How The ANA Rebate Controversy Could Impact Ad Tech

anarebateadtechimgThe ANA report on agency transparency erupted last week, intensifying a long-expected public dispute between brands and their media agencies.

While the report focused on brands and agency holding companies, its findings could potentially affect ad tech companies.

AdExchanger reached out to some leaders in the ad tech sphere to see how they viewed the agency rebate issue and its potential ramifications. We asked,

"How will the agency rebate issue trickle down to tech companies?"

Click below for their responses.

 Jeff Green, founder and CEO, The Trade Desk

"For a very long time, decades even, there’s been this tension between agencies and their clients. Everybody’s been pushing their agencies to make less and make fees as small as possible. That movement has made the pricing models we have in the agency world, and that hasn’t really easily translated into a world of programmatic, or even a world of digital. In general what’s happening now is a very productive thing, a healthy byproduct, because it’s the conversation that brands and agencies need to be having."

Bruce Falck, CEO, Turn

"If players in the ecosystem act transparently then they won’t have a problem. There will be a call for greater transparency, and this is going to lead to a separation of tech and service fees.

We’ve seen a trend emerging with our brand and agency customers around 'programmatic governance,' which means understanding all the tech they use, directly negotiating rates with tech providers and then asking agencies to bill them for service on top of those tech fees. Let's separate media companies (such as publishers) that have inventory and have the ability to discount that inventory from an ad tech player.

Obviously the playing field could be leveled if bad actors that are taking a very high margin in more opaque ways are pushed toward greater transparency. The key is, even after the report, how well is all this being understood by the end customer, the buyer? It’s dangerous when tech and media get mixed, as can happen at Google, Facebook or AOL."

Adam Cahill, founder and CEO, Anagram

"I don't foresee this trickling down. I think what will happen is that clients will realize there are two costs to programmatic: the tech and the people who run the campaigns. The issue isn't the true cost of the tech, it’s the margin and padding around that cost that agencies have been adding. That's the piece that's going to get reduced. I also think you'll see brands increasingly take ownership of their contracts with tech platforms, so agencies won't be in a position to push the burden downward because it won't even be their relationship anymore.

In my experience rebates aren't the big issue. I don't think the platforms are going around bribing people. The big issue is the margin manipulation and inflated staffing that agencies charge for programmatic when in fact the platforms are doing the bulk of the work. And that's outside of what I think the platforms can be held responsible for. They built tools, and the way those tools were used wasn't always ethical.

This is going to be most painful for the platforms that just sell on a CPM basis with no view into the true cost of the media. Those players haven't been dishonest, but I think it's going to be increasingly difficult to sell a black-box solution now that the advertisers are getting more educated about all forms of opacity."

Mike Baker, president and CEO, DataXu

"The ad industry is being disrupted and transformed by technology: data, analytics, algorithms and automation. In the end, the technology will deliver on its promise of a more robust ad supported economy. But like all revolutions, there are powerful incumbent interests that try to co-opt and undermine meaningful reform. For me, the report is a marker of progress rather than a revelation – the industry is now on the right path."

Randy Wootton, CEO, Rocket Fuel

"Whether customers buy from us directly or through partners, we want them to be confident that their digital dollars are working for them and getting results. It’s unfortunate that this report casts a shadow over ad tech and media suppliers who are trustworthy, but those companies should not have a problem demonstrating the value of what they are providing and, in the end, they should emerge in a stronger position. Our industry succeeds when everyone in the ecosystem trusts each other. We are open about our business practices and are as transparent as possible with our partners and customers."

3 Comments

  1. If buyers push agencies to deliver with ever decreasing budgets, then agencies will look for profits from rebates and other methods. Example – if you buy a new car in a dealer invoice pricing sale, the dealer may receive a volume discount from the manufacturer.

    Transparency is nice concept but not part of day to day business. Example – when you buy a new iPhone you do not get the choice of having Apple tell you what the profit margin of volume discount of each part costs.

    The real problem for agencies may the volume of business the agencies execute with Google and Facebook etc. Transparency means 60% + of the buy goes to Google?

    Bottom line – Will the ANA push for transparency drive even more revenue away from the leaders in the ad tech sphere and towards the growing Oligopolistic competition?

    Reply
  2. John- the problem with those analogies is that many advertisers have contracts with agencies specifying the exact margin that the agency takes for total media spend. This means that

    Let's say you somehow negotiate a car price with a dealership based on a percent of dealer invoice. You'd have every right to be upset if the dealer received a volume discount or a rebate due to your business that wasn't disclosed to you or factored into the price you paid.

    If agencies instead negotiated their contracts with advertisers to be paid a flat fee for their services and to reimburse all media spend, then such transparency and kickbacks would be less of an issue.

    Reply
  3. Eric

    Great points. For advertisers that have contracts with agencies specifying the exact margin that the agency takes for total media spend, a contact is a contract. If the contact is well written, then any hidden markups are fraud.

    My view is that the ANA report on agency transparency misses the larger hidden margins from Oligopolistic competition.

    For example - If an advertiser or agency ties to negotiate margins with one of the oligopolies the buyer will not be successful. Yet Google has margins many times what the poor agencies have.

    So the ANA report may be too focused on a part of the value chain where the difference between a 5% real or 10% hidden agency markup is not significant compared to the markups that the oligopolies have. And since the majority of the buy is often executed with the oligopolies the largest source of markup may remain hidden.

    Reply

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