In a recent conversation with San Francisco-based independent agency Mediasmith and its CEO David Smith, AdExchanger discussed the company's technology practice and how it balances the need to stay ahead of the automation of advertising while servicing the client. For CEO Smith, it begins with what he calls the Mediasmith tech stack. See it.
AdExchanger: Can you discuss your approach to ad technology and what you're calling your "tech stack?"
DAVID SMITH: Sure. Our "stack" contains the approved technologies for Mediasmith to use internally when people want to start or create a campaign. And for the average campaign that we launch today, there are eight to 12 technologies.
Part of the job of what we call the media tech planner is to advise the media planner on which of these 8 to 12 technologies they should be deploying in order to make their campaign work. And the media tech planner is the expert on this - it's an interesting concept that goes in combination with our tech stack.
When did you realize that you needed to formalize a tech stack? Any tipping point?
It was a year-and-a-half ago - and we didn't make it visible to people at first. When John Cate, our president, came over three years ago from Carat, where he ran Carat's digital operation nationally, he had the idea of organizing it by process so that when we talked to people about the tech stack, they'd understand it better. I thought this would be much more complex than it turned out because when you look at Terence Kawaja's Lumascape, it's just a bunch of logos on a page. There's no rhyme or reason to it.
Our tech stack is dynamic. There are companies that are getting bought. There are companies whose names change. And - this is just the tech stack for display. For mobile, it would be different as would the one for programmatic television buying. But, display is the biggest part of what we do, and so the visual is the best way to showcase it.
Now, we certainly don't do everything via programmatic buying. But, even when we don't, a lot of times we apply the tools of programmatic buying to forward buys such as Forbes or The Wall Street Journal, and then, for example, overlay a Bizo or Quova solution, and so on.
What's your thinking on the role of the agency today, given your thoughts in having to create a tech stack?
Other agencies will have a lot of these technologies that they'll be using, but they'll keep it inside a black box. In their trading desk, they're arbitraging.
We believe that if you are an agent of the client, that everyone must be transparent. Because the minute you start to not be transparent, and you start to arbitrage, you're not an agent of the client. You're a vendor.
An agent is a strategic ally. An advertising agency is a strategic ally of a client ... of an advertiser. A vendor is somebody who could have very trusted status, but they can be switched in and switched out. And they're not necessarily involved in the strategic layer of the company. What some of the trading desks are doing through arbitrage, is they're devaluing their status within the client/agency relationship. We're kind of old-school. We believe that we need to maintain the status of being strategic with a client.
The guy who founded Coca-Cola said, "Everybody who works at Coca-Cola has the right to make a profit." Parenthetically, he wanted to know what that margin was. We want to work with clients who believe that we have the right to make a profit. And we do make a profit.
One of the reasons that demand-side platforms (DSPs) came on is because ad networks were arbitraging, and the agencies believed that by adopting this DSP technology, that they would take arbitrage away and would make it more transparent. But the temptation to arbitrage is great - as long as you can meet the client goals, why not make a little extra money? Part of it is also driven by the procurement people [on the client side] who might be driving the agency down to such a low percentage of margin that the agency's not making enough money, so they're forced to arbitrage - so the client is complicit.
So, are you still working at a fixed margin that you agree upon with the client?
We don't work on a fixed margin. Our most common way is pretty old-school in that we work on a percentage of the spend. And that might vary by medium, because it is much more complex to execute digital media than print.
The mark up is generally 2x higher with digital than traditional media. And when we deploy technology, it is with the full knowledge and agreement of the clients. It's as if we've become a systems integrator, because we've got to vet and make all these technologies work together. So just as we should get paid for deploying media, we should get paid for deploying technologies. And we also mark that up in a method that is transparent to the client, not unlike where agencies have historically marked up third-party ad serving because there's a lot of handling that happens when you get involved with a third party ad server.
What about working on a performance basis?
Everybody wants agencies to work on a performance basis. But, the issue is that with today's changing world, many clients don't have enough of a track record to know what really causes people to buy right now. Many of the companies that we work with are brand new companies, and they don't know their cost per acquisition (CPA) or what the lifetime value of a customer is. They might know their CPA in search, but that's not accurate because it might have been display or television that caused somebody to go in and type in a keyword phrase.
If companies really knew what their cost per acquisition was, and were willing to allow us to make a margin if we improved that cost per acquisition, then we'd be willing to take on performance activity. But, many companies want us to take on things on a cost per acquisition basis based upon a CPA and a business plan. And it's not proven out - or they don't have enough data about attribution to prove out what their CPA is, and so we can't. Or they'll say, we want you to do it on a performance basis and we'll pay you based on this CPA, and when it's displaying. And we say, okay. We want to be paid on both click sales, and sales that come through viewthrough.
Regarding viewthroughs, I talk to many people on the client-side who don't know what that means or don't believe in viewthrough.
Everybody wants agencies to work on a performance basis, but a lot of companies are not prepared and don't have the knowledge base to fairly compensate an agency on that basis.
What percentage of your clients' ad spend is programmatic media grabbing today?
I believe it's currently north of 20%. But, that's going to continue to increase – for example, we're taking on some performance clients where 100 percent of their spend is in programmatic. They work on what I call a CPW basis – "cost per whatever." I use this acronym because it's not just an acquisition. It could be a whitepaper download or it could be a lead, for example. We do programmatic buys on a CPM basis, too.
We do a lot of stuff with MediaMath, and with The Trade Desk. We have experimented with many others. Quantcast, Google Display Network and Facebook Exchange work very well from a programmatic standpoint, too.
All I know is that, overall, every year programmatic is going to get larger. I like to call it data-enabled buying. We not only buy through RTB sources, but forward buys that have a data overlay.
What milestone are you thinking about in the next 3 to 5 years for the advertising industry at-large?
There are still pain points in the process that goes from planning to buying to ordering to optimizing - it's not all a single vendor, or vendors, that work together through their API's painlessly. There's too much manual work done through our industry, where people are putting stuff into spreadsheets and shipping them off to other people.
The workflow is killing agencies. We have to get our hands around this big data problem and get the tools in our hands that we can more easily handle.
One of the big changes will not be something that's very sexy at all - it will be fixing and fine-tuning the infrastructure of our industry that will make it possible for us all to do a lot more of what we're doing relative to television.