Agency Trading Desks – Focus on Risk, Not Price

Bharad Ramesh, chief analyst at media advisory firm eMVC (and ex-VivaKi and GroupM Asia veteran), asks the question: ‘How many advertisers will choose transparency if it costs them 10% more?’

The intense conversation on price transparency in agency trading desks puts the cart before the horse.

Transparency (or the lack of) is not the key reason why clients don’t increase their digital spends. But the chorus of voices - primarily media auditors & trade press - will continue to gnaw at the topic, as it makes for entertaining reading and panel discussions.

Advertisers have the right to know how and where their media money is spent, plus what they get for it. It was easier in an era of linear media. It is much harder to detail the value chain in digital media.

A few global advertisers are ahead of the curve on this, but most aren’t, and media auditors who are measuring digital costs using TV and press templates, (no, really!) are of no help.

Advertisers have no excuse in having a sloppy media agency commercial agreement. They have access to far greater media, legal, financial and commercial talent than any media agency. Once the contract is inked, the agency groups are pretty much in compliance with it. So get the contracts right!

All trading desks have clearly articulated their modus operandi publicly and privately. No one can accuse GroupM’s Xaxis or Vivaki’s AoD of hiding how they do their jobs.  Presumably advertisers have selected their media agency after reviewing their options.

Also if they have chosen an agency group that operates a non-transparent trading desk, it is because they have chosen an approach that does a better job of achieving their digital goals than the alternatives. How many advertisers will choose transparency if it costs 10% more?

The issue is when advertisers, particularly local and mid-size advertisers, have not been told that their buys are being routed through the in-house agency trading desk. Or that their agency owns the inventory and is reselling it. That is, the lack of transparency. The agency could be contract compliant but trust is irrevocably eroded.

The focus on price, because that’s where the ‘savings’ are, is distracting advertisers from the larger and significant risks.

1. It’s the Data duh! - Very few advertisers spend the time and effort in understanding or negotiating what the agency holding groups do with the user data that is collected by the trading desks.  It’s mostly because advertisers haven’t set the right measurement and benchmarks for digital media in the first place, and are all at sea when discussing digital data. It is not uncommon that they don’t have an infrastructure to deal with the data trail created by their digital activities. Arguably agencies are ahead of advertisers in this area.

2. The Slippery Slope – Allowing agencies to be non-transparent in one particular media is a slippery slope. Soon, the principle will extend to traditional media where costs are getting lower in every pitch.  TV is already on its way to being part of trading desks inventory. Agencies are already taking positions in TV inventory via content, if not outright. A few percentage points of savings on traditional media delivers far more to the bottom line than double-digit savings on the smaller digital spend. The size of the prize is too big for this not to happen.

3. Beware of the Lehman moment – Once agencies start taking positions in media (digital and traditional) to make money and be competitive in the marketplace, the genie is out of the bag. Agencies will make hard commitments to media owners in all sorts of countries, based on the projected ad spends by their clients. All it requires is for the bottom to fall out of the market, as it did six years ago with advertisers slashing spend overnight, and for media owners to call-in their debts. The media agency and its parent group (plus their clients) will all be in real trouble.  This is not an unlikely scenario as one imagines. Greece, Spain & Portugal come to my mind.

How advertisers deal with the topic of transparency depends on their own circumstances.

Where they are on their digital journey?

How are they currently managing their agency relationships?

Do they need the agency scale, or does the agency need them?

There is no one-size fits all approach. There are many shades of grey in these conversations. Advertisers need to have their questions answered.

However, the constant chatter by vested stake-holders that conflates media agencies with money-laundering mobsters is not helpful in pushing the digital agenda forward.