Tag Archives: ad networks

4 Questions That Can Impact Your Digital Buys

15 Nov

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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.

 

Does Your Agency Agreement Address “Special Relationships?”

29 May

relative party risksWhen it comes to the subject of contracts between advertisers and their marketing agency partners, there is one principle, long understood within the legal, financial and audit sectors that is frequently overlooked… the concept of “Related-Party” transactions.

Why is this important you might ask? Primarily because as principal agent, an advertising agency has a fiduciary responsibility to solely serve the interests of their clients. In fulfilling their role as a fiduciary, agencies are held to a standard of conduct and trust in which they must avoid self-dealing or conflicts in which the potential benefit to the agency is in conflict with that of their client. 

Over the course of the last thirty years, growth within the advertising industry has been chiefly driven by acquisitions and marked by consolidation. The net result was the emergence of large, complex and highly influential agency holding companies such as; WPP, Publicis Groupe, Omnicom, Interpublic and Dentsu. In turn, each of these organizations own dozens of diverse agency brands providing full-service advertising, media, creative, digital and social media, public relations and multi-cultural advertising services and resources. 

Each of the aforementioned holding companies is a publicly traded entity focused on maximizing profits for their shareowners. As such, one of the primary roles of holding company management is to leverage intra-group synergies across their agency brands to profitably drive group revenues. No one would begrudge them this focus, particularly in light of the need to offset acquisition costs and the marketing and operational expenses associated with maintaining dozens of agency brands. 

Unfortunately, advertisers are often unwitting participants in the act of leveraging intra-group synergies. Further, more often than not, the agreements which are in place to formally govern client/ agency relationships do not afford advertisers the requisite controls and or transparency concerning related-party transactions. 

So what is a related-party transaction? In short, related-party transactions can be defined as arrangements between two parties that are joined by a special relationship. For example, if an advertiser’s media agency of record were to funnel a portion of that advertiser’s digital media buy to a digital trading desk operation, which happened to be owned by the media AOR’s parent company that would be considered a related-party transaction. 

While there is nothing wrong with the premise of related-party transactions, they do carry the potential, or at least perception, for conflicts of interest. This may be as simple as an agency awarding work to a related party, rather than competitively bidding that work to a range of providers. Further, undisclosed, these transactions can mask the overall percentage of an advertiser’s budget being spent through their agency, its parent and subsidiary companies.  

Fortunately, this issue is easily addressed in the context of a client/ agency agreement. The first step is straightforward and involves defining the terms “related-parties” and “related-party transactions.” Secondly, it is imperative that advertisers introduce standards for the identification of agency related party relationships that may come into play on its business and to provide disclosure requirements for when an agency seeks to engage a related-party. At a minimum, such requirements should include: 

  • Identification of the related-party and the nature of the relationship
  • Statement of the business purpose of the transaction and why the related-party is being considered
  • Securing the requisite transparency controls ranging from access to invoices, compensation agreements, contracts and audit rights with regard to the related-party
  • A list of client personnel authorized to sign and approve related-party transactions, in advance of work being awarded 

Too often client/ agency agreements do not establish guidelines for behavior in this area. When combined with the fact that agency operating styles sometimes do not openly reveal related-party transactions, a control gap is often created, which can have negative financial consequences for the advertiser as well as blemish the agency relationship. 

In our agency contract compliance auditing practice, we have found that the best approach for all stakeholders when it comes to related-party transactions is total transparency. As President Calvin Coolidge once said when speaking about “living right:”

“The right thing to do never requires any subterfuge, it is always simple and direct.”

If you would like to like to learn more about client/ agency contract “Best Practices” please contact Cliff Campeau, Principal at Advertising Audit & Risk Management via email at ccampeau@aarmusa.com for a complimentary consultation on this important topic. 

What is the Future of Agency Trading Desks?

17 Apr

crystal ballIt was recently reported in Adweek that IPG was re-organizing its trading desk operation, Cadreon.  Representatives from IPG cited the costs and conflicts across its agency brands and offices stemming from having a centralized, autonomous trading desk with its own P&L.

This is a timely issue as publishers, agencies and advertisers brace for a pronounced increase in the role of programmatic buying.  Internal squabbles aside, the reason why some agencies aren’t totally on board with holding company trading desks comes down to one item… their own bottom line.  While agency holding companies could easily address this dilemma via a revenue sharing model between their entities that is not the seminal issue with trading desks.

The primary consideration in our opinion should be focused on an agency’s role in serving the advertiser and whether or not that obligation can be fulfilled when they’re acting as a re-seller of media where the original inventory cost is not disclosed.  Secondly, while the agencies and the ad networks have figured out how to make money moving digital inventory, publishers and advertisers are now evaluating the financial impact of programmatic buying and assessing alternatives which drive both efficiencies and performance for their respective organizations.

