The ad tech world isn’t very glamorous, but it does have a version of the velvet rope: preferred vendor status.

This agency “safe list” was highlighted by the recent Association of National Advertisers report, which revealed some of the unsavory deals and compromises that have become commonplace. Preferred vendors were one of those practices that stood out as particularly ripe for fraud, where agencies sought exclusive deals with ad tech suppliers, promising them a piece of advertisers’ spending in exchange for discounts, which may or may not have benefitted the clients.

Ad tech players who specialize in programmatic, data management, mobile, display and social, the whole ecosystem sprouting up around serving ads online, either play ball or get shut out. With that in mind, here’s what you should know about preferred vendors and how they work.

Why are there preferred vendors?
These are special arrangements between agencies and the ad tech companies. The agencies want tech partners on demand for their advertisers to use their services, and preferred partners are more trusted. It’s easier for a harried media planner to choose from a winnowed list — and holding companies negotiate discounts.

“Those preferred vendor lists and agreements give us a level of comfort that the company we’re working with won’t go away overnight and what kind of partnership we want to forge mid- and long-term. There’s usually some form of financial efficiency and incentive as well, in terms of lower costs based on the volume of work we do,” said one agency executive.

How do they work?
The agency or media company makes exclusive arrangements with ad tech players across the spectrum. These are companies that can help manage their advertisers’ data, execute online ad buys, measure their campaign performances, and other programmatic ad services. There are so many specialties that advertisers rely on the agencies’ expertise making these decisions, and the preferred vendors are at the top of the list as partners.

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“We are usually pretty selective and if we’re playing in the space, we’re working with the top five revenue-wise, for most of our clients,” the agency executive said.

How important is it for an ad tech startup to be a preferred vendor?
It’s essential. Ad tech startups can struggle to compete if they can’t get on a fast-track into agency hearts. Many media planners won’t take meetings with vendors not on the pre-approved lists.

“Agencies are just not going to work with you if you can’t provide rebates and discounts. They funnel their advertisers to the usual suspects and no new smaller companies are able to crack it,” said a former employee from a major media holding company.

So this is just a bribe?
Not so fast. Getting on a preferred vendor list usually just means you get to pitch the business. It’s a foot in the door, but hardly a guarantee of business.

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“We fought and clawed for them,” one vendor said of his company’s deals. “We have to keep selling.”

This doesn’t sound too bad, why have preferred vendors become an issue?
The industry practices around preferred vendors are what can be troubling. Agencies can squeeze digital supply-side sources for discounts on ad inventory in order to work with them, and the advertising client might not see those discounts.

Agency leaders have been accused, anonymously, of asking ad tech startups for stock shares in exchange for steering business their way. Agencies have also been accused of preferring ad tech providers that they own, benefitting their own properties and charging advertisers for the extra services.

That is shady, why do ad tech companies play along?
Well, they’re not blameless. In fact, the ad tech startups have been known to offer anything they can to get on preferred vendor lists. Some are willing to provide discounts and kickbacks for agency help driving business their way. If an agency wants Super Bowl tickets, they get Super bowl tickets. That’s just how it works, and many startups begrudgingly play along.

“We’ve been dealing with this for years, and we want to compete on merits. We’re trying to build a good product and not have to deal with this crap,” said one ad tech supplier.

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