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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.”

What if You Discovered That Your Digital Dollar Netted You a Dime’s Worth of Digital Media?

12 Feb

dreamstime_xs_2601647In 2014, the World Federation of Advertisers conducted a study which demonstrated that “only fifty-four cents of every media dollar in programmatic digital media buying” goes to the publisher, with the balance being divvied up by agency trading desks, DSPs and ad networks.

Fast forward to the spring of 2016 and a study by Technology Business Research (TBR) suggested that “only 40% of digital buys are going to working media.” TBR reported that 29% went to fund agency services and 31% to cover the cost of technology used to process those buys.

Where does the money go? For programmatic digital media, the advertiser’s dollar is spread across the following agents and platforms:

  • Agency campaign management fees
  • Technology fees (DMP, DSP, Adserving)
  • Data/Audience Targeting fees
  • Ad blocking pre/post
  • Verification (target delivery, ad fraud, brand safety)
  • Pre-bid & post-bid evaluation fees

It should be noted that the fees paid to the above providers are exclusive of fees and mark-ups added by SSPs, exchanges or publishers that are blind to both ad agencies and advertisers. What? That is correct. Given the complex nature of the digital ecosystem, impression level costs can be easily camouflaged by DSPs and SSPs. Thus, most advertisers (and their agencies) do not have a line-of-sight into true working media levels…even if they employ a cost-disclosed programmatic buying model (which is rare).

Take for example the fact that a large preponderance of programmatic digital media is placed on a real-time bidding or RTB basis, and a majority of that, is executed using a second-price auction methodology. With second-price auctions, the portion of the transaction that occurs between a buyer’s bid and when the clearing price is executed without advertiser or agency visibility, thus allowing exchanges to apply clearing or bid management fees and mark-ups as they see fit. So for example, if two advertisers place a bid for inventory, one at $20 per thousand and the other at $15 per thousand, the advertiser who placed the higher bid of $20 would win, but the “sale price” would be only one-cent more than the next highest bid, or $15.01. However, advertisers are charged the “cleared price,” (could be as high as $20 in this example) which is determined after the exchange applies clearing or bid management fees. How much you ask? Only the exchanges know and this is information not readily shared.

Earlier this month Digiday ran an article entitled, “We Go Straight to the Publisher: Advertisers Beware of SSPs Arbitraging Media” which profiled a practice used by supply-side platforms (SSPs) that “misrepresent themselves.” How? By “reselling inventory and misstating which publishers they represent.” The net effect of this practice allow the exchanges an opportunity to “repackage and resell inventory” that they don’t actually have access to for publishers that they don’t have a relationship with.

Let’s look beyond programmatic digital media. Consider the findings from a Morgan Stanley analyst, reported in a New York Times article in early 2016 that stated that, “In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook.” What is significant here is that until very recently, these two entities have self-reported their performance, failing to embrace independent, industry accredited resources to verify their audience delivery numbers.  

The pitfalls of publisher self-reporting came to light this past fall when Facebook was found to have vastly overstated video viewing metric to advertisers for a period of two years between 60% and 80%.  

By the time one factors in the impact of fraud and non-human viewing, and or inventory that doesn’t adhere to digital media buying guidelines and viewability standards, it’s easy to understand the real risk to advertisers and the further dilution of their digital working media investment.

Advertisers have every right to wonder what exactly is going on with their digital media spend, why the process is so opaque and why the pace of industry progress to remedy these concerns has seemingly been so slow. Sadly, in spite of the leadership efforts of the Association of National Advertisers (ANA), The World Federation of Advertisers (WFA), The ISBA, The Association of Canadian Advertisers and the Interactive Advertising Bureau (IAB) there is still much work to be done.

The question that we have continually raised is, “With advertisers continuing to allocate an ever increasing level of their media share-of-wallet to digital, where is the impetus for change?” After all, in spite of all of the known risks and the lack of transparency, the inflow of ad dollars has been nothing short of spectacular. According to eMarketer, digital media spend in the U.S. alone for 2016 eclipsed $72 billion and accounted for 37% of total media spending.

There are steps that advertisers can take to both safeguard and optimize their digital media investment. Interested in learn more? Contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation. After all, as Warren Buffett once said:

“Risk comes from not knowing what you’re doing.”

