With the industry barometer showing no ease up in pressure, another challenge that has arisen is around big agencies moving to cut out the Ad Tech middlemen in order to justify their existence. In one business journal, it reported some of the world’s largest advertising groups (including GroupM, Omnicom & Dentsu) have responded by attempting to set-up direct programmatic trading relationships with publishers.
By setting up these “server to server” connections, agencies will be able to cut out the middleman, receiving preferred access to inventory and reducing open exchange buying.
On the face of it, this could be seen as a positive move for the industry. It will reduce supply chain costs (the tech tax) and increase working media, creating a more transparent and less complex ecosystem.
It could also be seen as a response by agencies to the current programmatic in-housing trend, with agencies once again able to leverage their buying power with publishers and reducing the volume of inventory available in open exchanges. This would have a direct impact on any advertisers using an in-house trading desk as they would be unable to compete for the premium inventory controlled by these agency deals.
To a certain extent, these types of trading deals already exist – GroupM’s GMSM being a prime example of an agency group setting up preferred deals with trusted partners. Currently, proprietary inventory sources such as this are positioned as ‘safe, high quality’ environments and in turn sold at a premium. In our experience, they are used tactically by advertisers and run alongside an open exchange buying strategy (one complementing the other).
It is unclear from the article how far agencies will be able to pursue this model, or whether it is simply being explored. However, the article does raise a number of key questions as to whether this is a viable model for future programmatic trading:
- Scale – Will the agency groups be able to drive adoption across enough publishers?
- Commercial – If the tech tax is removed who benefits?
- Transparency – Will this approach be a step backwards for agency/client transparency?
In order to effectively execute programmatic buying across a direct publisher network, agencies will need to provide scale. There are significant barriers to this. Firstly there is a requirement on the publisher’s side to implement the agencies’ tech, and this will undoubtedly create some resistance.
Secondly, there is the question of how many direct publisher deals an agency group can realistically put in place. Whilst deals with the larger publishers (eBay, Microsoft, Yahoo) may be relatively straightforward, it is unclear how, logistically, direct relationships with the long tail of publishers could be put in place.
This is important as we typically see over 50% of programmatic inventory served across smaller sites or ‘low volume’ inventory sources.
Removing the middlemen could present a number of commercial implications. Publishers may see this as an opportunity to increase their rates, particularly as their SSP and ad-exchange fees are removed. On the other hand, advertisers may expect to see improvements in working media costs. Finally, agencies will be looking to negotiate improved rates and increasing their own margins.
Without a clear commercial benefit, there will be little appetite to pursue this approach – in an ideal world agency, publisher and advertiser should benefit (but is that realistic?).
The creation of these new commercial relationships could have a knock-on effect on agency transparency. Since the ANA transparency report of 2016, significant steps have been taken to improve supply chain transparency and rebuild advertiser/agency trust. Whilst the sell side has remained opaque, agencies have opened up the buy side, offering transparent trading desk solutions and full visibility of costs.
The move by agencies into the sell side raises the question of how transparent they are willing to be in relation to these arrangements – will advertisers be provided with a full audit trail or will this be a new source of rebates and incentives.
Whilst there are perfectly valid benefits for agencies within this new model, ultimately it needs to be able to drive improved performance for advertisers. If there are limitations (due to the reduced publisher list) or caveats with specific publishers to fulfil spending guarantees, then this could have an adverse impact on performance.
In order for this new model to be adopted, it will need to be tested and gradually introduced. Furthermore, advertisers (and publishers) will also need to be able to reconcile tangible benefits whether commercial or performance-based, to justify the effort required to implement it.
Harmonious partnerships may well follow, and we expect to see an increase in agency direct relationships with the larger publishers, but open exchange buying through middlemen isn’t going away any time soon.