As Marketers Take Control of Ad Tech, Complexity Follows

In-House Trading Desks Make Suppliers Into Buyers and Partners Into Rivals

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How Unilever described its Ultra trading desk to investors.
How Unilever described its Ultra trading desk to investors. Credit: Unilever
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As more marketers embrace highly sophisticated, tech-driven digital media buying, more are also building their own systems to do it, with varying involvement from their media agencies. That might seem to simplify things, but the reality is anything but simple as the industry evolves into a complex web of partners, competitors and frenemies.

Realistically, no programmatic trading operation is fully in-house, given that agencies still get involved in some way, be it planning the media strategy, negotiating parameters of private exchanges with media companies or managing trading on platforms owned and overseen by marketers. Managing things internally still draws on outside specialists for help.

One more layer of complexity: A growing number of "in-house" trading desks, including those run by retailers such as Walmart or Target, also buy on behalf of brand marketers who supply their stores. That "inside-out" model is now spreading into other marketing sectors like healthcare.

A significant minority of marketers say they run proprietary trading operations. Thirty-one percent of marketers responding to a survey released last month by the Association of National Advertisers and Forrester Research said they've brought elements of programmatic trading in-house, compared with 79% of respondents who said they use programmatic in some way.

The three biggest global ad spenders—Procter & Gamble Co., Unilever and L'Oréal—either have developed or are developing proprietary technology systems, managed with at least some involvement from their media agencies.

"Last year, people were trying to figure out if programmatic should even be part of what they're doing," said Mike Peralta, CEO of AudienceScience, which helps operate P&G's system. "Now they know programmatic needs to be part of what they need to do, and they need to figure out how they're going to do it."

P&G was among the first to develop an in-house system, firing up an internal system called Hawkeye back in 2010. Within two years, Unilever had its own system, operated by Mindshare. And in an investor presentation last year, Unilever Chief Marketing and Communications Officer Keith Weed credited that system, called Ultra, with giving the company industry-low rates of fraudulent ad impressions in the U.S.

Expect to see more marketers go in-house for that reason, but also many others. "No. 1 was transparency, everything from the cost of the technology to the rates you pay the publishers," said Mark Kaline, who as global media director of Kimberly-Clark Corp. helped develop that company's programmatic trading operations in 2012, managed by Mindshare. Once you own the system, he said, even "if you decide to partner with your agency, you have clearer sight to what you're paying them on an FTE [per full-time equivalent employee] basis."

Data capture and better capability to optimize ad buys down the road also factor in the decision, said Mr. Kaline, now an independent media consultant. K-C decided to own the technology but have Mindshare manage it, he said, "to maintain a tight link to the brand strategy."

By 2014, K-C began taking programmatic trading around the world, though the company still used WPP's multiclient Xaxis trading operation when the economics of going it alone didn't make sense, he said.

Moving programmatic in-house mirrors the trend of marketers doing the same with such creative duties as social media and community manager roles, said Mayur Gupta, senior VP and head of digital at Healthgrades and former global head of marketing technology at K-C.

Since he joined Healthgrades, a healthcare review site that also provides marketing and digital services to the healthcare industry, Mr. Gupta has been handling an in-house programmatic trading operation that, much like the retailers' model, offers services to outside pharmaceutical companies and hospitals, putting him in competition with Publicis Health and other agencies.

In other words, one person's in-house trading desk can be another's media-buying service, and the rise of the ad-buying machines has created a lot more competition for everyone.