After months of pizza-fueled late-night planning sessions, scores of PowerPoint presentations and thousands of dollars' worth of people hours, an agency pitch team takes a collective deep breath and waits by the phone. It rings. On the other end of the line is not the expected decision, but the potential client's procurement officer with one more step: an electronic auction.
E-auctions, long a practice for companies buying office supplies, furniture or even real estate, are increasingly cropping up in the marketing-services space, no doubt the result of procurement's increased focus on agency pitches and assignments.
Here's how one works: Senior agency execs -- often the chief financial officer, the CEO and the top new-business folks -- receive a link for signing into what looks like an online chat room. In minutes, this room transforms into a live auction in which the finalists are not negotiating rates with clients but underbidding one another until they can't drop their rates any lower.
These e-auctions are generating short-term savings for procurement executives, but criticism from agencies that say the practice devalues their talent.
Procurement executives typically trigger the auction, often held toward the end of the review process, for one of three cost targets: hourly rates of individual full-time employee positions (such as the account director, lead buyer, creative director); a lump sum that might include the combined cost of the budget and fees; or commission fees tied to the cost of buying media.
As the practice has inched into the advertising world, some vendors of e-auction software are tweaking offerings to work better with a services industry.
"One big hurdle we had to overcome was that sophisticated buyers have deep relationships with the people they're buying from," said Sean Correll, director of consulting and education services at IBM Emptoris, which offers e-auction services. "For them, it's about more than just price."
Adding that , "in the last five years, we've been bringing qualitative metrics into the bidding process," Mr. Correll explained that this is one of the factors driving demand for the product's agency-review function.
Depending on the model, agencies might be able to see only how they're ranked on a scale of the highest and lowest bids. In other cases, they might be able to view all competing bids.
The results provide the client with a way to benchmark the cost of different agencies. In some cases only the lowest bidders can win the business or make it to the next round.
A number of agency executives warn that when talent and creative work are treated as commodities in e-auctions, marketers risk getting less than they bargained for.
"Technology allows us to identify opportunities where we can realize efficiencies, [but] we have to question when is [it] the best use of those tools," said Brett Colbert, chief procurement officer for agency holding company MDC Partners.
Bidding wars can give agencies an incentive to overpromise and under deliver. If a client mandates a certain number of people on its team at a specific level, but the agency overly discounts that employee's hourly rate to win the auction, the agency will have to either pay for that talent itself and take a loss or prematurely promote a junior-level executive to the senior level required by the client. In the end, the work is never up to par, noted one agency executive, who has been through a number of e-bidding processes.
"A cheaper version of ourselves certainly isn't always the best objective," said Mr. Colbert. "Media is a commodity; people aren't. Equipment rental is a commodity; talent is not. It's never been a commodity."