What are the financial implications?  The aforementioned Adweek article cited “agency insiders” who indicated that trading desks generated “high profit margins” in the “40% to 50% range” (hence the internal conflict).  Easy to see why advertisers would forgo the arbitrage model and opt for having their media AOR handle the digital media buying, on a fully-disclosed basis, within the context of their letter of agreement and the remuneration program that has been established.  Throw in the desire for advertisers to understand more about the quality of their digital ad placements and the environment is ripe for change.

Does this spell the end for trading desks?  Not at all.  Change and refinement are to be expected for a business model that only came into being within the last several years.  The technological capabilities that trading desks possess to manage reams of client data to effectively match advertisers with relevant inventory/audiences on a real-time basis is incredibly valuable.  This is particularly compelling as a higher percentage of an advertiser’s budget is shifted to digital media and programmatic buying.  Having said that, most advertisers are simply not willing to accept the level of opacity and the resultant hidden learning’s, which reside within their agency’s trading desk operation.

While media has evolved through the decades, the formula that has governed the media marketplace should remain constant; publishers sell inventory and advertisers buy inventory through their ad agency partners… not from them.  In the words of the noted American author Wendell Berry:

“The past is our definition.  We may strive, with good reason, to escape it, or to escape what is bad in it, but we will escape it only by adding something better to it.”

Agency Trading Desks and the Issue of Transparency

9 May

With the rise in digital advertising budgets and the dramatic expansion in the level of inventory available from publishers, advertising agency holding companies have developed a viable alternative to ad exchanges for securing a portion of their clients’ digital media inventory needs.  This is being done through the use of agency trading desks.

Simply put, a trading desk is a separate holding company service entity that integrates a demand-side platform with other technology and a wealth of consumer data to deliver targeted audiences at scale.  While primarily focused on display advertising, this dynamic method for purchasing media on a real-time basis is expanding to the buying of online video, search, mobile and social media.   This approach leverages an auction based model to buy unsold publisher inventory at efficient rates relative to pre-procured media.

The benefits to the advertiser can be significant when it comes to audience buying and ad impression optimization relative to content/ context based digital media buys or purchasing packaged buys through an ad network.   Given the relative newness of this approach combined with the complexity of the service offering and the limited understanding of trading desks among advertisers there remain concerns about the approach tied primarily to what is perceived as a lack of transparency.  This in turn has resulted in questions ranging from how agencies are compensated for this service (“Are advertisers  double paying their agency partners?”) to the potential for an agency’s objectivity to be compromised as they become both a buyer and seller of inventory (buy from publisher at one price, resell to clients often at a premium).

There are a number of ways for advertisers to enhance transparency into the trading desk operations of their agency partners.  The first is to check your agency letter-of-agreement to determine if there is language related to the agency’s trading desk operation.  If not, check to determine if a separate agreement with the trading desk operation was executed and read through the agreement carefully.  Secondly, engage your agency in dialogue about whether or not they are currently using buying digital media on your behalf through their trading desks and if so, what percentage of your overall digital buy is being channeled through the trading desk.  If the agency is not utilizing their trading desk for your digital media buying, ask whether or not it would be appropriate for your business model and what percent of your digital media buy would be a candidate for this approach.

With the answers to these questions in hand, it is time to discuss how the agency expects to be compensated for this service.  Compensation could include any or all of the following; commission on executed media buys, fee for service, incentive compensation tied to performance (i.e. cost per action, cost per lead, cost per acquisition) and mark-up on the media purchased by the trading desk and sold to the advertiser.  Further, inquire whether or not the trading desks earns rebates or discounts from publishers or technology partners tied to volume and if so, how is your pro-rata share calculated and passed through to you.

It is important to note that the trading desk model employed and the approach taken will vary by agency, so asking questions and establishing guidelines on how to evaluate both the efficacy and efficiency of this approach is critical before allocating a portion of your digital media budget to this channel.   While questions remain with regard to this emerging agency service, the level of risk represented is no more than that represented by ad networks.  Having direct conversations with your agency about the approach, costs, reporting and performance metrics will go a long way to ensuring that you have a sound understanding of how your investment is being handled.

Finally, incorporate a “Right to Audit” clause into the agreement which you execute with the trading desk operation to contractually insure your organization access to the date required to support your desire for full transparency. If you would like to learn more about this area and or how AARM can assist you in assessing the relevance of this approach or analyzing the performance of your agency’s trading desk, contact Cliff Campeau, Principal at ccampeau@aarmusa.com for a complimentary consultation on the topic.

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