Advertisers: Buying Guidelines Matter

25 Jan

compliance-rulesAdvertisers and their media agency partners spend countless hours, invest significant energy and apply a wealth of creativity in crafting their initial media plans and updating those plans to address internal issues, marketplace opportunities and or competitor moves over the course of a budget year.

The question is: “Do advertisers and their media agency partners spend enough time ensuring that those plans are actually executed to their fullest during the investment phase of the media buying cycle?”

In our experience, the direct answer is “No.” The hand-off from media planning to media buying and the accompanying media process controls, forms and reporting are often inadequate as is the level of oversight applied on a post plan approval basis.

Advertisers, if you’re wondering whether or not this is the case with your organization, it may be worth reviewing the following processes, forms and reports for their thoroughness and the extent to which they are reviewed and monitored over the course of a media campaign:

  • Buying Guidelines – When was the last time you reviewed your organization’s buying guidelines? Did you approve them? Are they current? Are they comprehensive enough to safeguard your interests and optimize your message reach? Have they been created for each media channel purchased or for TV only? How are these guidelines communicated to media sellers? Does your agency monitor and or report on buying guideline adherence? What are the consequences to the agency and or the media sellers if these guidelines are not complied with? Too often we find that this important communication bridge between media planning and media buying has not been satisfactorily completed or is so lacking in detail and or coverage across media that it is ineffectual. This is a critical mistake. Buying guidelines represent the explicit instructions from the agency planning team to their associates in buying and ultimately to the media sellers for how the client-approved plan is to be executed, stewarded and its performance assessed. Shortfalls in this area negatively impact media delivery and marketing ROI in a very direct manner.
  • Request for Proposals (RFPs) – Whether sent manually or digitally by the agency to media sellers, this process is often fraught with shortcomings. These include insufficient time afforded publishers to effectively respond to the RFP requests; and not enough information provided on the advertiser and or their specific goals to facilitate the publisher to tailor their proposal to the advertiser’s needs. From an advertiser’s perspective, often times these documents fail to ask for feedback on important issues such as whether or not digital publishers employ third-party vendors for website traffic sourcing. In other instances, RFPs fail to communicate critical performance standards such as viewability standards for digital media or in establishing the advertiser’s position on whether or not they will pay for non-human or fraudulent traffic. It would be a worthwhile practice for Advertisers to periodically review the level of detail contained in their media agency’s RFP templates and review completed RFPs to understand the basis for why certain RFPs were accepted or acted upon and others rejected.
  • Insertion Orders & Buy Confirmation Letters – The primary focus with these important control documents is to establish the specific tenets of the deal (i.e. audience delivery, performance guidelines, basis for evaluating performance, make good policies, etc.). Unfortunately, in our media agency compliance audit practice, we regularly discover incomplete documentation in this area that fails to establish enforceable delivery thresholds or basic qualitative standards to safeguard an advertiser’s media investment. In this era of “Big Data,” it is important for agencies to assert their clients’ data access and ownership rights. This relates generally to the audience modeling and transactional data generated as part of their media investment, and in the case of programmatic media buys, specifically to items such as winning bid log files and the associated meta data from all suppliers, including DSPs. Ensuring these types of data access and ownership rights are essential for advertisers if they want to have a clear line-of-sight into impression level pricing prior to the addition of the myriad number of fees and mark-ups charged by third-party suppliers. These documents also present an excellent opportunity for agencies to reinforce the agreed upon advertiser data protection guidelines such as how an advertiser’s data will be siloed, how long it will be stored and the extent to which the suppliers will limit other advertisers and third-parties access to such data.
  • Post-Buy Performance Reporting – There are three primary concerns in this area, aside from whether or not performance reporting is even being conducted. First, how are media buys monitored and stewarded while underway? What is the agency doing to monitor campaign delivery and to optimize performance in-flight? Second, is the agency monitoring performance across all media? More often than not we find agencies conducting television post-buys or digital media performance analysis, but totally ignoring other media elements altogether. Third, are the post-performance reports provided in a timely manner and include the level of detail necessary to hold media sellers accountable and provide meaningful insights that shape future media plans and buys?

