The Consequences of the Gift Economy of Online Ad Sales

Custom jeans and sneaker parties, spa days, shopping trips, dinners, golf, private parties, baseball and football games are just some of the favorites in the ad sellers’ arsenal. Yahoo, AOL and Undertone also entertain buyers throughout the summer at houses in the Hamptons, while others prefer to fly them out to ski resorts or music festivals further from the city. If that doesn’t work, they’ll often just offer to do their work for them, putting together media plans on their behalf and, of course, writing themselves in.

This is par for the course in the media world. And yet, for all the talk of laser targeting, accountability and complex ad systems, digital media is somehow thought to be different. It isn’t. Relationships, not algorithms, decide where most ad dollars go.

And there’s a reason the Yahoos, AOLs, Googles and Microsofts of the world enjoy the most lucrative agency relationships. It’s because they can afford to. It’s a self-perpetuating cycle that helps explain why the lion’s share of ad spend is distributed across just a handful of major players. Despite the strength of their offerings, smaller companies simply can’t compete. Those that do manage to secure a 30-minute meeting with an agency, usually with the promise of gift cards, are lucky if their audience sticks around for more than half of it.

Agencies have taken steps to rein in some excesses of the ad-sales gift economy. Most have rules with limits on the value and type of gifts and entertainment their staffers are allowed to accept. Does staff always follow those rules? Well, that’s another story.

“We have an official online gift registry, which staff have to use to get approval before accepting most kinds of hospitality,” said Rob Norman, GroupM CEO. “We set rules. We think they are appropriate and are designed to prevent decisions being made under undue influence,” he added, but he refused to comment specifically on what those rules and policies outline.

All major agencies claim to have similar restrictions around what and how their staff is allowed to accept as gifts and entertainment. But in reality, they choose to turn a blind eye in most cases, often using the phenomenon to their advantage.

What media agency jobs, particularly at the low level, lack in salary they make up for in rooftop parties and VIP concerts. Agencies themselves market jobs to prospective employees – many of whom are just out of college — on that basis. The pitch: Sure, you could make more money in other industries, but will you get court-side tickets and regular meals at Nobu? Agencies know they can offer $15,000 less than comparable roles in other industries and essentially supplement salary with the promise of perks.

This is, in some ways, a business-model decision. Lower staffing overheads means bigger margins and bigger profits. But the flipside of that trend is a potential dumbing down of the media-buying community, about which both agencies and vendors should be concerned. Marketing is already looked at warily in many corporations. The idea of their agents living high on the hog based on the spending power they have from client budgets won’t help.

The industry prides itself on the fact that technology makes digital media more efficient and effective than other channels, but it’s becoming harder for buyers to make decisions for the right reasons. Smaller publishers, vendors and technology providers don’t stand much of a chance against the big boys. Their lunch and learns are outgunned by tickets to playoff games and the Super Bowl.

The result is a threat to innovation. Although competition in the market is healthier than ever in dollar terms, buyers are encouraged to play it safe and work repeatedly with the vendors they already know, often safe in the knowledge that some form of kickback will be headed their way if they do.

But it’s not necessarily the fault of media buyers themselves; it’s a systemic problem. Many aren’t trained or experienced enough to have a deep understanding of the nuances between different platforms, networks and technologies, and since they rarely answer their phones and frequently make decisions based on relationships over all else, it’s a vicious circle.

They’re overworked and underpaid, and given little incentive to spend time and effort fielding pitches from unknown vendors when they know they can get the job done with one call to an existing contact.

Younger buyers often have a limited understanding of real-time bidding and exchanged-based buying, for example. Even agency trading desks complain about their inability to compete with networks for the attention of buyers within their own organizations.

But perhaps that underscores the real point at play here: Agencies aren’t investing in people; they’re investing in technology. Ultimately, the entire digital media-buying process is completely inefficient, owing the human interaction that powers it. Media buys currently take numerous calls, emails, spreadsheets and two-hour lunches before any money is actually spent, but ad technology is changing all that.

Automated trading still accounts for a small fraction of overall online ad spend. But sooner or later that balance will tip, and agencies know it. There’s a diminishing need for an expensive, slow, unpredictable human workforce when technology can do a better job at the fractions of the cost.

For the moment, therefore, the “gift economy” makes sense, both for agencies and the vendors that can afford to power it. But ultimately, the fact of the matter is, the industry is changing. Clients are demanding more accountability, and the old way of doing things isn’t going to cut it.