Why Agencies Are Better Off Staying Out of the Tech Business
It's no secret that media agencies have come under increasing financial pressure over the past decade. Agency margins seem to be ever-shrinking, while clients simultaneously demand more in terms of technological solutions and service in this increasingly digital marketplace. Meanwhile, agencies were annoyed to see their digital ad network counterparts generate double-digit commissions while aggregating media, traditionally the turf of media agencies.
Many of them were even inspired to grab some of what the networks had—technology. And for a time, certain agencies tried to take the digital display technology in-house, building proprietary platforms. In most cases, this effort has not met with great success. Despite that , the same drumbeat is being sounded by some shops to replicate the effort in digital video, an even steeper mountain to climb, considering video is faster-moving and more technologically complex than display. As tempting as it might be, agencies should pause and reflect for several reasons before becoming tech vendors:
Agencies are in the unique position of being charged with scouring the market for the latest and greatest among all tech providers. They can work with as many different kinds of tech companies possible to find the best solutions for their clients. By investing in and developing in-house technology, agencies lose the ability to work with the best-in-breed in the multiple disciplines required to service a brand marketer in the digital age.
The tech industry is moving too fast to try to predict the next best thing and agencies shouldn't try. One only need to see the meteoric rise of the iPhone and the Android and how they usurped the smart-phone marketplace from the Blackberry. This same dynamic exists in ad tech. Proprietary technology requires a large upfront investment, and as an agency, the quicksilver pace of technological innovation presents too great a risk.
Proprietary technology takes many years to develop, and offers no clear return date—a scenario that most agencies are not set up to support financially. While major holding companies certainly have access to funding, the individual media agencies operate under a client-driven business model that would not accommodate the onerous overhead that goes hand-in-hand with technology investment and development.
Developing technology is not inherent to an agency's DNA. It requires different staffing and different in-house skills that could instead be devoted to what an agency does so well—developing insightful media strategies to fulfill brand objectives that utilize technology, rather than build it.
This is not to say that agencies shouldn't become tech experts. Absolutely, they should.
But rather than disrupting the agency model, 3rd-party ad tech leveraged properly gives agencies the power to go far beyond media aggregation. Merging the combined power of client information, goals and data, agencies become media allocators. In other words, technology allows them to pull together the disparate sources of intelligence and function across their entire agency to make the smartest, most efficient media allocation decisions for their clients. This approach rewards the agency for its expertise and investments in service, secures its importance within the value chain, and most importantly, allows them to provide greater results for their clients.