Without a solid media stewardship process that incorporates sound control documents, continuous monitoring and comprehensive post-performance analysis, even the most thoughtful and compelling media plans will fall short of their potential. Advertisers could well benefit from conducting periodic reviews of their media agencies approach and performance during this phase of the media investment cycle. In the words of W.B. Sebald, twentieth-century German academic and author:

“Tiny details imperceptible to us decide everything!”

 Interested in learning more about the role of media buying guidelines and controls in safeguarding your media investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for your complimentary consultation on this topic. 

 

Dentsu Aegis: Poster Child for Ad Industry Transparency Concerns?

30 Nov

transparencyEarlier this month Dentsu issued a statement that it had cancelled its annual New Year party, typically celebrated in each of its five offices in Japan, citing a need for “deep reflection.”

When one considers the issues being faced by the agency, albeit of their own doing, it is easy to understand their desire for a more contemplative holiday.

Two short months ago the agency rocked the ad world with the acknowledgement that it had overbilled one of its oldest and largest advertisers, Toyota Motor Corp. for digital media placements. Ultimately, the agency confirmed that the overbilling and falsification of invoices impacted 111 clients, totaling JPY ¥230 million ($2.28 million USD).

This is on the heels of a Japanese Labor Agency ruling that the suicide of a young employee in December, 2015 was due to karoshi, or death by overwork. Prior to her death, the employee had logged 130 hours of overtime in November and 90 hours in October. In the wake of this ruling, the third such case of karoshi at Dentsu, the Minister of Health, Labor and Welfare Yasuhisa Shiozaki threatened harsh action against the company. Regrettably, according to Mediapost, reports have surfaced in Japan suggesting that the agency “may have encouraged workers to underreport overtime hours” to deceive authorities that it had been complying with regulatory limits (70 hours per month).

Thus, many in the industry were intrigued when it was reported earlier this month by MediaTel that Dentsu-Aegis was looking to launch a programmatic trading desk in the U.S. called “agyle.” The irony, for an agency dealing publicly with fraud and transparency issues, is that the model apparently being pursued for agyle is that of a principal-buy (media arbitrage) operation, where advertisers will have zero line of sight into the price paid for media inventory purchased by the trading desk.

Really? This move certainly seems to be counter intuitive for an organization trying to mend its brand image within the advertising community, while it deals with the fall-out from the overbilling and labor investigations. Particularly in light of Aegis’ own track record related to media transparency over the last ten plus years (prior to Dentsu’s 2012 acquisition of Aegis).

Some will remember that Aegis and its Posterscope division had their own problems of accounting fraud, involving the use of volume rebates it earned on its clients’ out-of-home media investments that were improperly retained by the agency to record higher revenues, rather than returning them to their respective clients. In the end, its President and Finance Director pled guilty to accounting fraud. This fraud occurred on the heels of a highly publicized scandal in which Aegis’ client, Danone successfully sued the agency, requiring it to disclose the disposition of all volume based discounts it had received for a two year period, estimated to be  $22.0 million. Notably, during the lawsuit it was alleged that Aegis’ president and five other executives had been “siphoning credits for free media airtime to a private company” and then selling that same airtime for their own profit.

With all due respect to Dentsu’s CEO, Tadashi Ishii, for his efforts to aggressively and forthrightly address the agency’s recent issues, one has to wonder how deeply seeded these issues are in the organization’s culture.

For advertisers who have followed the lawsuits, regulatory investigations, allegations and company acknowledged issues into overbilling, fraudulent reporting, timekeeping system manipulation, volume rebate programs and the like… this is why the industry must inwardly reflect and take the Association of National Advertisers (ANA) study on media transparency seriously.

Clearly opacity issues related to misleading practices employed by some within the agency community related to the pursuit of non-transparent revenue sources using client funds, for their self-gain negatively impact advertiser trust in their agency partners and ultimately erode the client/ agency relationship.

For Mr. Ishii and his team at Dentsu, we wish them luck in righting the proverbial ship and hope that their decision to use the holiday season as a time for deep reflection bears fruit.

 

 

Video: “The Truth Crisis: Marketing’s Biggest Challenge”

16 Aug

Interesting video from Campaign magazine … Click Here to watch.

transparency

Principal-Based Buying: A Wolf in Sheep’s Clothing?

29 Apr

dreamstime_xs_36536323Recently, Ad Age ran an article entitled: “Risky Business: Why Media Agencies are Betting on Principal-Based Buying.” To be honest, my first reaction was, what in the world is principal-based buying? It didn’t take long to figure out that it was simply a new descriptor for media arbitrage.

