The New, New Agency Model

Is Your Digital Agency Configured for Success?

With all the new technology and access to data, you would think running a digital agency in 2011 would be tempting. After speaking with a few hundred digital agency principals over the last several years, I think I would rather work at a car wash. At least you are outdoors doing low-value repetitive tasks. Let me explain.

I think most digital agencies were started by really smart people who saw the opportunity to provide their clients with the “magic” of media. Interactive ads, true measurement, real user engagement, ROI, and cross-platform messaging that reached consumers where brands wanted to be found. That is still true. The early ones nurtured their accounts from direct mail to e-mail, and then from broadcast into the web, a little budget at a time. When digital media truly arrived, digital agencies were at the vanguard of a new era: technology-driven creative shops and data-driven media agencies that crammed brand messages into the 728×90 mini billboards we love to hate, but occasionally produced some real internet marketing magic.

After a while, the magic was gone.

Digital campaigns have a tendency to suck every penny of margin out of an agency. The client wants to serve rich media, but doesn’t want to pay for it. They have $50,000 to spend but they want 10 A-tier sites on a plan, all of which have a $25,000 minimum. They want to run 5 creatives per placement, and switch them every two days, based on performance. They need their ads pixeled, and hooked up to their Google Analytics platform, which reports traffic numbers that never match up with their ad server. Then they want to know why. Most importantly, they want to be billed correctly, and that means making demand-side and publisher-side ad servers talk together, and agree on impression amounts (which, from my experience over the last 15 years, has never happened once). That’s an awful lot of work.


That’s why (as the 4As reports), digital margins can be 10 times lower than the margins on traditional media campaigns. That’s called mucho trabajo, poco dinero. Since digital agencies don’t seem to be going away anytime soon, they are going to have to figure out how to make more margins from their business, rather than leverage the traditional agency model of overworking extremely young employees until they burn out (essentially, the mucho trabajo, poco dinero cheap labor model). Here are a few things the modern digital shop must embrace for long term success:

1)      Use a Platform (or two): I paraphrase from David Kenny’s remarkable keynote address at the OMMA 2010, “if you are still using people to do work that servers can do, you are already irrelevant.” What value is there in providing ad operations for your clients (none, they just want their ads to work properly). How about reconciling and billing against different delivery numbers? Again, how does that provide value for your client? Those are low-value tasks that must be accomplished, but things that don’t make you a better agency for your clients. There are many systems out there that can centralize these low-value tasks (ad trafficking, billing reconciliation, reporting, etc) so your agency can focus on your clients.

2)      Hire some Nerds: I’m talking about math nerds. Media used to be about finding audience based on panel-based surveys. Now, media is about finding audience by using data, and then using performance and audience measurement data to perfect that audience—and using quantitative analytics to bid on that audience and optimize your results. Since media seems to be about understanding and leveraging data, you are going to need a few people who speak the language. They aren’t the same old English majors from liberal arts colleges in the northeast, either. And the good ones are expensive.

3)      Be Strategic: This sounds obvious, but sometimes the definition of “strategic” gets lost in the weeds when it comes to digital. Sometimes, an agency feels it is being “strategic” when they partner with enough technology companies that offer their clients a variety of digital tactics (social, video, mobile). But having those partnerships and capabilities is far different than using them smartly, in a way that gives your shop the edge over your competition (they have access to all the same technology as you do). True strategy involves finding what works for your clients and creating repeatable processes that lead to long term success. When your clients say they “want to do social” are you smart enough to determine whether they simply need access the Facebook API—or are they looking to find their customers through conversational density around their products, such as Buzz Logic offers? How you offer “social” to your clients should come with its own, unique strategic model.

4) Partner: Agencies are really just an extension of their clients, and they should operate that way. Now, we are seeing agencies building their own technology to leverage media buying power (and even earning commissions from inventory sources), and acting a lot like technology and media companies. I’m not sure (at least for media agencies) this is sustainable. Building great creative that drives forward brands (whether through sales, or just audience exposure) is key—and finding new audience to interact with those brands in the new multiple screen world is where the core competency of today’s digital agency should be. Let the technologists build the technology. They are happy to let you use it, and willing to partner (with both their technology and people) to share success.

