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 how ad agencies need to evolve to look more like ad networks.
Let me first say that I see nothing wrong with an ad agency becoming the entity that ultimately figures out how to best leverage data to reach the folks most likely to be interested in a client's product or service. Over the past decade and a half, agencies have tried everything from search marketing to behavioral targeting to external profiling in order to get closer to the mark for clients.
But I think we step over the line when agencies become speculators on blocks of ad inventory. When an agency lays out cash to acquire ad inventory in the hopes of reselling it to clients at substantial markups (more than what commission-based agencies might hope to get), it introduces an ethical conflict into the mix.
More than two years ago, Doug Weaver described the bifurcation of the digital marketing business in what he called The Oreo Doctrine. 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.
