Brands need to push trading desks for transparency

Last week the Association of Canadian Advertisers held a session called “Where is your online ad money really going?”—and it didn’t disappoint. The speakers addressed marketers’ frustrations with the lack of transparency in the online ad ecosystem, both on the part of agency trading desks and technology vendors. Perhaps more importantly, they offered strategies marketers can use to take back the power, and get more transparency out of their partners.

Michael Greene, director of marketing strategy and research at AudienceScience, spoke at length about what transparency means and how to achieve it. AudienceScience is a demand-side programmatic technology company that conducts day-to-day trading operations for agencies and brands, using proprietary technology.

Greene identified two key areas of transparency that need to be addressed: operations and pricing. Recently, there’s been a big industry push towards more operational transparency—the “Where are my ads running? Why are they there? What kind of data is being used?” questions, in Greene’s words. Marketers have started asking these questions of their agencies and vendors.

But there are still some dark corners in the supply chain. “The complexity is keeping advertisers in the dark,” he said. He points to suppliers “that the advertiser and even their AOR have no idea are actually part of the ecosystem because they’re partners of partners of partners. Until you get your hands around that, how can you even start to have a conversation about transparency?”

In his presentation, Greene quoted an estimate from the Boston Consulting Group that some campaigns go through up to 20 intermediaries—each one of them taking pennies off the advertiser’s dollar. Many of these companies are what he called “arbitrage players,” who buy media and sell it up the chain at inflated prices, without adding much value.

Partner fees and arbitrage can account for anywhere from 20% to 80% of an advertiser’s CPM, he estimated. And it’s the lack of transparency in the system that makes this kind of gouging possible.

Although media agencies have taken a lot of flak for this system, they aren’t always the ones to blame, he said. Often they’re just as in the dark as the advertiser about all the players further down the supply chain.

“How is an AOR supposed to build better, smarter plans, unless they have the information and insight needed to do so?” he said. “For people that are really trying to do a great job for their clients—as I think many AORs are—the way the ecosystem is built today is equally frustrating.”

Marketers have leverage, but they need to start using it

“The only people with true power in this ecosystem are the advertisers themselves. They’re the ones who ultimately control every single penny that gets spent in advertising, both in traditional and digital,” Greene said. “As advertisers wake up more and more to the reality of how their precious dollars are being used, I think we’re going to see—and we’re already seeing—advertisers recognizing the power that they have, and questioning how that’s been used by intermediaries across the ecosystem.”

Greene offers a handful of different solutions to the transparency problem. Option one: draw up explicit contracts with your trading desk, specifying approved vendors and pricing plans. Option two: ask your media agency to manage programmatic trading directly, rather than going through the holding company trading desk. This is the option recently chosen by Mondelez, which has established a dedicated trading team at Starcom MediaVest for its online video campaigns.

But the direction Greene sees the industry taking is option three: what he calls “enterprise advertising management,” and what the rest of us call in-house media buying. That’s the option pursued by programmatic advertisers like The Gap, Progressive Insurance and Netflix. It means making direct relationships with technology providers, and in some cases handling day-to-day media trading, rather than letting an agency do it on your behalf.

“The only way that you can enforce contractual terms is if you actually have a contract directly with somebody,” he said. “As advertisers build more direct relationships, they can more easily exercise the leverage that they have, and they can also be very clear about picking vendors that aren’t built around arbitrage business models.”

Contrary to popular belief, taking trading in-house doesn’t mean cutting out the media agency, Greene said. He describes it as a three-way partnership, with the main technology provider (usually a demand-side platform) focusing on day-to-day trading, the agency focusing on long-term media strategy, and the advertiser holding all the contracts and all the data. Eventually, the advertiser will do the day-to-day trading themselves, using their DSP as an enterprise technology solution, but for now most advertisers are opting for managed DSP services that execute trading, since the technology is so new and talent so scarce.

Where media agencies will always be necessary is “huge overall media-mix strategy,” Greene said. DSPs are great at digital, but not much else, and in today’s omnichannel world, it’s rarely the right idea to keep digital advertising separate from TV and out-of-home.

“The broader, the more multichannel, the more holistic the strategy, the more likely it is to be managed by the agency and the advertiser,” he said. “That’s touching on stuff that, quite frankly, as a digital company, we don’t have that expertise.”

“I think the agencies are going to be involved in this for a very long time, but marketers are going to be making more and more of the technology choices,” he added.