Looking around at all the different technology available to digital agencies these days, we aren’t far away from when starting an effective campaign, building amazing creative, deploying it to the exact audience you need, measuring it, optimizing it, and billing it will be as simple as….well, doing it on Facebook. That means that, once you and every other agency begin to avail yourself of that technology, you better be left with something unique to sell your clients.

[This article appeared in ClickZ on 2/18/11]

PLATFORM WARS #4: Ecosystem Bubble?

The Coming Consolidation of the “Digital Display Technology Landscape”

If I had to pick “bravest guy in this business” I would pick Luma Partners banker Terence Kawaja. Back when he was at GCA Savvian, he tried to actually put the business of digital display advertising into one 8 ½ by 11 document, and give it some order. Ever since then, every technology executive, VC, industry analyst, and agency executive has been waving it around like a flag. It’s kind of like those illustrated town maps, where some guy paints Main Street, and every business with $300 gets a spot on the map, along with their logo and maybe even a cartoon depiction of the owner.

Our map, festooned with what I have been calling “logo vomit” contains several hundred microscopic logos, broken out into various categories that our industry has sub-segmented into, bracketed by the ever-powerful “advertisers” and “publishers” on each end. It’s not quite accurate. If importance were the measure by which logos were sized in the “landscape” sandwich, then the bread would be 10 inches thick and the companies in between would be mere condiments, with a cornichon-sized AppNexus in the middle. The influence of Gorilla-sized agency holding companies like WPP and elephant-sized “publishers” like Google are not properly represented.

Little red dotted lines encircle those lucky enough to get gobbled up by the bread. Ad exchanges have been a popular acquisition target (after all, someone has to figure out how to sell commoditized inventory. Ad servers even more so (that’s where the data comes from and, looking at the map, data seems to be the glue that binds the murky middle of the ecosystem together). So, how about all of those wonderful companies in the middle?

Some of those companies are struggling. A few are doing pretty well. Most (at least those that have been VC funded) are looking forward to Gobble Day, when Google writes them a check at a valuation that ignores their upside down cap table, and lets their founders avoid the inevitable cram down from yet another round of venture funding. Many of the companies in the middle will not survive. I’m not sure, but maybe there is a bubble in the Ecosystem. Certainly, it is tough to see it growing any bigger.

Data: A healthy supply of good audience targeting data (Experian, TargusInfo) is the foundation of the Ecosystem. As you will note, most of the players have been around for a long time, and they are going to quickly assimilate any new players with interesting data sets. What will slim down is the Data Aggregators category. Agencies don’t care who provides the data, as long as it works, and most players just spin the same data everyone else has. The company that can build the best hooks into inventory supplies wins, and they win by creating implementation “friendly” APIs. End of story. Companies like Exelate and Bizo seem to be executing well.  Other companies are struggling to get integrated into next generation systems such as AppNexus, and are starting to reconfigure their business models to align with the world of ubiquitous data usage. The winners are going to be the companies that are also configured to survive the coming legislative tsunami, and let companies bring their own data to the party (both publishers and advertisers). The work that Quantcast is doing in this area is very intriguing.

Creative Optimization: This area of the Ecosystem is interesting for a few reasons. In a world of commoditized inventory and data, it is the stories that agencies can tell that become important. In other words, the creative. Since not every agency can build viral ads on demand, a certain amount of technology is going to be necessary to wring performance from the most critical part of the value chain: the ad itself. People want targeted ads, and creative optimization can magically deliver me a coupon to my local Whole Foods since it knows I live in area code 11743, then I become a happier consumer. The problem? Doing creative optimization correctly—and in a way that an agency is willing to dedicate the time to—is very hard. Not many of these smaller companies will survive, because doing it right needs very tight ad server integration. Look for companies like MediaMind to start dominating here. Tumri is another one that is starting to unlock the puzzle.

