Complexity is the Digital Agency’s Best Friend

Agencies are afraid of change, but change always happens. Is your manual workflow a "red stapler?"

Agencies are afraid of change, but change always happens. Is your manual workflow a “red stapler?”

But Solving the Right Problems are the Key to the Future

I once heard Terence Kawaja remark that “complexity is the agency’s best friend.” It’s hard to argue with that. Early digital agencies were necessary because doing things like running e-mail campaigns, building websites, and buying banner ads were really complicated. You needed nerdy guys who knew how to write HTML and understood what “Atlas” did. Companies like Operative grew admirable services businesses that took advantage of the fact that trafficking banner ads really sucked, and large publishers couldn’t be bothered to build those capabilities internally. The early days were great times for digital agencies. They were solving real problems.

Fast forward 13 years. Digital agencies are still thriving, mostly by unpacking other types of complexity. “Social media experts” were created to consult marketers on the new social marketing channel, “trading desks” launched to leverage the explosion of incomprehensible RTB systems, and terms like “paid, owned, and earned” were coined to complexify digital options. It’s hard being a marketer. So much easier to hand the digital keys over to an agency, and have them figure it all out.

Some of that complexity is dying, though.

Have you ever done any advertising on Google? It’s not that hard. You can get pretty good at search engine marketing quickly, and it doesn’t take anything more than common sense, an internet connection, and a credit card to start. Facebook advertising? Also dead easy. Facebook’s self-service platform is so intuitive that even the most hopeless Luddite can target to levels of granularity so minute that you can use it to reach a single individual. Today’s platforms leverage data and offer great user interfaces and user experience mechanisms to make the complex simple.

This has created the OpenTable effect. Remember when you had to call 8 different restaurants to get a Valentine’s Day reservation? What a pain in the ass. I used to always get to it late, and usually spend a few hours getting rejected before finding a table somewhere. Today, I log into OpenTable, type in “11743” and see all the available 8:30 reservations for two in Huntington. A few clicks, and I am locked in. Would I ever go back to doing it the old way? Sure, why not? Call my beeper if you need me. Please “911” me if it’s important.

So, with all of this innovation making the complex simple, and all of these platforms democratizing access to advertising inventory, analytics, and reporting, why are digital agencies still making a living off of the lowly banner ad? Is there a good business left in planning and buying digital display media?

Programmatic RTB is coming on strong, now representing the way almost a quarter of banner inventory is purchased. That’s a good thing. Platforms like Rubicon Project and Appnexus are making it easy to build great businesses on top of their complicated infrastructure. Marketers can hire an agency to trade for them, or maybe just build their own little team of smart people who can leverage technology. That seems to be happening more and more, making managing RTB either a specialist’s game, or not an option for the independent agency.

Really complicated, multi-channel, tentpole campaigns and sponsorships can never be automated. They represent about 5% of overall display spend, and that’s really where a digital agency’s firepower can be leveraged: the intersection of creativity and technology. That sector of digital involves a lot of what’s being called “native” today. Working with content owners and marketers to build great, branded experiences across the Web is where the smartest agencies should be right now.

How about the rest of the money spend on digital display—the 70% of money that goes through the transactional RFP space? A lot of agencies are still making their money buying reserved media, trafficking ad tags, and doing the dreaded billing and reconciliation. Marketers who pay on a cost-plus basis are starting to wonder whether spending money to have expensive agency personnel create and compare spreadsheets all day long is a good use of their money. Agencies that do not get paid for such work are seeing their margins shrink considerably, as they grind away money paying for low value tasks like ad operations. Clients don’t care how long it took you to get the click tag working on their 728×90. Just saying.

A lot of this viscosity within the guaranteed space is being solved by great “programmatic direct” technologies. Right now, you can use web-based systems to plan complex campaigns without using Excel or e-mail, and you can leverage web-based tools to buy premium inventory directly from great publishers—the kind of stuff not found inside RTB systems. Protocols and standards are being written that will, in a few short months, make the electronic IO a reality. Systems are being built with APIs that can enable trafficking to go away completely. Yes, you heard me. People should not have to ever touch JavaScript tags. That’s work for machines.

This future (“programmatic direct”) has been coming for a long time, but it is still met with resistance by agencies, some of whom are continue to benefit from complexity—and others who are (rightfully) scared of change and what it means for their business. Looking at legacy workflow systems, you wonder why they are so hesitant to leave them, but the cost of switching to new systems is high in terms of emotion and workplace disruption—and previous attempts to “simplify” agencies’ lives didn’t really work out that way.

So, how can digital agencies start to change, and embrace the new world of programmatic direct tools, so they can turn their energy to strategy and client care, rather than be an “expert” in processes that will eventually die?

Part of that is learning to recognize if you have a “wizard” on staff. The Wizard is the guy that has truly embraced complexity within the agency. He is the “systems guy” who knows how to pull complicated reports out of legacy workflow platforms. He probably knows who to write the occasional SQL query, and he knows where all the bodies (spreadsheets) are buried. When a web-based technology salesperson comes calling on the agency, and shows the CEO or VP of Media what web-based programmatic direct buying looks like, they are showing an agency a world where a lot of complexity is suddenly made simple. That demo shows the future of digital media buying: a directory-driven, centralized, web-based method of planning, buying, and serving inventory. Just like search! C-level agency executives and media people want it. They want their employees focused on strategy and analytics…not ad trafficking. But to get it, they invariably tell you to go see the Wizard. “Fred is our ‘systems guy.’ He’ll know whether this can work for us from a technical standpoint.”

