Spending through WPP’s trading desk Xaxis has slowed in western markets recently, as advertisers instead seek alternatives that provide more transparency. But in eastern markets, where scrutiny isn’t as sharp, the Xaxis business is in rude health.
China has gone from being Xaxis’ seventh-largest market to its second over the last two years, according to CEO Nicolas Bidon. It’s a key part of the trading desk’s growth, he said, as more money in the APAC region flows into programmatic media.
WPP doesn’t break out financial information for its trading desk, but for the first nine months of 2018, its revenue growth was in the high single digits, its chief financial officer, Paul Richardson, said last October. It would’ve grown faster if business hadn’t “decelerated” in Xaxis’ more mature markets, said Bidon. Concerns over hidden fees, data provenance and fraud in online advertising have put Xaxis’ non-disclosed model — which doesn’t always disclose margins or details of how transactions work — under increased scrutiny, Bidon said.
That level of scrutiny isn’t as prevalent across APAC as it is in the West. According to a consultant who operates in the region, the non-disclosed programmatic model is still sold to many marketers on the basis of cheaper media. Some of those marketers aren’t even aware they have a non-disclosed deal with their trading desk because the agreement has been brokered at a regional or global level, the consultant said on condition of anonymity, adding, “Asian markets are more lucrative for the non-disclosed approach than in the U.S. and the U.K. where there is more awareness of the issues.”
Xaxis’ growth isn’t entirely down to how seriously advertisers’ take transparent media buying. It also stems from the robust economies of markets like China and India, said Bidon. China’s ad market will be worth $90 billion in 2019, according to GroupM’s forecasts, second only to the U.S. market globally and doubling in size since 2010.
It remains to be seen, however, whether markets like China, India, Australia can grow fast and big enough to offset the slowdown in the West, where some argue that Xaxis has delivered short-term profit for WPP at the cost of a long-term hit to the reputation of the whole network, according to the six advertising executives interviewed for this article.
One former marketer revealed on condition of anonymity that they stopped working with the trading desk nine years ago during the halcyon days of programmatic as they believed the margin being made on their money was as high as 30 percent. Those suspicions haven’t gone away. Advertisers get worried about what goes on under the bonnet of Xaxis, said Ruben Schreurs, managing partner at digital media consulting firm Digital Decisions. Many clients subsequently move away from the non-disclosed model out of concern for transparency, ownership of data and the protection of it.
“A lot of those concerns among advertisers go away if you can clearly agree with them upfront the right way to measure whether their digital investments deliver proper business outcomes,” said Bidon. “We’re a billion dollar business growing at a double-digit rate, so I’d be hard-pressed to say the agency trading desk model is dead. It does, however, need to evolve.”
Scrapping the non-disclosed model completely would leave too much money on the table in both the largest and fastest growing markets for Xaxis. Instead, the business is focused on finding ways to attribute the outcome to its activity. Outcome-based remuneration is high on the agenda of many multinational brands preparing for zero-based budgeting like Unilever and Duracell.
For Ford, the trading desk reveals the percentage it makes on the working media it buys for the advertiser but doesn’t break down costs such as the technology, data and analytics used to target specific audiences online, said Bidon. Ford’s investment with the Xaxis has “grown strongly” off the back of the approach to the point where it’s the trading desk’s largest global account, he said. “I think we’ll see more of those types of arrangements with clients,” Bidon said.
Much of that demand will be dependent on whether advertisers see any value in knowing the full cost chain of their programmatic buys. A deal like Ford’s model leaves room for suspicion that Xaxis could mark up its technology, data and analytics costs, which could lead to a much lower actual working media share than the client might think.
While plenty of advertisers are still comfortable with buying through Xaxis’ non-disclosed model, a shift toward a more disclosed method of buying has been bubbling away since 2012 when the prospect of programmatic moving in-house to brands first became an issue for agencies. Xaxis has made some concessions in the years since such as allowing some advertisers and their individual agencies to buy directly from the trading desk without it controlling the entire buying process. Despite those changes, Xaxis finds itself at a crossroads seven years later.
WPP CEO Mark Read was one of the architects of Xaxis when it launched in 2011, and yet during his strategy update last month, there was little mention of how the business he helped create fit into his plans.
“We have to prove ourselves, and as long we deliver better outcomes for clients, I think that the model will continue to be a success,” said Bidon. “The reality is we’ve been growing the business at double-digit rates for the last two years and have won great new clients like BMW, Nationwide, Office Depot and Huawei in that time. The business is in really good shape and is the fastest-growing part of GroupM on a global level.”