abandon programmatic digital media buying altogether. Seriously? Why not?

Consider the following and the concept won’t seem so far-fetched:

  • In 2015, advertisers spent $60 billion on digital media, with close to two-thirds of that going to Google and Facebook (source: Pivotal Research).
  • According to the advertising trade group, Digital Content, today this duopoly is garnering 90% of every new dollar spent on digital media.
  • What happened to the magical pursuit of the long-tail and the notion of smaller bets being safer? Economics. The fact is that the notion of the long-tail simply didn’t work as researchers and economists found that having less of more is a better, more statistically sound pursuit. To wit, Google’s and Facebook’s market share.
  • Today, programmatic digital display advertising accounts for 80% of display ad spending, which will top $33 billion in 2017 (source: eMarketer).
  • Between 2012 – 2016 programmatic advertising grew 71% per year, on average (source: Zenith).
  • In 2018, programmatic will grow an additional 30%+ to $64 billion, with the U.S. representing 62% of global programmatic expenditures (source: Zenith).

Come again. Two publishers are getting $.90 of every incremental digital dollar spent and programmatic digital media buying accounts for 80%+ of digital media spend. What are we missing? Is there an algorithm that specializes in sending RFPs and insertion orders to Google and Facebook in such a manner that the outcome yields a 40% or better efficiency gain?

As we all know, there have been numerous industry studies, including those sponsored by the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA), which have suggested that at least 40% of every digital media dollar spent goes to cover programmatic digital media buying’s transactional costs (third-party expenses and agency fees), with only $.48 – $.60 of that expenditure going to publishers.

So, for an advertiser spending $40 million on programmatic digital media, if the law of averages holds true, $16 million will go to cover transactional costs and agency fees. That means that of the advertiser’s original spend, they will actually get $24 million worth of media. While we know that programmatic media can yield efficiencies, can it overcome that type of transactional deficit?

If that same advertiser eschewed programmatic digital and decided to rely on a digital direct media investment strategy, what would it cost them?

Assume that they hired ten seasoned digital media planning and investment professionals for $150,000 each (salary, bonus, benefits), they would spend $1.5 million on direct labor costs. Further, in order to afford their team maximum flexibility, let’s say that the advertiser allocated an additional $1 million annually for access to ad tech tools and research subscriptions to facilitate their Team’s planning and placement efforts. This would bring their total outlay to $2.5 million per annum.

If they were spending $40 million in total, this means that the team would be able to purchase $37.5 million worth of digital media. Don’t forget that placing digital buys direct will greatly reduce fraud levels that can eat up another 8% – 12% of every digital ad dollar, while also greatly improving brand safety guideline adherence. Compare that to the $24 million in inventory purchased programmatically.

So how efficient is programmatic?

Sadly, most advertisers can’t even address this question, because their buys are structured on a non-disclosed, rather than a cost-disclosed basis. Even if they had line of sight into what the third-party costs (i.e. media, data, tech) and agency fees being charged were, they wouldn’t have a clue as to the fees/ charges that sell-side suppliers were levying, further eroding working media levels.

A simplistic solution? Perhaps. But the fact that the industry continues to drink the programmatic “Kool-Aid” without any significant progress toward resolving the dilutive effect that programmatic transactional costs, agency fees and fraud have on an advertiser’s investment seems a tad irresponsible.

Ask yourself. What would you do if it were your money?

 

 

Is Programmatic Advertising Worth the Risk?

26 Jul

dreamstime_xs_50082776Conceptually, it is easy to understand the potential of programmatic media buying. It is obvious to most that using technology to supplant what is a manual, labor intensive process to drive efficiencies and improve media investment decisions could be a plus for advertisers, agencies and publishers (not to mention ad tech vendors).

The only question to be addressed is “when” will the benefits of programmatic outweigh the costs and the risks to advertisers?

Proponents of programmatic will argue that this buying tactic has already generated economic benefit for advertisers when it comes to digital media buying. After all, streamlining the processes related to the issuance and completion of RFPs, buyer/ seller negotiations and preparation of insertion orders clearly saves time and reduces labor costs for all stakeholders.

No one would argue this premise. However, reducing labor costs associated with traditional buying is but one component of programmatic buying costs. Consider the broad array of programmatic buying related fees and expenses currently being born by advertisers:

  • Data Management Platform (DMP) fees
  • Demand Side Platform (DSP) fees
  • Data/ Targeting fees
  • Pre-Bid Decisioning/ Targeting fees
  • Ad Blocking (pre/ post) fees
  • Verification fees
  • Agency Campaign Management fees

It should be noted, that there are “other” non-transparent charges and fees linked to sell-side platforms (SSPs), bid processing, real-time bidding auction methodology and principal-based buys (media arbitrage) that are born by advertisers and limit the percentage of their digital media spend that actually goes toward inventory.

In a recent Ad News article by Arvind Hickman, the author referenced studies conducted by both the World Federation of Advertisers (WFA) and the Association of National Advertisers (ANA) that demonstrate the magnitude of these programmatic fees and expenses. The WFA study determined that $.60 of every dollar spent on programmatic digital media buying goes to cover “programmatic transactions and fees.” The ANA study suggests that advertisers could be paying between $.54 – $.62 of every dollar on digital supply chain data, transaction fees and supply side charges.