Media Management: Companies in my little corner of the Ecosystem map (I work for TRAFFIQ) were very proud recently to get a category upgrade (we were once lumped in with “Ad Operations”). This is another highly interesting area of the map. You have the big legacy companies like DDS trying to find relevance with their digital offerings, and smaller start ups like Facilitate and TRAFFIQ providing disruption in the space, and media arbitrage companies like Centro pulling their technology forward with “self serve” platforms. Winners here will be the companies that can quickly centralize the cumbersome process of digital media workflow, create access to the systems that agencies depend on (data, serving, billing), and find a pricing model that continues to enable efficiency. These companies are in the business of using technology to try and lasso the disparate parts of the Ecosystem together, so this is a fun space to watch. Success here will be time- and capital-intensive, but the winners will be a part of every media transaction—on both sides—so the potential spoils are large.

Media Buying Desks: This is another fascinating area. A lot of conversation in the space has been around the Cadreons, Vivakis, and Adnetiks of the world. When you can leverage that much demand and tailor a technology platform just for your agency, that is the type of “start-up” build-out anyone would like to be a part of. I wonder how sustainable it is, however. Whether the technology is proprietary, or has been built on top of other DSPs, I am not sure closed systems can truly succeed in a world of open standards. With AppNexus, suddenly the formerly closed world of exchange trading gets more democratized, and you’ll see other platforms adopt this type of technology—and start to create their own pipes into exchange streams. Big agency buying desks are not going away anytime soon—but more competition is on the way, which may lessen their ability to dominate the space.

Retargeting: This area has been hot, but do we really need 10 different companies that can serve an ad to someone who has been on your website before? The better companies (and those built specifically for seamless integration into existing media systems) will find themselves to be nice tuck-ins for larger technology players. The name “retargeting” alone suggests more of a capability, than a category onto itself.

Networks: The “Custom” and “Targeted” networks in the map are surrounded on all sides. Both loved and hated by our industry for so long, networks continue to give both sides of the aisle what we want, when we want it. For the demand side, networks offer cheap, targeted inventory available in a variety of flavors (contextual, behavioral), and a one-stop shop for hundreds of publishers. For the supply side, networks were the magic money machine. Simply drop some javascript, and wait for your check. Networks basically enabled publishers, in their never-ending quest to append every page on the internet with a banner ad, to devalue their entire inventory (but that’s another article). These days, agencies are coming to the table with their own data, own way to measure performance, and a desire to bid on audience in real time, rather than have it packaged for them. The networks that survive must find a way to (profitably) plug into trading desks and DSPs—and offer a unique type of targeting ability. A tall order. Here, quality counts. Companies that have exchange trading in their DNA (Contextweb) are poised to succeed in this new ecosystem, as well as vertical networks that have curated high quality content sources (Glam).

Some larger trends to look out for:

–          Data: Legislation is going to be a fact of life, and it’s going to shrink available audience pools, and make data segmentation and targeting much harder and more expensive. As a publisher, you need to own the customer relationship and his data. As a technology enabler, you need to make sure you can let your advertiser bring his own data to the table, rather than relying on third parties. That’s what makes Facebook so powerful.

–          Power and Control: It doesn’t seem fair, but the companies that use technology to give the “bread” of the Ecosystem sandwich (Advertisers and Publishers) more power and control will win. You can’t “disintermediate” advertisers like P&G. They know more about their audience than we ever will. But, we can partner with their agencies so let them leverage technology to be more successful. Same with publishers. How can you help the content players understand their audiences, and package them in a way that lets them value them properly? The technology companies that partner with publishers to do that (rather than encourage them to “monetize” more of their cheap content) are also going to win.

The Landscape is ever changing, and we should all thank Terence Kawaja for putting his map on Slideshare and updating it frequently. He’s going to be busy doing that for a while, it seems.

Chris O’Hara works for TRAFFIQ, a web-based workflow solution for digital media, where he is responsible for business development and marketing. He can be reached through his blog at www.chrisohara.com

[This article appeared on 17 February in Adotas]