Will Machine-Based Ad Buying Kill Media Agencies?

This is the second article in a four-part series on “The Modern Agency in the Machine Age,” which examines the shifting role of the agency in light of ad technology and programmatic buying. This series is made possible through the sponsorship of NextMark.

Programmatic technologies continue to change the way large portions of online ads are bought and sold, and that trend will gather steam in 2013. Whether or not this is a good thing for agencies remains to be seen.

Much has been written about the effects programmatic ad trading could have on publishers, as advertisers snap up impressions more efficiently — and, more to the point, cheaply — than ever before. But agencies, too, run the risk of losing out as machine-powered pipes gain the ability to connect their advertiser clients directly with publishers and exchanges.

This year advertisers dipped their toes in the waters of machine-traded media through their agencies’ trading desks, but the vast majority of their ads were still bought by 20-something media planners on their behalf. As agencies begin to replace those staffers with technology, the incentive for their clients to work with an agency at all could rapidly diminish. After all, they have access to the same technologies as their agencies, at least in theory, so why pay an agency commission?

Agencies are rapidly becoming technology providers for their clients, but as these technologies play a more prominent role in the ad-buying ecosystem, it remains to be seen if they’ll be the ones to fill that need in the long term.

As programmatic buying matures, this issue will become more pronounced. Vikram Somaya, GM of The Weather Company’s data-driven ad-selling unit, Weather FX, predicts as much as 25 percent of online display inventory could be traded programatically by this time next year.

That will have negative repercussions for many publishers in terms of revenues, but it’s worrying agencies, too. They’ve been dealing with disintermediation for a while, he said, and are becoming increasingly worried that technology could serve to cut them out of the process. “They are painfully aware of this,” he said, “and they’re not a principal, which puts them at even more risk.”

Many advertisers say they’re rapidly reaching the conclusion that their first-party data is far more powerful than what they can buy, anyway, so perhaps 2013 will see more of them buying their own technologies and building their own internal resources instead of forking out for agency fees.

Or agencies might begin to play more of a consultative role as they have with social over the past 12 months, helping clients to identify suitable partners and technologies, and train internal staff as opposed to executing buys themselves.

Either way, one thing seems certain: As technology, instead of people, powers the trading of more and more online ads, agencies are going to have to work harder and harder to justify their role in the process or risk being replaced entirely by machines.