"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today's column is written by Paul Turner, head of international at Adaptly.
For a long time it's felt as though the traditional digital agency and ad-tech vendor model has been strained.
The major driving force behind this strain has been the increasing democratization of media, in particular the emergence of real-time technology where scale rarely outmuscles "trading" intelligence and the ability to execute.
While many have heralded this as the potential spark that may lead to the collapse of the traditional agency model, it's clear that, like many ad networks, agencies will continue to evolve and build on their historic positions of strength to invest in areas that deliver value. Increasingly it's clear that this next wave of evolution needs to encompass much deeper ties between agencies and ad-tech companies.
A Historic Divide
On the whole, agencies have historically kept technology companies at arm’s length. The vendor pitches its solution, the agency sees an opportunity to test the solution and then spends time hammering down the price. Although this model potentially works well in heavily commoditized spaces with little room for true product innovation, such as search, it becomes more difficult in newly emerging channels like social. It's increasingly obvious that with the complexity associated with translating marketing objectives into executable and meaningful social media plans, agencies and technology companies need to adopt a different approach.
Before, clients were less inclined to understand all that could be done within a channel and relied on the agency to furnish them with knowledge. Today we see that many brands prefer to go direct or at least create a three-way dialogue with the brand, agency and technology company in the room, which in many cases may include representation from the social network.
A motivating factor behind this trend has been the fact that many vertically specialized ad-tech companies simply cannot survive on the squeezed margins agencies demand and are therefore forced to pitch direct. Many DSPs – this is a loose definition, as most DSPs are actually networks – still make far more of their margin by working direct than through an agency. This higher overall margin, or pure dollars, is often more a case of being better placed to scale spending rather than taking higher-percentage fees. That said, many well-known ad-tech companies do still work on an arbitrage model to supplement their technology business.
Mutualism: When Two Species Benefit From The Relationship
So where do we go from here? Having worked on the vendor side for years, I would encourage agencies to continue building partnerships with technology companies that can bring additional expertise and value to their offering. Focusing on simply reducing the margin in order to make more money through efficiencies is becoming increasingly unsustainable in an industry where innovation, technology scale and intelligence are highly valued. It also means that the technology supplier is less inclined to invest in engineering and development resources in order to provide the agency with the best possible tool for its clients.
Instead, agencies should determine the added value true partnership brings and seek to work symbiotically to create a win-win situation for all involved. In many cases this means breaking down the traditional ways in which agencies and vendors interact. It also means that the agency increasingly needs to be more open with clients, to freely explain that through meaningful partnerships with the right companies, the agency can in fact better service the brand.
These partnerships can work well, but they require a new thought process and the creation of a symbiotic relationship where both can benefit from the association.