Agency trading desks are a bright spot within most agency holding companies. They’re proof that ad companies can cobble together technology to win back margins that they’ve seen vanish over the years.
But trouble could be on the horizon. As the volume of budget allocated to real-time and audience-based buying continues to grow, clients are beginning to think more carefully about where their money is going, and the relationships between their agencies and the technologies they choose to utilize. After all, there’s something inherently fishy about an agency that’s supposed to be unbiased funneling money through a vendor that’s a sister company.
“A lot of the clients I speak with are becoming more and more concerned about the mandates and conflicts of interest,” said Joanna O’Connell, a senior analyst at Forrester who helped build Publicis’s AOD trading desk technology during her time working at Razorfish.
“Some of the clients are starting to wake up to the fact their trust is being sold down the river for agency margin,” added Zach Coelius, CEO of demand-side platform Triggit, which essentially competes with trading desks for agency-controlled budget. “Agencies created the problem themselves, and they’re going to have clients starting to get very unhappy about it.”
In theory there’s nothing wrong with holding companies supplying their agencies with buying technology. After all, “agents” within their networks are acting in the best interests of their clients, and are free to use whichever vendor best suits their interests, whether it’s owned by the parent or not.
The problem is, they aren’t. As Digiday reported last year, some holding companies instruct their agencies to use in-house solutions exclusively, and even in those instances where it’s not a formal requirement there’s still a potential conflict of interest at play. Client money is getting spent on proprietary technology regardless of whether or not it’s the best solution on offer.
But as clients themselves become more familiar with real-time media buying they’re beginning to ask difficult questions, which could pose problems for agencies. Procurement is a fact of life for agencies — that’s not going to change — and inevitably it exerts pressure on vendor margins.
“You can look at it one way and say agencies are creating greater margins in order to reinvest in innovation, but perhaps their intentions are less pure and they just want to charge twice and make more money,” said O’Connell. “Clients are starting to look at it and think it’s the latter. Some are just walking away because they feel they’re being exploited.”
There are few who would argue that trading desks are a bad innovation. They perform an important role, similar to the one ad networks filled until the rise of automated trading systems. It makes sense for agency holding groups to piece together technology in order to more efficiently buy media.
The problem ends up being one of the business model. On the one hand, agencies have people-dependent processes, which clients pay for, and on the other automated processes, which clients also pay for. In the long term agencies will find it difficult to charge for both.
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“The issue I see is that trading desks are being misused, they should just be the solution that makes a lot of that middle go away,” said one former trading desk executive. “Where there’s bloat and where the double-dipping comes in is the 24 and 25 year-old planners in the system.”
But according to Coelius, clients are getting wiser about their investments in RTB as they begin to grow in size. At least one major brand has pulled its business from Publicis as a result of its behavior, he suggested.
“This’ll come down to clients digging in themselves. We’re starting to see clients wanting to audit the agency trading desks themselves, or opting to go direct to a DSP instead.”
Coelius has a vested interest in those clients doing so, of course, but O’Connell said she’s seeing a similar trend. The trading desk model is good in theory, but the way it’s being implemented is creating a situation in which they’re essentially internal ad networks. That approach is only going to alienate clients in the long run, she said.
“The long-term outlook for that model doesn’t look bright. At a holding company level, I don’t think agency trading desks are a long-term solution.”