Clever, principal-based buying sounds so much more appealing and less subversive than media arbitrage. However, arbitrage is arbitrage, regardless of what moniker that is placed on the act of purchasing media and reselling said media to advertisers. According to Merriam-Webster, the definition of arbitrage is clear:

The nearly simultaneous purchase and sale of something in one place and selling it in another in order to profit from price discrepancies.”

We certainly understand the primary allure of media arbitrage to agencies; the potential for higher margins than what traditional remuneration models would allow for. Let’s face it agency holding companies are publicly traded entities with a fiduciary obligation to drive shareowner profitability.

Simply, “principal-based” buying is a practice that is in clear violation of the principal- agent relationship, which has long been the driving concept behind client/ agency relations.

Forget the opacity, which is a hallmark of this buying tactic and the potential risks to advertisers seeking to optimize media value and boost working media ratios. The main issue with agency ownership of media is the potential impact on the objectivity of the advice, which it offers its clients.

Media time and space is a perishable product. It is also speculative in nature when it comes to projecting future value from a relevancy and audience delivery perspective. So what happens in the event an agency, indulging in arbitrage, has a significant ownership position in distressed, dated inventory? Could such a position create internal pressure on the agency’s media staff to move that inventory? In turn, might such pressure result in agency media team’s pushing that inventory off on clients, whether it represents the best fit at the best price?

Assuming that an advertiser knowingly engages their agency partner’s trading desk and believes that this relationship will yield a price advantage over traditional buying practices there are a few questions to consider; “How will you know? What methodology will you apply to vet the quality of the inventory and the price paid? Who will conduct that analysis for you?” In short, is this a proposition whose economic benefit to the advertiser can ever be accurately evaluated?

Sadly, while the agency community may shrug off the notion of ever having committed to a principal-agent relationship with its clients too often we find that agencies, which have embraced media arbitrage, have not disclosed this fact to their clientele… in spite of the position often taken in the trade publications.

In our agency contract compliance practice we find that in most instances there is not a separate letter of agreement between the agency’s trading desk operation and the advertiser, that the language dealing with “related parties” within the contract is inadequate to cover such a scenario and that there are no limitations in place regarding the percentage of an advertiser’s media buy that can be run through the trading desk.

Hopefully, those agencies that intend to engage in and or extend their use of principal-based buying will also commit to fully disclosing this practice and its application to each of their clients, well in advance of implementing this buying approach on those clients’ behalf.

From an advertisers perspective, it is imperative to assess the type of relationship that you desire with your media agency. If a principal-agent relationship predicated on full-disclosure and the fiduciary obligations, which underlie such relationships, are important to your organization, the client/ agency agreement will need to reflect that position. On the other hand, if there is interest in exploring principal-based buying consider contracting directly with the agency trading desk and establishing caps on the percentage of the budget, which can be invested through that operation.

                                   

Is the 4A’s Action on “Transparency” a “Tipping Point” for Client/ Agency Relationships?

17 Feb

Tipping PointMuch has been written about the content of the American Association of Advertising Agencies (4A’s) recently released “Transparency Guidelines,” less about the potential impact of the 4A’s decision to break rank from the cross-industry task force with the Association of National Advertisers (ANA) and to act unilaterally.

For the record, from both an advertiser and agency perspective, we believe that the guidelines proposed by the 4A’s have the potential to do irreparable harm to client/ agency relationships. The guidelines appear to driven by greed and a certain naiveté about the source of agency leverage… namely their clients’ advertising budgets. Let’s face it, in the context of a principal-agent relationship there is no logical way to rationalize a guideline which states:

The agency, (agency group and holding company) may enter into commercial relationships with media vendors and other suppliers on its own account, which are separate and unrelated to the purchase of media as agent for their clients.”

One, the notion that the potential for financial gain would not introduce a level of bias that could influence an agency’s recommendations to its clients is unrealistic. Two, pooling client dollars to use as collateral in cutting side deals with media vendors and suppliers for its own benefit is inappropriate.

From our perspective, we believe that the 4A’s and any of its members that support the association’s guidelines on transparency have made a serious error in judgment. Yet, it should be noted, that not one agency has spoken out against the 4A’s action or the composition of its “Transparency Guidelines” nor has one agency seceded from the association. Thus, one might assume that all of the 4A’s members support the position taken.

