Aegis Gets Pants Pulled: Is The Agency Performance Model That Far Away?

Agencies Need PerformanceUK's Telegraph is reporting that traditional media agency Aegis is being forced to reveal discounts for TV and newspaper ads it bought on behalf of yogurt company Danone in Germany. And you thought they only ate schnitzel in Germany.

So why should you care? Well, if you're anybody except a vendor caught in a negotiation process with a procurement officer used to working with agencies and requiring full transparency then you could probably care less. In fact, you may love it. Your competitor - the agency working with said procurement officer - is getting rooked.

But, for the agency world, the Aegis example could be a tipping point as they struggle to maintain margins, let alone increase them while procurement pounds away. It's inevitable that the bow breaks. A little less transparency here, means a little more margin there, and then - poof! Lawsuit.

Aegis will be the loser here and this is why the agency model will change. Performance models that allow arbitrage by agencies (ad networks, too - you know you wanna be an agency!) seems a foregone conclusion. Some will say that the agency model is predicated on the idea that it is the "agent" of its client and once it begins arbitraging in order to make money off of its agency-client relationship, it's no longer an agent. To this I say, B.S. Agencies were arb-ing the day they were born - most companies do! Clients want performance. Period. To be clear, performance is something that happens on the direct and brand sides of marketing.

The problem for agencies is that they had to let transparency into the process as too many agencies with similar offerings competed for the same client and gave the client the power to open the transparency genie bottle. This transparency led to lower margins for the agency which in the end is killing it. On the other hand, it's also leading to a new, growing model where performance is key.

Clients need to ask themselves: who's driving the performance agency bus? These will be the agencies (and ad networks and DSPs!) that survive and thrive in the future.

Of course, could the performance model be commoditized and its margins crushed? If so, then what? Does everything go in-house on the client-side?

Isn't this fun!?

By John Ebbert

1 Comment

  1. Nice job pushing the thought leadership. This is one of the most interesting debates out there. That said, I have a hard time with a market where agents make money at their client's expense.

    I think the finance markets are a pretty good analogue for how this plays out. While there are a number of arbitrage-based pricing models that serve specific purposes (e.g. insurance & annuities), the majority of assets are invested in products that share incentives.

    Note, though, that there's lots of room for fuzziness within that definition and it's taken a long time for these standards to evolve. As an easy example, there are still brokerage accounts that get paid on commissions even though churning is ostensibly illegal.

    Reply

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