The venture capital world has taken a flying leap into the space as many of the big name platforms (big name in AdExchanger.com's world) who provide audience buying services to agencies have fed at the VC trough and are endeavoring to become best-in-breed or, at the very least, breed.
The reasons for the platforms are simple enough in respect to agencies and the big holding companies. Agencies are looking to make mo' money. As they get squeezed by their clients, agencies see themselves squeezed by some of their ad network partners, and want - and need - the ad network margin for themselves to sustain their evolving business model. Among many efficiencies, now that technology is enabling the purchase of audience and ad impressions across multiple supply sources that do not require a big publisher development team to feed network inventory, agencies are able to become ad networks.
For the most part, agency holding companies have chosen to let others build their platforms. Good idea. Why?
First, it's hard to know who's going to win. The space is evolving - is it going full-serve? Self-serve? Which platform works best with the agency's data? Or even the agency's culture? How scalable is this platform? Can it handle RTB at holding company-like scale? Right now.. those answers are dangling like a modifier in an AdExchanger.com opinion piece.
Another reason agencies aren't (or shouldn't be) building is that they are not technology companies at their core. They are consultants. Media and creative agencies need to be experts in the digital world, but do not need to own the infrastructure of the digital world. As traditionally-minded CMOs drink the digital kool-aid or are replaced by digital whippersnapper marketing executives, for the agency to survive, they're going to need to be able to thrive with the next marketing superstar who will have full support of the C-suite to drive an accountable digital strategy.
Another reason NOT to build: agencies have great difficulty being entrepreneurial. Creative, yes. Hard-working yes.. thinking out of the box and willing to entirely re-work their business model while servicing a client? No. Agencies can't bill entrepreneurial endeavors. Nor, should they. Their intellectual property remains the relationship.
Now some holding companies or agencies may think that owning technology will give them a leg up. It may for a month or six, but they'll need to keep innovating -definitely not the purview of agencies. Innovative technology happens in startups where principals are driven to produce a great product resulting in a big pay day. Innovation can also happen in technology playpens like Intel, Cisco, Adobe, etc. where impressive collections of brainiacs are herded into R&D groups and paid for by handsome chipset or software margins.
Certainly these new buying platforms have the potential for big margins in the short term - say the first 3-5 years - but from here it seems like those margins will get compressed over time as the buying platforms are commodotized. Proprietary data will help differentiate, but agencies are not going to get the 40-50% ad network margins of the past. Their clients will be demanding transparency as always, too.
Agencies survive by being experts which will likely require a new type of employee that brings great ideas, deep digital understanding and an ability to pluck consumer insights from data at a binary level. Those that remain will be paid more, and they'll be doing more across channels. We are entering a specialized digital era where the martinis with clients will be made of i's and o's. Is your agency ready?