At a time when issues such as transparency, trust, talent and compensation are posing serious challenges to the length and efficacy of client/ agency relationships, the 4A’s action on the topic of transparency will not serve their members well in the long-term. Why? There are, we believe two reasons.

First of all without clients, agencies have no means for existence. On the other hand, as it stands today, some may view agencies as a luxury, not a necessity for advertisers. Without agencies, clients still have a number of options for marketing their firms, brands and products. These options range from dealing direct with suppliers that are today considered “third-party vendors” such as; production companies, photographers, content developers and curators and media owners. Additionally, one must consider an advertisers option to create in-house capabilities rather than outsource all or some elements of their advertising.

The second reason is that absent an underlying level of trust, agencies can never hope to recover the coveted position of “strategic partner” that they once enjoyed. In our opinion, the 4A’s action has relegated their member agencies to “vendor” status whose goods and services an advertiser might choose to avail themselves of, without being beholden to the agency in a meaningful way.

In Malcolm Gladwell’s book; “The Tipping Point” he suggested to readers; “Look at the world around you. It may seem like an immovable, implacable place. It is not, with the slightest push – in just the right place – it can be tipped.” Think about that statement in the context of some of the trends our industry is experiencing today:

  • Growing impact of social media in shaping consumer views and behaviors
  • Rapid expansion of programmatic media buying
  • Advances in ad technology, impacting many facets of the message creation & distribution cycle
  • Increasing prevalence of advertiser/ publisher direct relationships
  • Rise of non-traditional alternatives to ad agencies (i.e. IBM, Deloitte, Accenture)

Surely the 4A’s is aware of the aforementioned trends and the moves in recent months by advertisers such as P&G, Facebook, Google, Netflix, Expedia, L’Oreal and Wal-Mart to either move certain aspects of their advertising in-house ranging from creative to programmatic media buying; or are purported to be actively investigating “alternative models.”

Do the 4A’s and their members believe that they are impervious to such trends? What were they hoping to gain by breaking ranks from the ANA and the joint transparency task force? Perhaps more importantly, are 4A’s members prepared for the potential impact of the association’s actions? According to Mr. Gladwell:

“That is the paradox of the epidemic: that in order to create one contagious movement, you often have to create many small movements first.”

For the sake of the advertising agency community, let’s hope that their recent action on the topic of transparency isn’t the “small movement” that fuels the “epidemic” which forever tips their once favored status as trusted confidants to alternative vendors of commodity like marketing services.

Sourcing Your Programmatic Buying Partner

14 Dec

3 rsWritten by Peter Portanova, Project Analyst for Source One Management Services

The concepts of reach and frequency have long guided the way marketers approach advertising, and when multiplied, they provide the calculation for Gross Rating Points (GRPs) to measure and evaluate the success of your campaigns. However, the rise of programmatic ad buying (automated buying based on real time data analysis of competitive rates) forces marketers to reconsider their historical understanding of success in marketing, and encourages the consideration of new and potentially more effective metrics.

GRPs are hugely important across a variety of marketing channels, exclusive of programmatic buying. The ideology that more GRPs means greater success is severely flawed, and by using such a calculation in a highly targeted and customized solution like programmatic buying, one misrepresents the technology’s true value. However, instead of arguing the utility of GRPs, it is more critical to consider alternative means of success in marketing and how embracing programmatic can revolutionize your approach to online advertising, while driving a variety of critical KPIs.  

Programmatic buying is growing quickly, and is responsible for billions of dollars in digital media placements. Programmatic buying is the intersection where data and advertising truly meet, with engineers, traders, and data-management platforms replace traditional sales planners. Agencies would like you to believe that their programmatic efforts reduce overall costs, but the truth of the situation is that, when viewed holistically, programmatic buying is actually more expensive.

Implementing programmatic buying efforts does have its merits, and agencies are quick to note that initial costs can be negated quickly. However, for programmatic buying to reach its maximum potential, marketers and advertisers must learn to move past the traditional reach and frequency mindset, and consider the long-term advantages of highly targeted placements. In fact, industry experts note that using programmatic buying to place more advertisements decreases transparency, which can lead to fraudulent placements. In using programmatic buying to deliver a highly targeted message to the right individual at the right time, brands are able to increase their visibility to the appropriate segments, increasing potential brand engagement.

