Shifts In The Agency-DSP Dynamic As Clients Take Control Of Programmatic

About seven years ago, DSPs that pitched marketers directly risked losing massive agency contracts. But today, as more marketers influence technology decisions and take programmatic contracts in-house, DSPs are freer to go after brands directly.

Even The Trade Desk, which built a $6 billion business by pledging its allegiance to agencies, has signed more than 15 contracts directly with brands, CEO Jeff Green said on the company’s Q3 earnings call.

“Brands are coming to us directly at a record pace,” he said.

The Trade Desk declined to comment for this story.

Media agencies, still regaining trust after a transparency scandal in programmatic, are being forced to be more open with clients and bring DSPs into the conversation. Many have also developed their own expertise in programmatic and become less territorial over client relationships.

But when a DSP has a conversation with one of their clients, agencies still want to be kept in the loop.

“I don’t mind that my clients engage with DSPs so they can learn stuff themselves,” said Oscar Garza, head of media activation at Essence. “You kind of hope for a heads up from the DSP. That doesn’t always happen.”

Still, agencies own most DSP contracts, said Matt Prohaska, founder and CEO of Prohaska Consulting. And cutting out a key sales channel isn’t the best idea for all platforms.

“The sales 101 here is that you still need to cover both,” he said. “The messaging is different, the influence is different, but you can’t ignore the agency and assume they’ll be fine with that.”

Land grab

In 2011, it was dangerous for a DSP to pitch around a media agency, since trading desks with massive programmatic budgets were their biggest clients.

But as DSPs like Turn, MediaMath and Rocket Fuel began building data solutions to differentiate their products, they started to sell directly to the marketer on the premise that clients would want to control their first-party data.

Agencies became territorial and shunned DSPs who pitched directly to marketers. Turn, MediaMath and Rocket Fuel saw an agency pullback, while The Trade Desk saw an opportunity to enter the market selling exclusively to agencies.

“There’s a timing thing here,” said Chris Kane, founder and CEO of the consultancy Jounce Media. “The DSPs knew brands were going to take more control, but some were more disciplined until the market was ready. Others ran ahead of the market and burned agency bridges.”

As agencies became more proficient in programmatic, they began to feel less threatened by DSPs. In 2014, Kraft teamed up with Starcom and Turn, which was at that point trying to get back into the good graces of its agency partners, to develop the “three-legged stool” model, where the agency and the vendor work together under the direction of the brand.

Enter in-housing

As brands take more control over programmatic contracts and decisions, agencies can no longer turn off a DSP across its entire client base.

“Agencies are less powerful than they were, and platforms are more powerful than they were,” Kane said. “When the right opportunities come, [DSPs will] be much more willing to work brand-direct than they would a few years ago.”

The most prominent example is The Trade Desk, which has increased its direct-client relationships since going public in 2016. But pitching brands isn’t a strategy shift, Green argued during the Q3 call, because the agency is also working closely with the brand, helping strategize and executing the buy on The Trade Desk’s platform.

Google also noticed an opportunity to work with brands, and built an ecosystem of resellers and service providers to bolster its direct brand relationships. It’s also updated the interface for Google Display & Video 360 (formerly DoubleClick) to cater to a shifting client base.

“A couple of years ago, most of the configurations in [the platform] had agencies in mind,” Garza said. “Everything was named after agency roles. More tools are starting to understand the agency isn’t the only customer.”

Still, while agencies have let vendors in the door with their clients, they don’t like being left out of the room. An initial meeting might not be a big deal, but multiple meetings about execution could be difficult to swallow.

“That would take away from what I’m doing for my client,” Garza said.

And not all DSPs are cozying up to brands. Some still see agencies as their most effective sales channel and want to avoid putting pressure on that relationship. dataxu, for example, doesn’t pitch to brands that already have an agency, said president, platform and EVP of product marketing and management Aaron Kechley.

“Signing an agency is a lot more economic than trying to do deals with 30 brands,” he said. “It undermines the agency relationship if we sell directly to a brand.”

Execution power

Despite losing the ability to blacklist a DSP across its client base, agencies still have some leverage over client spend.

Most clients contracting directly with DSPs choose to work with two or three platforms. Agencies, which still handle execution in many cases, can manipulate how spend flows across those partners.

“Most of these contracts don’t have guaranteed spend involved,” Prohaska said.

If one DSP in a client’s stack offers favorable pricing for the agency, for example, or allows it to input higher margins, the agency can funnel spend that way without the brand noticing. When transferring accounts from other holding companies, Essence has seen margin input as high as 50% on some platforms, Garza said.

“In some cases, we’ve seen that the number of inputs was egregious and likely not discussed with clients,” he said.

But in most cases, who owns the contract doesn’t really change the value an agency brings to its clients, said Aleksandra Injac, US programmatic practice lead at Mindshare North America.

“We provide programmatic strategy, expertise and activation excellence,” she said. “In that dynamic, we would still continue to be the power users of the DSP and maintain a very close relationship with partners.”

1 Comment

  1. Robert Catesby

    You didn’t mention the reduction in efficiency due to increased costs by the time an agency has added on a big margin/markup and also got involved in some form of rebate that the client is not party to. If the agency skills of using a dsp adds more value in reduced cpa’s than a client can execute themselves to negate the differential it could be worthwhile. But then I guess clients wouldn’t want to be doing this directly themselves....

    Reply

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