"Everyone wants to cut out the middle man and see if they can
lock down dollars for themselves," said Christine Peterson, U.S.
group media director for Publicis Groupe agency MRY.
The heightened competition between ad-tech firms and agencies is
generating real market changes. It's pressuring individual agencies
to reposition their strengths and reconsider the costs of their
ad-tech offerings. And it's pushing ad-tech firms to build up
agency-like capabilities to handle accounts.
The trend compelled Quentin George and Brendan Moorcroft to leave
the holding-company media world, where they were integral in the
launch of Interpublic's audience-buying platform Cadreon, and co-found Unbound, a consultancy for brands and
publishers that want their own tech stacks.
"An agency might own a [relationship] with a DSP and get a
better deal, but by and large I think the tech ought to sit with
both publishers and brand marketers," said Mr. George, referring to
demand-side platforms, the technology driving automated buying.
"Agencies and ad-tech companies ... are inherently biased," said
the former chief innovation officer at Interpublic's Mediabrands. Agencies are incentivized to
persuade clients to put money through their trading desks, while
ad-tech companies are incentivized to convince advertisers that
their proposition is as simple as, "Give us a check and we'll give
Unbound is working with three brands that want customized
systems to automate the media-buying and -selling process. One
brand has been outsourcing programmatic spending to ad networks and
ad-tech companies, such as Rocket Fuel, but wants to build its own
system; it doesn't have an agency and doesn't want one. Of the
other two, both of which work with agency trading desks, one wants
to "liberate" more of its organization's data but doesn't feel
comfortable giving that data to its agency's trading desk, and the
other brand is unhappy with the amount of disclosure it gets
regarding how its agency's trading desk makes money.
"What we thought was valuable and proprietary [in the agency] --
the algorithms and bidder -- is the most commoditized part [of the
business]," said Mr. George. "The application of data and
understanding audiences is where real value is."
Ad-tech companies go around agency partners to get in tight with
the clients "all the time" in an attempt to solidify and expand
their businesses, said Jack Southerland, senior VP-director of
client services at agency trading desk Varick Media Management. He wouldn't name
names, but said it tends to be those that "have aggressive business
goals, are VC-backed, trying to go public."
Over the last few years, investor-funded ad-tech companies have
swung from a feast of merger-and-acquisition possibilities to
famine and possibly back again. The ad-tech M&A landscape
exploded in 2011, with 60 deals valued at a total of $4.5 billion,
according to investment bank Coady Diemar Partners, and shrunk to
41 deals totaling $396 million the following year. But through the
first half of 2013, the bank tabulated 34 ad-tech deals raking in a
combined $1.25 billion. Between December 2010 and December 2012, 74
new display-ad-technology companies have popped up to replace the
53 that were acquired, according to investment bank Luma
This new wave of ad-tech companies is "not interested in
profits, just in gaining ground," said Drew Kurth, CEO of
digital-marketing platforms at Publicis Groupe agency Razorfish. "We see them coming in and saying,
"We'll do this for free and it'll be low-cost and low-impact on
your side.' They might do something for free to get a big brand
name on a client list to merchandise."
Clients can cheaply implement and oversee many ad-tech functions
themselves, endangering the fees they paid to full-time agency
employees for overseeing those functions. Razorfish has cut fees it
charges clients for ad-tech services such as dashboard software and
cloud-based hosting services 10% to 20%, said Mr. Kurth.
Agencies like Razorfish say they are making up that lost margin
with more modern data services that require fewer but more
expensive full-time employees and global data services through
partnerships with companies like Adobe. The pitch goes something like this:
While it might be cheaper for clients to deal directly with ad-tech
vendors, their savings will be eaten up by the time and resources
needed to cobble together a global ad-tech ecosystem on their
Agencies are positioning themselves as having the experts who
know how to integrate data and technologies and can build the
platforms that do so.
Scott Hagedorn, CEO of Annalect, the data arm of Omnicom's
media-agency network, said he's most focused on building a system
that can integrate different data sets from separate tech
companies, such Facebook and Google.
Without the right technology, "you can't actively make them work
together," he said.
Long term vs.
"There is no doubt that DSPs are very aggressively lowering their
pricing," said Brian Lesser, CEO of Xaxis, the central data and media-trading
operation for WPP's GroupM. "We are reevaluating our pricing
constantly as the market evolves."
One "large" advertising client went around Xaxis to work
directly with a DSP in an attempt to create "efficiencies," said
Mr. Lesser. But after achieving a short-term boost, the client
realized that it couldn't milk much more out of the arrangement
with the DSP. It returned to Xaxis for audience buying, he said,
but kept the DSP relationship intact for additional support.