Marketers must begin to understand programmatic buying from a holistic perspective. Why is this more expensive? Does it involve fewer people? Most marketers are shocked that programmatic buying proposals suggest fewer advertisements at a greater cost. While inventory is cheaper in programmatic buying compared to manual buying, there are substantial costs of doing business to implement and manage these efforts. In an article on AdAge, a media agency executive said, “Five full time employees are needed to spend $100 million national broadcast budget, while the same number would be needed for a $5 million programmatic buy.”

Understanding the discrepancy in FTEs and costs becomes more complicated when you also factor agency commissions into the equation. The employees required to manage a programmatic buy are in far greater demand, having a unique skillset that commands salaries 50-100% greater than manual buyers. The technology and the platforms do not eliminate the need for human input, and therefore it is critical to entice highly skilled employees for retention. Traditional full-service agencies have seen these employees move quickly to digital agencies that have a greater focus on new technologies, including programmatic buying.

The true cost of programmatic buying becomes noticeable when considering agency commissions that are charged to simply breakeven. The same agency executive interviewed by AdAge stated that, with a budget of $100 million, break-even points begin at 1% with TV, and quickly jump to 10-12% with programmatic. It is also worth noting that the 12% commission is only the break-even, with many agencies charging a rate of around 20%, to turn a meager profit.

There is a substantial cost of placing media through a programmatic partner. AdAge refers to these costs as an “intermediary tax” which accounts for all the transactions that take place to make a programmatic buy occur. With 7% to 20% taken by ad exchanges, another 10% to 20% taken by automated software providers, and then another 15% for the data-management platforms, there is potential that only $.50 of every dollar will reach the publisher. While these rates may seem expensive, there is value in using programmatic buying; however, the marketer should be fully aware of the intended use of programmatic, with no expectation that they are receiving a more targeted solution for a lower price.

While so far we have discussed mostly the potential benefits (and drawbacks) of programmatic buying, there is always a need to manage costs. Consider the following best practices when working with your agency to ensure greater transparency in your agreement.

  • Contract Language
    • When contracting with your programmatic buying partner, ensure that language exists around specific rates. Furthermore, consider a period where you can renegotiate these rates to be more favorable.
  • Redundant Services
    • Prior to considering your programmatic needs, understand the services you require and what you may need outside of traditional manual buying. When working with multiple vendors (which is common with programmatic buying), there is potential to be charged for the same service multiple times.
  • Liberate your Data
    • Unless specifically outlined, your data may not belong to you after working with a particular partner. If you are unable to retrieve your data during any part of the process, the supplier immediately gains tremendous advantage.
  • Understand your Options
    • Do you need managed service, or do you need self-service? In a self-service agreement, the vendor charges for the use of their technology, but does not charge for any resources associated with operating the platform. A managed option typically has charges for not only the technology, but also the management fees associated with run and execute a campaign.
  • Consolidate
    • Find a partner capable of providing you with a variety of services, and consolidate your marketing to that one agency. Using separate agencies to plan and execute your manual and programmatic buys is inefficient, and unless information is shared freely across agencies (it probably will not be), the effectiveness of both operations will be hindered. Consolidation also allows for better reporting and recognition of opportunities across channels.

As for the future of programmatic buying? It’s only anticipated to grow. EMarketer predicts total programmatic buying spend to exceed $20B in 2016. When it comes to digital marketing, there is no “one size fits all.” While programmatic buying is typically more expensive than other traditional tactics, there’s no doubt the method offers significant ROI in the form of operational speed and efficiency and increased scale and targeting. Like any other agency sourcing engagement, do your due diligence when looking for the right partner for your programmatic buying requirements. Beyond assessing agency scale, technology and data analytics, and skillsets, take steps to establish a strategic client-agency relationship. This begins with strong contract language that drives further value from your programmatic efforts and continues with fostering ongoing communication and transparency with your agency.

Peter Portanova is a marketing category enthusiast and Project Analyst for Source One Management Services. He is an expert at developing RFPs and executing strategic sourcing strategies for clients in a wide array of industries, specializing in navigating the complexities of the Marketing spend category. Click to learn more about Source One’s Marketing Category expertise.

