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Should agencies be ad networks?

Should agencies be ad networks? Tom Hespos

As agencies figure out how to best leverage ad exchanges for profit, we've been seeing a trend across digital marketing -- that of ad agencies taking on roles traditionally filled by ad networks.

That is, agencies are using a combination of ad exchange technology and external data in an attempt to zero in on the ideal customer profile of a particular advertiser. Once the right data resources are brought to bear, the model is given scale by the ability to bid on specific user profiles across ad exchanges. One day, this could allow advertisers to cherry-pick their ideal customer across the entire web.

It's a model that has particular appeal for direct response-oriented advertisers who find themselves in endless "test and refine" mode with respect to web advertising -- those who buy tons of remnant inventory in the hopes of garnering a tenth of a percentage point's worth of response and have hit a wall. But the model has applications for just about anybody who advertises on the web.

As this trend becomes more popular, we hear more and more about . We've seen the industry begin to divide into the transactional and "marketecture" camps he defined. And we've learned that it's very difficult to make money on the transactional side without technology and scale.

As the hybrid agency/network model evolves, it becomes clear that many of the players are abandoning the ethical tenets regarding compensation that exist in the service-based portion of the advertising and marketing economy. If an agency/network can buy inventory at a .50 CPM and mark it up to a $2 CPM, it will.

And that's fine, provided there's transparency around the transactions. But clients should also realize that once an agency/network places itself firmly in the transactional bucket in this way, it can't be relied upon for the marketecture piece. In other words, you can't ask a media seller to solve high-level business problems because the solution most likely to be recommended is the one that will build the seller's business -- buy more advertising at a markup.

For clients who advertise, this is a big deal. Even before this new exchange-based business model emerged, I had heard from several clients that the agencies that are compensated on a commission basis seem to think that more advertising is the answer to every problem.

This new agency/network hybrid model should further drive a wedge between marketecture firms and transactional ones, but it's very important that clients understand the difference so they can get an unbiased view of what will help build their business.

If your agency wants to help you figure out how to best use exchanges, they're probably a marketecture firm. If they want a piece of the transaction every time you buy advertising, they're probably transactional. And then you know where their loyalties are.

Tom Hespos is the president of Underscore Marketing and blogs at Hespos.com.

On Twitter? Follow Tom at @THespos1 or @_MarketingLLC. Follow iMedia Connection at @iMediaTweet.

Tom Hespos is President of New York agency Underscore Marketing. He is a frequent contributor to industry trade publications and has been writing a regular column about online marketing and advertising since March of 1998. His clients include Wyeth...

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to leave comments.

Commenter: Matt Greitzer

2009, July 24

Tom, I don't think anyone disagrees with your point, "you can't ask a media seller to solve high-level business problems." Most of the agencies who are pursuing this opportunity break out the inventory-selling part of their business as a separate company (Havas' Adnetic, IPG's Cadreon, Razorfish's ATOM Systems, etc). I think this resolves any conflict of interest, and cleanly separates the strategic/planning arm of the agency from the transactional arm.

Also, I agree with Matias - if an agency is adding value through data modeling, optimization, etc. they essentially turn bad inventory into good. They should be able to capture commensurate value for this service as long clients are fully aware of their compensation model. There are a few players who are simply buying an impression for $0.50 and selling it for $2.00, as you suggest, but I think this is the exception, not the rule.

Commenter: Justin Rees

2009, July 24

Like other commentators I agree with pretty much everything you have written. One thing I would add though is that the issues discussed are very much in the context of the current economic climate. In my experience, most advertisers don't really care about these issues when they have big budgets and times are good. It's only in the last couple of years with falling sales and budgets that they are suddenly interested!

Commenter: Matias Perel

2009, July 23

Tom, I agree 100%, to buy inventory to re-sell it is not the way to go. That is a clear conflict of interest. However, for result oriented campaigns (CPX or CPW)launching an adnetwork as a separate entity with a different team but with the idea of agreegating data to be able to provide value to agency clients by creating segments that can be then targeted by those clients; it is a fair way of maximizing the intellectual property and experience of an agency and provide it to other clients and by the way that has a value (how do you charge for that?). This approach works in my view for any performance campaigns and with branding campaigns that are trying to increase their reach in specific segments. DrivePM and Razorfish are a living proof they can co-exist. Also, Havas Digital I believe will use in the future Artemis as their own adnetwork.

Commenter: Warren Lee

2009, July 23

Tom, couldn't agree with you more. BTW, back in the day, there was much fuss when AvenueA launched their network in '98 or '99. After a while reality set in and it was business as usual, no polar shift. As far as reselling that inventory to their clients at a premium, I don't think that was part of their program. As you know, there are other agencies that have launched networks and there does not seem to be a reluctance in the marketplace rather an acceptance.