The rise of real-time bidding is changing more than the way campaigns are planned and bought; it's also changing the relationships that brands have with their agencies. In fact, several high profile brands have announced that they will no longer work with an agency at all, citing a lack of value or mistrust over margins.
Until this point, brands have typically engaged an agency to plan and buy their media, a legacy behavior that digital carried over from the offline world. The brands would benefit, the thinking went, because they lacked the expertise or time to do the buying themselves, or because an agency could secure the same media at a lower price.
In today's world, though, agencies often build media plans that include ad tech partners that are buying on the exchanges, targeting individuals based on their own proprietary data. These campaigns are optimized by the ad tech partner's own team, rather than the agency planners, leaving some brands wondering what the agency actually contributes to the process. After all, with the media being purchased in open exchanges, an agency often can't even use its clout to bring prices down.
Agencies have it really tough
It's no secret that agencies have been forced into taking a smaller management fee, now often down to 2 to 12 percent. They're in a tough bind because while there's less money to go around, brands still want agencies to staff their accounts with the best and brightest. Some publishers are heaping on the pain too, whether they realize it or not. Twitter invoices brands directly for the cost of running real-time Promoted Tweets campaigns, meaning the agency and/or vendor has to invoice fees separately and can't add on any additional margins. Facebook is allegedly heading in the same direction for some larger partners who have been over-dipping.
In the hope of turning things around, some agencies have created their own trading desks. The aim is to take control of the real-time buying, and in the process, to regain control of the margins. Alas, even this approach seems unacceptable to some brands, with quotes from the CPG sector in particular that indicate that the black box trading desk model won't suit their needs.
It's a hard time to be a media agency, even though agency contributions are often invaluable.
Ad tech partners are caught in the middle
Ad tech partners feel less of the squeeze because they control their own campaigns, and therefore, their own margins. And they're free to move the margins up and down to secure a relationship. As some recent IPOs have revealed, the margins can rise as high as 60 percent. With profits rolling in, these companies can staff an account strongly and fill in some of the gaps that brands are seeking.
This, of course, doesn't mean agencies are about to disappear. Agencies remain a critical channel and still control the purse strings for many campaigns. And that means that ad tech partners can sometimes get caught in the middle. They want to support the agencies that have helped them grow their businesses, but it's also hard to turn away a brand that's asking to work directly.
Being a good partner
The smart media partner understands these issues, and instead of working against the system, they work to make it better for everyone. In a recent discussion, I asked agencies what they disliked most about the typical media partner. The common problems were sending people who don't know the industry, salespeople that don't research the agency, and having no interest beyond the original IO. This is ridiculous and unnecessary.
The smart partner invests some of its margin in the people element and has those people fill in the gaps for the agency. A media partner should not turn up for a lunch-and-learn with Panera and a 30-slide PowerPoint and expect that to be enough. Instead a partner should produce original content that the agency can either learn from or repurpose for its client meetings, and the partner should also bring experts or even the media planners to events that add value.
If the agency itself cannot afford to give the client the attention it demands, the media partner has an opportunity to help the agency look like it can. Campaign insights that go beyond standard media metrics, and involve some sexy graphs, can go a long way in making a dull, weekly analysis look...well, sexier. And some actionable recommendations that may or may not directly involve the media partner go even further.
There will always be cases where media partners will end up having direct relationships with brands, but when an agency relationship does exist, it is to everyone's advantage to make the agency look smart. The amount of total possible margin has stayed relatively consistent. It is the distribution of that pot that has changed, and winning in this super competitive space means understanding that, and making the right choices.
Dax Hamman is chief strategy officer at Chango.
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