Programmatic: Promising, but is the Benefit to Advertisers Real?

19 Oct

cautionIn 1997 rock legend David Bowie told his fans at a Madison Square Garden concert; “I don’t know where I’m going from here, but I promise it won’t be boring.” While his comments were a reflection on life after his 50th birthday, they could just as easily be used to describe the future of programmatic media buying.

Put yourself in an advertiser’s position and consider your reaction when your media agency approaches you with this enticing proposition;

Through our proprietary programmatic buying platform we have the ability to deliver quality, targeted inventory to precise segments of your target audience at a time and in an environment when they’re most receptive to your message and at rates that are a fraction of market pricing.” 

For many advertisers, the response to this enticing offer has been “sign us up.”

The programmatic revolution began with digital media, evolved to print and OOH and is now being implemented in the television marketplace. Many industry pundits consider programmatic to be one of the advertising industry’s most prominent developments. This algorithmic based method of connecting media sellers and buyers to conduct inventory transactions in an automated, real-time manner clearly holds much promise.

Benefits to advertisers are said to include; rate efficiencies, advanced targeting, message personalization and enhanced access to premium content. For media sellers the benefits allegedly include the ability to move less desirable remnant inventory and optimize CPMs across their inventory portfolio. Ad tech firms, such as demand side platforms, sell side platforms and ad exchanges, which here-to-for never existed earn transactional fees on programmatic activity and or licensing fees from organizations that utilize their technology tools. Agencies are able to leverage their clients’ “Big Data,” do more with fewer people and when programmatic buys are executed through their trading desk operations, there is incremental revenue to be gained from media arbitrage (buying low, selling high).

Assuming that each stakeholder realized the aforementioned benefits ascribed to this approach, programmatic buying, irrespective of the issues experienced to date in the digital media market, certainly holds the potential to be a win, win scenario for all of the players.

Unfortunately, the underlying technology behind programmatic buying is not fully understood by many in the industry. To be fair, programmatic digital media buying is a highly nuanced and complex process. It greatly impacts digital display ad spending in general and mobile in particular. It can involve real-time-bidding (RTB) or programmatic direct, where advertisers can still secure inventory guarantees, it can be applied in an open exchange or private marketplace and can include traditional banners or non-standard rich media and video.

Given that programmatic buying is still in its infancy, one might logically assert that a greater level of refinement is required to support programmatic buying’s current share of digital media spending, prior to even considering expansion of programmatic buying to other media. Supporting this perspective are some of the challenges which the industry is grappling with to improve the programmatic experience for digital media:

  • Reducing the level of non-human traffic and fraud
  • Minimizing the % of ad spend accruing to “facilitators” or middle-men
  • Serving up environmentally relevant programmatic creative across devices
  • Improving advertiser transparency

We agree that programmatic media buying holds much potential. However, the industry’s experience to date suggests that advertisers have born the bulk of the risk involved with this emerging technology and its application in the digital market.

So when the talk turns to the expansion of programmatic to other media segments one has to wonder if advertisers are ready to embark upon another investment spend scenario in media segments with much steeper learning curves and higher degrees of risk.

Relative to the digital market sector, television, OOH and print are much more complex when it comes to the variety of non-digital assets, lack of uniform inventory management processes and disparate mainframe environments. Throw in the fact that there are multiple ad tech providers already offering a variety of non-standard platforms/ technologies in an attempt to solve for these considerations and the near-term prospects appear quite challenging.

In a recent article in MediaPost, Joe Mandese shared insights on some of the pioneering work being conducted in programmatic/ addressable TV by Mitch Oscar, Programmatic TV Strategist for US International Media (USIM) and his peers. During the interview, Mr. Oscar shared results from one client’s programmatic TV ad buys, which suggested they had generated “improved results and efficiencies” relative to conventional TV buys.

Compelling to be sure, however, one must pause to consider the observation that the data shared by Mr. Oscar indicated that the “mix of networks and dayparts were all over the place and it was difficult to find meaningful patterns from it.”  Further, when USIM asked the programmatic TV suppliers to document what actually ran, “it generated a report with 163,866 lines of code covering 3,563 pages, something most traditional TV buyers and advertisers might not consider practical to evaluate.”

