Give Me Audience Or Give Me Death: The Agency Buying Platform Strategy

Agency Audience Buying PlatformsThere has been a growing waterfall of chatter about audience buying in online display advertising. Ad networks, demand-side buying platforms (DSPs) - whatever you want to call them - are targeting audience.

Give me auto-intenders - stat!

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?

5 Comments

  1. Problem is there is little value in services (and I might argue that services will be/are more commoditized then technology). Value in the digital age is all about technology. If you don't build & own your technology what value to do really have? In this day and age of media if you are not at least part a technology company then I'm not sure you are company at all.

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  2. I have to agree with Jonathan. Technology is becoming part of the competitive advantage of companies of all types, shapes and sizes in this economy. Why are agencies so different that they don't need the ability to build and optimize differentiating technologies that are core to their businesses? Just because agencies have not had tech chops in the past doesn't mean that they will not need to develop them for the future. Otherwise, what is to keep tech driven companies from developing creative and strategic competencies and stealing the agency's business?

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  3. The agencies will need to end up becoming technology companies at their core whether by buying or building (not leasing IMO) or risk (and this will not be overnight despite any RTB-related hype, it will take a while but it will happen) irrelevance. In the same way junior investment bankers used to crunch cashflow numbers in spreadsheets themselves 10 years ago and now people in India crunch the numbers overnight and provide a service to the banks, the human-powered media backend will evolve to have technology automate the workflow, data and analysis. People won't go away in these businesses - the junior bankers now have more time to get their pitch books to FedEx - but technology must replace waste and margins will compress for tech and services companies.

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  4. Thanks for all these comments. Great feedback.

    My point is that they use technology, including licensing it but will not own it outright. It may be customized for each agency but the innovation that occurs with new technology will occur outside of the agency model.

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  5. Great post. One issue not mentioned but I'd appreciate comment on is portability - marketers want to be able to move agency media chores and if the agency owns the technology it makes transferring much much harder. Whereas now an agency media plan can (fairly) easily transition and continue if an account moves.

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