Bear in mind that neither of these studies addressed the impact of media arbitrage or ad fraud. Industry studies, focused on assessing the level of digital ad fraud, fielded by the Association of National Advertisers (ANA) and WhiteOps found that fraudulent non-human traffic in the form of bots was “more prevalent in programmatic environments.” According to the research, display ads purchased programmatically were “55% more likely to be loaded by bots” than non-programmatic ads.

And yet, in-spite of the challenges still being faced with programmatic digital media buying, this media investment model is being rapidly rolled out to out-of-home, print and television.

Who do you think will bear the learning curve costs and risks associated with expanding programmatic to other media categories? The answer, is primarily advertisers and to a lesser extent, publishers.

We certainly understand that programmatic is the future of media buying. That said, rushing headlong into this arena, without satisfactory levels of transparency and or fraud prevention, combined with the upfront costs of the industry’s investment in technology, that are ultimately passed through to the advertiser, are both risky and costly to advertisers.

Is there a need to reach and take risks in order to secure positive progress? Yes. But, it might be best to follow the approach advocated by one of this country’s greatest military leaders, General George S. Patton:

“Take calculated risks, that is quite different than being rash.”

Has the Time Come and Gone for Digital Advertising Agencies?

28 Apr

digital trading deskWe all understand the concept of “specialization” and the potential benefit delivery for certain service providers in select industries. That said, the era of the digital media specialist agency may be drawing to a close.

Think about it, we have specialist agencies for programmatic advertising, paid search, organic search, social media, email, mobile marketing, website development, user experience, social, native and display advertising.

Why? What are the advantages that accrue to an advertiser from this level of specialization? More importantly, how many advertisers are equipped to engage with multiple media agency partners?

Integrating strategy and resource allocation decisions, coordinating roles and responsibilities and effectively managing relationships among several media agencies takes time, energy and money… assets that are tougher and tougher for marketers to come by. Not to mention, the additional costs incurred for overlapping agency services/personnel.

Specialist agencies aside, when it comes to digital media, advertisers are also contending with general market agencies, PR firms, multi-cultural, experiential and promotional agencies that are also involved with their digital marketing efforts. It is damn difficult for a marketing staff to coordinate and optimize digital communications along this many fronts, let alone integrate such efforts with an organization’s “traditional” media efforts. And, let’s face it, the task is not any easier (or cheaper) for an advertiser’s media agency-of-record to take the lead on this task and coordinate multiple disparate agencies working collaboratively and cohesively toward a common goal.

The ultimate question for advertisers may be, why take what is already a complex process and further complicate it by dividing efforts and resources across so many players?

In our contract compliance auditing and financial management practice we have seen advertisers pay a steep price for assembling agency networks that are too broad for their existing teams to effectively manage. This in turn leads to cost inefficiencies related to duplicative services and fees tied to the lack of clear role differentiation across agencies, and in turn, a reduction in working media. Say nothing of the impact on digital media effectiveness tied to communication and briefing gaps that inevitably arise in these scenarios. Perhaps there is a lesson to be learned from the words of William Blake, 18th century English poet and painter:

“The road of excess leads to the palace of wisdom”

We believe that the time has come for advertisers to give more serious consideration to streamlining their agency networks in general, and specifically to pare back the number of agency partners involved with their digital media efforts… beginning with “specialist” shops.

A great place to start is to evaluate the potential for centralizing media planning for traditional and digital media. This is a logical “first step” and will allow marketing organizations to better leverage their data, to improve their targeting and segmentation schema, enhance their resource allocation decisions and integrate all facets of their communication plans. Additional benefits from such a strategy include more collaborative and improved media briefings and streamlined communications across agency partners. Similarly, when it comes to media buying, focusing on fewer partners makes it easier to leverage an organization’s overall media spend, optimize sponsorship and value-add opportunities across media properties, and to minimize agency fees by eliminating redundant buying activities across partner shops.

Major holding company media agencies and larger independent media firms, with broad resource offerings and the scale to provide “one-stop” service certainly stand to benefit from consolidation. As do ad technology firms such as Adobe, Oracle and Google that provide advertisers with the tools to manage certain digital functions in-house. It should be noted that while the large media networks of a holding company will benefit, specialized, stand alone digital media shops within those holding companies may face challenges related to such a consolidation.

In closing, we wanted to address the topic of the “rise of the management consultancies” as legitimate competitors to traditional agencies. As it relates to media planning and placement, we believe that the large ad agencies and holding companies will retain an edge in this area for some time to come. However, vulnerability in the areas of strategic consulting and customer connectivity (i.e. data integration, user experience and system development) is where we believe consulting firms will continue to make significant inroads with CMOs as marketers seek to fulfill corporate mandates to assist in digitally transforming their businesses. As this is occurring, some agencies have announced plans to expand their resource offerings to compete with the likes of Accenture, IBM, PwC and Deloitte in this area. Realistically, at least in the near-term, agency constraints on talent and functional expertise represent significant hurdles before an attack in this area can be mounted… while concurrently defending their current base of business.

 

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