Hopefully advertisers, agencies and media property owners take a more measured approach to expanding programmatic buying to other media segments to avoid some of the pitfalls currently being experienced in digital media. Perhaps we can all benefit from the words of St. Jerome, the Catholic priest, historian and theologian, who once intoned:

“The scars of others should teach us caution.”

 

Is Legacy Thinking Impeding Your Progress?

7 May

ana agency financial management conferenceEmerging media, rapidly expanding technologies, a changing tax and regulatory environment, talent shortages and a global paradigm shift where marketing is being “outsourced” to the end user. These were just some of the topics addressed by Marketers and Agencies alike at the ANA’s annual “Agency Financial Management” conference in Naples, Florida in early May.

While there may be significant issues to be faced in the near future, the marketing industry remains a significant component of the global economy whose rate of growth outstrips that of most developed countries GDP growth.  That said there are changes required of the industry’s stakeholders to better prepare their organizations’ to successfully navigate a complex landscape fraught with both risks and opportunity.

This dynamic will require a fresh approach by clients and agencies alike along with a willingness to shed the bonds of legacy thinking, which has retarded industry progress on a number of key fronts in recent years.

One of the themes to emerge from the conference is that marketing is difficult, expensive and challenging.  When combined with talent, resource and education restraints being faced by many marketing organizations there is a belief that marketers are leaving dollars on the table.  Contributing factors range from digital media value erosion to a lack of transparency into certain aspects of the supply chain such as trading desks to the absence of industry governance on the issue of cross platform audience delivery measurement.

Underlying these challenges is the fact that client-side marketers, procurement professionals and marketing service agencies are still working on evolving their relationships and gaining better alignment on how best to optimize the advertisers’ return on marketing investment (ROMI).  Central to the success of this collaborative effort is the need to build trust and mutual respect among these stakeholders.

Interestingly, marketers expressed a strong, almost universal need for the introduction of uniform controls, competitive fee structures, tighter statements of work and the use of agency performance incentives to assist in positively driving change.  One aspect of boosting ROMI is the elimination of “waste.”  Based upon our experience in the area of agency financial management consulting, we have found that an excellent starting point for marketers in this area is to clarify the roles and responsibilities of their agency partners, minimizing redundancies and identifying those agencies that are considered strategic partners versus those that provide project-based support.  This provides a solid starting point for determining  “where” to begin in terms of initiating change and inviting those select partners to be part of the process.

On the “good news” front it was clear from the results of a recent survey conducted by the ANA and presented at the conference, that the trend toward an increased level of collaboration between marketing, finance and procurement is taking seed.  Further, as evidenced by findings from a separate survey conducted by the 4A’s, the agency community has clearly begun to accept procurement’s role in the agency sourcing and contract negotiation process.

There is one area however, which has the potential to seriously disrupt marketers’ efforts to optimize their ROMI… transparency, or more specifically, the lack of transparency that permeates the industry.  This was reflected in the results of survey data from the ANA, WFA, ISBA and ACA where “transparency” was identified by advertisers as one of, if not their top concern.  The lack of clarity and in some instances, honesty surrounding issues such as data integrity, audience delivery, trading desks, reporting and financial reconciliations creates financial risks for advertisers and undermines attempts to improve trust levels between clients, agencies and media sellers.  As Mike Thyen, Director of Global Procurement for emerging markets at Eli Lilly and Company so aptly stated:

“Where there is mystery, there’s margin.”

Examples of the potential for financial leakage related to a lack of transparency included the results from the aforementioned WFA study, cited by ANA President and CEO Bob Liodice, which found that for every dollar invested by advertisers in digital media, only fifty-five cents on the dollar flowed through to the publisher.  Inherent in this single example is the lack of transparency surrounding programmatic media buying, agency trading desks and the lack of auditable outcomes in terms of audience delivery, media rates paid and trading desk margins.

Changing times require firms to evolve and innovate in order to remain relevant with their customers and to improve their operations.  When it comes to marketing, the rate and rapidity of technology driven change is such that viewing today’s opportunities through an “old school” prism is certain to create risks and limit marketers’ ability to fully leverage their investment.   Keeping an open mind, forging strong relationships between marketing and procurement, implementing controls and reporting to enhance transparency and investing in one’s agency partnerships represent key actions to be considered to successfully face the changes which are underway.

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