Tag Archives: trading desk

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.

Agent and Seller. Can an Ad Agency Serve Both Roles?

2 Sep

digital trading deskThe answer to this question may seem fairly obvious and can be answered most succinctly with another question;

“How can an ad agency fulfill its fiduciary duty to an advertiser when they are not primarily focused on the advertiser’s best interests?”

In the context of digital media, agency trading desk operations are functioning both as media sellers and buying agent.  Perhaps even more vexing is the mode of revenue generation which agency trading desks employ… media arbitrage.  Simply put, agency trading desks purchase digital media inventory at one price and re-sell that inventory to their base of advertisers at a higher price, pocketing the difference.  The higher the spread between the media cost and the rate at which it is sold, the greater the margin of profit which the agency can derive from their trading desk operation. 

This dynamic would suggest that an agency’s profit motives could overshadow their obligation to provide reliable independent counsel to their clients and to secure the highest quality media inventory at the best possible rate for those advertisers.

Further skewing transparency concerns over this practice are the non-disclosure agreements which most trading desks ask their clients to sign.  These agreements greatly limit advertiser insight into the true cost of the media, data analytics and technology costs and as importantly the percentage gain being realized by their agency partners. In the words of the noted twentieth century essayist, Erich Heller:

“Be careful how you interpret the world: It is like that.”

From our perspective, the trading desk operation model currently being employed by agencies is not serving advertisers best interests.  Forgetting cost transparency, how can it when there are real questions regarding the quality of the inventory being sold to an advertiser; “

  • Was this truly the best audience for my brand’s message or was it simply the best inventory which the agency owned?
  • Was it even the best inventory which the agency owned or was that sold to another of their clients with a comparable target audience?”

No one is challenging the potential benefits of deploying technology which matches available inventory to an advertiser’s target audience within the timeframe and environment that has been identified as optimal for delivering that advertiser’s message.  The concept of leveraging advertiser data, sophisticated analytical tools and engagement models to further enhance the targeting process in a real-time automated bidding process makes a great deal of sense. 

The question to be asked is simply one of “Who” should be driving the bus.  Perhaps that is why larger advertisers have begun to assess the potential for transitioning this activity in-house.  In those instances where advertisers assume control of that portion of their digital media buying currently being handled by an agency trading desk it is logical to consider whether or not there is any role for the agency to play on a pre-bid or post-buy analysis basis.

Concerns over advertisers migrating programmatic operations in-house was at least partially responsible for WPP’s decision to re-evaluate its trading model and to consider a more “flexible” approach.  In an interview with Ad Age, Rob Norman, Chief Digital Officer for WPP stated that; “Agencies need to retain their place in the value chain as new channels emerge. If we don’t do that, there’s the temptation for clients to take more of those [buys] in-house…”  Interestingly, WPP is apparently not re-assessing their role as a media re-seller given Mr. Norman’s suggestion that their moves are in part driven by a desire “for clients to test Xaxis inventory in the open market against other inventory sources.” 

To the extent that a greater number of advertisers would prefer a truly independent agency partner, WPP’s consideration of a more “flexible” approach may fall short of the market’s expectations.  On the other hand, agency holding companies that look to leverage the investment which they have made in the technology, analytical processes and operational support required to deploy and maintain a trading desk could find an accepting market for monetizing that experience and those resources… without being involved in media arbitrage.

 

 

Transparency Rules: Not So Clear

18 Mar

digital trading deskThe hot topic thus far at the American Association of Advertising Agencies (4As) “Transformation” conference in New Orleans has been in and around agency charging practices for their digital trading desk operations.

It would appear as though the panel of agency digital media experts fell into one of two camps:

1) Arbitrage and profiting on the spread between actual inventory cost and client authorized plan costs is an acceptable way for agencies to recoup the investment they make in digital technology support and there is no obligation to share true cost data with clients.

2) Agencies should fully disclose the cost of the original inventory and any fees or commissions charged to clients in association with an agency’s procurement of that media.

Over the course of the last three to five years, virtually every agency holding company has launched a digital media “trading deskoperation focused on the procurement and in some instances re-selling (arbitrage) of online advertising inventory.  Evolved from the early days of demand side platforms, agencies have layered on significant data analytics capabilities that allow the trading desks to select the most appropriate inventory/ audiences for their clients in a real-time-bidding (RTB) auction environment.  No one disputes the value of that capability and its role in securing optimized inventory at the right price.  The questions surface around the transparency into the true cost of that inventory and whether it’s purchased for all the right reasons.

Theoretically, agency holding companies present their trading desk clients with agreements that specify the type of buying practices employed by the trading desk operation and the fees associated with that service.  Practically speaking, in our agency contract compliance audit practice, seldom have we seen separate agreements executed for this service nor have existing letters-of-agreement (LOA) been modified to reflect the terms of engagement for this aspect of an agency’s media buying offering.

Separate from the 4A’s conference, Rob Norman, Global Digital Chief of GroupM presented an interesting perspective in an interview with Ad Age when he referred to their policy on trading desk charging practices as “transparent, but not disclosed.”  In the end, this may be the most practical approach to the debate on this topic.

For savvy advertisers who seek full-disclosure on all aspects of the relationship with their agency partners and 3rd party vendors this is a discussion that they need to have prior to authorizing the agency to engage their trading desk on their behalf.  On the other hand, for advertisers who believe that they are receiving superior online ad inventory pricing and that the results of the effort are consistent with expectations, they may be comfortable forgoing insight into the cost of the original inventory.  The point is, that these are conversations that should be had upfront between the advertiser, agency and trading desk.  Any decisions made with regard to agency/trading desk remuneration, 3rd party vendor disclosures and transparency requirements on behalf of the digital trading desk process and performance should then be incorporated into the LOA.

While it would be convenient if there were published industry guidelines on this issue and others related to contract and compensation topics ranging from the composition of agency overhead rates to standard ranges for fee multipliers and full-time equivalent definitions, the fact is there are no standards.  Thus, advertisers must enter into all agency agreements with their “eyes wide open.”  Caveat emptor.

An agency can best serve the needs of their clients and their proprietary interest by initiating these conversations, sharing the agency’s philosophy on the practice in question and discussing options that are available to the advertiser within the context of that agency offering.  There is nothing to be gained by suppressing dialog on topics such as trading desk charging practices and transparency.  In fact, having these conversations surface after work has been begun can call into question the agency’s trustworthiness and or loyalty.

So if you’re an advertiser that has engaged your agency partner’s expanded service offering whether in the form of digital trading desks, in-house studios, programming procurement or production, poster specialists and or barter, check to make sure that you have a current binding agreement in place that affords you the desired level of protection, control and transparency.

If you would like a complimentary consultation to discuss agency contract “Best Practices,” contact Cliff Campeau, Principal at Advertising Audit & Risk Management at ccampeau@aarmusa.com.

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