Programmatic is supposed to bring efficiency to ad buying. But in reality, it’s becoming murky and less reliable for many brands. Most of the time, brands end up paying their agency double and even triple when they collaborate on programmatic.
In today’s installment of our Confession series, where we trade anonymity for honesty, we talked to a programmatic veteran of both agencies and ad tech vendors.
Here are excerpts, lightly edited.
Why did you leave the agency world?
When I was brought up in the business, I was taught to think on behalf of brands because they paid us to be objective about their media buying. But today, it’s more about what’s right for the holding companies first and less about what’s right for the clients. I saw agencies going in a direction that I didn’t agree with.
Agencies are making less money from traditional media and creative. At some point, brands started pushing down margins because they wanted us to handle digital aside from traditional media while they didn’t want to pay more. In response, holding companies started arbitraging media, buying impressions at the price of 25 cents and selling them for $1. Genius, right?
Holding companies started building their own programmatic arms and internally incentivizing media agencies within the network to use their own programmatic service on behalf of clients. Those agencies claim that they are objective. But how objective can they be when they have the pressure from holding companies? Now brands pay agencies media-buying and planning fees. Of course, agencies never tell brands what their margin is. It can be anywhere between 20 percent and 80 percent.
Why don’t marketers push for more transparency?
When brands approach agencies asking for [a more transparent] model, agencies hear from the guy upstairs saying, “When brands reach out to you for the transparent model, you need to sell our own trading desks.”
The biggest beneficiary of agencies not knowing what they are doing is technology vendors. Those companies usually charge somewhere between 5 percent and 10 percent on top of technology fees to run a programmatic campaign. Therefore, “double dipping” is not the worst-case scenario because in many cases, brands may end up paying triple. They pay agencies to run a programmatic campaign, but agencies don’t know how to use the required DSPs and DMPs. So agencies turn to tech vendors to run the programmatic campaign. Some brand clients know that, but some don’t.
If agencies don’t have the know-how, why did brands pay them to manage programmatic in the first place?
Because it’s such a mess right now. Although some big brands are more advanced in programmatic, many are moving very slowly. Meanwhile, taking media planning and buying business away from agencies is a big deal for brands, because legalities and staffing issues could be involved. Today, agencies that can customize a programmatic model for brands don’t exist. So even if brands walk away from their current agencies partners, they will have a hard time finding a new one that can cater to their needs.
Do holding companies’ programmatic arms give them a competitive edge?
I don’t think so. Those guys in Silicon Valley build out new technologies at a speed that holding companies cannot keep up with. Essentially, advertising is a service business, but now agencies are looking to become technology companies. Of course, they can buy technology startups, but it will take years to work.