"If you have a performance-oriented product ... you will see a
short-term lift if your goal is cost-per-acquisition improvement,"
he said. "But going straight to a DSP, you won't see an increase in
the amount of insight you're getting from a campaign."
Like Razorfish, SapientNitro has lowered the price of certain
ad-tech services as they've been commoditized, shifting fees to
higher-end services, such as helping clients understand the impact
of their spend and analyzing their customer segments, said Serge
Del Grosso, North American media director. "It's about making sure
we're competitively priced on the basic tools and positioning the
attribution component of it as a true value-add and business
driver. One is a machine and one is a strategic overlay."
Sometimes deals benefit both ad-tech vendors and agencies. Agencies
often lay out rules of engagement for ad-tech partners and map out
how the two sides can team up to win new clients. One former agency
trading-desk executive said his firm and others would offer quid
pro quos to DSPs. If a DSP wanted to be the trading desk's primary
automated ad-buying tool or wanted the agency to guarantee to
funnel $1 million a month in ad spending through its system, the
trading desks would ask the DSP for introductions to new clients or
to give the agency first-look at any inbound client inquiries.
Publicis Groupe's ViVaKi explores new-business opportunities
with its ad-tech partners but doesn't formalize such deals,
according to ViVaKi president Kurt Unkel. "To be really
transparent, it's not structured or anything like that," he said,
describing it as a way to bring more clients into the fold to
benefit both sides.
For all their handwringing, agencies are partly to blame for the
competitive environment. When automated ad-buying companies started
popping up and promoting their services to agencies around the
middle of the last decade, holding companies typically picked one
or two to effectively serve as a house tool. "The focus was on
becoming the one [DSP] to rule them all," said Steve Ustaris,
senior VP-marketing at ad-targeting company OwnerIQ.
That didn't happen. Agencies, under pressure to reach
ever-larger audiences for clients, began working with multiple
DSPs. Those DSPs, faced with a shrinking share of advertisers'
online ad budgets, angled for ways to get closer to the advertisers
in order to avoid being cut out.
A tipping point came a few years ago when travel-booking site
Kayak opted to bypass media agencies entirely and work exclusively
with an ad-tech company, MediaMath, for its online-media buying. "That
was one of the first times that happened, and it changed how
everyone viewed the agency-DSP relationship," Mr. Ustaris said.
Then last year MediaMath spun out an agency, Kepler Group, from its core automated
MediaMath has "gone out and tried to sell every agency they can at
this point," said a former agency trading-desk executive. "They
need more agencies out there that are smart about [automated ad
buying] and can't find them." By spinning off Kepler, "it's almost
like creating customers for themselves."
MediaMath rationalized the move as a way to ease any conflict
concerns over its role as a technology provider and the agency-like
services it had been providing some clients, like Kayak. "Kepler is
a trading specialist that supports Kayak and several other clients.
We view them in the same way we see our relationships with
Merkle, Epsilon, Hill Holiday and Razorfish: They are partners
using our technology platform to drive efficiency and greater value
for their clients," MediaMath CEO Joe Zawadzki said in an email,
adding that his company licenses its technology to more than 350
agencies and 700 brands.
Back to the
Ad-tech execs say those agency-like arms are necessary until
existing agencies get up to speed on this computer-based method of
buying media."When something's new in the industry, traditional
companies like agencies don't have that services layer in place;
they don't have all that expertise. So you get companies that wind
up providing both technology and services to them," said Philip
Smolin, senior VP-market solutions at automated ad buyer Turn, MediaMath's foremost independent
To an extent, we may see a return to the early days when an
agency worked with a more select group of ad-tech vendors -- but
maybe not of their choosing. As marketers have become more
technically literate about the space, they are more comfortable
making their own decisions about which ad-tech companies power
their online media-buying operation and are tapping their agencies
to oversee it.
Unilever and Kimberly-Clark
Corp. in the past year have moved to create their own standalone
data-management platforms and trading desks, working with WPP's
Mindshare but staying separate from WPP's
centralized Xaxis trading desk.
"Ad networks have gone to clients saying, "We can do all your
buying' ... [but] realize they're not set up to account manage a
client," said Tom Potts, head of media at independent digital shop
Profero. That's where the agency comes in,
serving as the layer between tech provider and marketer.
"If you want to just add more and more partners to the table as
a client, at some point someone starts saying, "There's a lot of
complexity here; who's in charge?'" said ViVaKi's Mr. Unkel.