It's been a long time coming, but advertising agency holding companies are finally getting into the online advertising network space. WPP's purchase of 24/7 RealMedia in 2007 was among the first of a number of movements towards the disintermediation of online ad network media inventory. VivaKi's founding in 2008 and its simultaneous launch of Audience on Demand was another move in this direction, while Havas Digital's Artemis and Lattitud service and products are continuations of the evolution.
All of these developments by the holding companies have been positioned as a drive towards better data collection, analytics and, ultimately, marketing insights. But getting there means the companies will have to create their own on-demand ad networks.
In a column in December of 2008, I wrote about this development, articulating the pitfalls of a marketing concern that focused too much attention on the collection and analysis of data. In that column I mentioned that "once an agency has collected the data it needs to define and identify its audience, the agency would no longer need to waste time working with the publisher or ad network; the agency would now have the foundation for acting as its own ad network."
Recent discussion within the industry about this development has focused on agencies becoming sellers of inventory and the kinds of conflict of interest this presents.
The first recognized advertising agency in the United States was J. Walter Thompson, named after the partner who bought the Carlton and Smith outfit in 1877. The agency both bought and sold the ads to clients (originally selling space in religious magazines, as Thompson was a devout churchman). The first advertising agency was a broker of inventory in which it owned a stake. It was only decades later, when the 20th century was well under way, that marketing became a scientific discipline and agencies became just that: agents.
For decades, agencies could make enough money purchasing media that they didn't have to charge for anything else. A commission on media purchased would cover everything from creative costs to marketing insight. Those days are long gone.
Downward cost pressures have not only made media less expensive, but have driven fees paid to agencies buying that media even lower. Agencies are now left looking for new means by which to either bring greater value to their clients and charge for it, or keep more of the money clients give them for buying media.
Agencies need to find a way to keep more of the money clients give them. They can't do it in the form of fees, because clients simply don't want to pay agencies much for the work they do. So, either the agency needs to bring more value in the form of ancillary services (analytics, data processing, business insights) so it can ask for more fees, or it needs to own the media being purchased.
The question the advertising industry needs to ask itself about this kind of cross-breeding is whether or not we look on it like a general contractor owning his own kitchen-and-bath tile storefront, or if we look upon it as an ambulance company owning a mortuary.
While there is certainly an ostensible conflict of interest between the duties of the agent and the owner of media inventory, I think the modern marketing client is savvy enough to discern the difference between a recommendation made about tactics necessary to delivery on a strategy, and a recommendation made to make the agency's shareholders happy.
Ultimately, ad networks aren't terrifically differentiated from one another, save for price, service, relationship between agency and seller, and maybe a bit of technology. When you get right down to it, inventory isn't what ad networks are selling, it's audience. The inventory just serves as a vehicle for getting a message to that audience.
Whether that inventory is "owned" by an agency (really, arbitraged by it, or even worse, "passed through") or another entity shouldn't really matter to a client, because they are buying ad network inventory to reach an audience. So long as the audience is the one being sought, and inventory doesn't come from an offensive source that sullies the brand, things are good.
The real question for agencies is whether they want to get into a space that could further render their offerings a commodity. The extension of owning/arbitraging the inventory is the analytics and subsequent insight the agency can "own" for the client and increase their value for that client. Agencies should not own inventory just to be in the inventory business. Otherwise, they are still committing the same transactions they always have been.
Agencies will also need to address the kind of resource investment necessary to play the role of an ad network (part of why we like ad networks is not having to buy across 13,000 tiny sites), and how much attention that may or may not take from providing the kinds of strategic products that can potentially yield the highest margins.
The other challenge for agencies when they become their own ad networks is that they are ultimately going to be asked to give back to clients the spread on the inventory that used to be paid to the ad networks. Clients will eventually do what they've been doing for the last 20 years, which is asking for full disclosure and recouping savings on media purchased. The only way an agency is going to really make much more off of being the ad network is if they go from being an agent to being the principle risk taker in that inventory. Aside from that, all they've got is monetized data and the potential insights they yield from it.
If agencies can't do that, they are simply left doing even more work for what will amount to less media spend (because a greater yield in efficiencies rarely mean larger budgets) all for the sake of a point of differentiation from one another.
Basically, you get to do more work, for less pay, all done to compete for clients that offer the opportunity for even more work for less pay.
Media strategies editor Jim Meskauskas is vice president and director of online media for ICON International Inc., an Omnicom company.
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