That’s when innovation dies. Fred, the Wizard of the legacy systems, will shut down any innovation that comes his way. Complexity is Fred’s best friend. When you are the only guy that can pull a SQL query from your data warehouse, or reconcile numbers between SAP and your agency’s order management system, then you are a God. Fred is God…and he doesn’t want a downgrade. Complexity is the reason great digital agencies were built, and continue to thrive. Tomorrow’s big challenges are going to come from complexities in cross-channel delivery and attribution, and keeping up with new platforms that are delivering amazing native marketing opportunities, not being the next at reconciling ad delivery numbers from servers.

When innovation comes knocking on your door, don’t let Fred answer it.

[This post was originally published in AdExchanger on 6.3.13]

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Same Turkey, New Knife

The way the ad tech world looked pre-DSP...and pre-DMP

Technology may still capture the most advertising value, but what if publishers own it?

A few years ago, ad technology banker Terence Kawaja gave a groundbreaking IAB presentation entitled, “Parsing the Mayhem: Developments in the Advertising Technology Landscape.” Ever since then, his famed logo vomit slide featuring (then) 290 different tech companies has been passed around more than a Derek Jeter rookie card.

While the eye chart continues to change, the really important slide in that deck essentially remains the same. The “Carving up the stack” slide (see above), which depicts how little revenue publishers see at the end of the ad technology chain, has changed little since May 2010. In fact you could argue that it has gotten worse. The original slide described the path of an advertiser’s $5 as it made it’s way past the agency, through ad networks and exchanges, and finally into the publisher’s pocket.

The agency took about $0.50 (10%), the ad networks grabbed the biggest portion at $2.00 (40%), the data provider took two bits (5%), the ad exchange sucked out $0.35 (7%), and the ad server grabbed a small sliver worth $0.10 (2%), for a grand total of 64%. The publisher was left with a measly $1.80. The story hasn’t changed, and neither have the players, but the amounts have altered slightly.

While Kawaja correctly argued that DSPs provided some value back to both advertisers and publishers through efficiency, let’s look ahead through the lens of the original slide. Here’s what has happened to the players over the last 2 years:

  • Advertiser: The advertiser continues to be in the cat bird seat, enjoying the fact that more and more technology is coming to his aid to make buying directly a fact of life. Yes, the agency is still a necessary (and welcomed) evil, but with Facebook, Google, Pandora, and all of the big publishers willing to provide robust customer service for the biggest spenders, he’s not giving up much. Plus, agency margins continue to shrink, meaning more of their $5.00 ends up as display, video, and rich media units on popular sites.
  • Agency: It’s been a tough ride for agencies lately. Let’s face it: more and more spending is going to social networks, and you don’t need to pay 10%-15% to find audiences with Facebook. You simply plug in audience attributes and buy. With average CPMs in the $0.50 range (as opposed to $2.50 for the Web as a whole), advertisers have more and more reason to find targeted reach by themselves, or with Facebook’s help. Google nascent search-keyword powered display network isn’t exactly helping matters. Agencies are trying to adapt and become technology enablers, but that’s a long putt for an industry that has long depended on underpaying 22 year olds to manage multi-million dollar ad budgets, rather than overpaying 22 year old engineers to build products.
  • Networks: Everyone’s talking about the demise of the ad network, but they really haven’t disappeared. Yesterday’s ad networks (Turn, Lotame) are today’s “data management platforms.” Instead of packaging the inventory, they are letting publishers do it themselves. This is the right instinct, but legacy networks may well be overestimating the extent to which the bulk of publishers are willing (and able) to do this work. Networks (and especially vertical networks) thrived because they were convenient—and they worked. Horizontal networks are dying, and the money is simply leaking into the data-powered exchange space…
  • Data Providers: There’s data, and then there’s data. With ubiquitous access to Experian, IXI, and other popular data types through 3rd party providers, the value of 3rd party segments has declined dramatically. Great exchanges like eXelate give marketers a one-stop shop for almost every off-the-shelf segment worth purchasing, so you don’t need to strike 20 different license deals. Yet, data is still the lifeblood of the ecosystem. Unfortunately for pure-play segment providers, the real value is in helping advertisers unlock the value of their first party data. The value of 3rd party data will continue to decline, especially as more and more marketers use less of it to create “seeds” from which lookalike models are created.
  • Exchanges: Exchanges have been the biggest beneficiary of the move away from ad networks. Data + Exchange = Ad Network. Now that there are so many plug and play technologies giving advertisers access to the world of exchanges, the money had flowed away from the networks and into the pockets of Google AdX, Microsoft, Rubicon. PubMatic, and RMX.
  • Ad Serving: Ad serving will always be a tax on digital advertising but, as providers in the video and rich media space provide more value, their chunk of the advertiser pie has increased. Yes, serving is a $0.03 commodity, but there is still money to be made in dynamic allocation technology, reporting, and tag management. As an industry, we like to solve the problems we create, and make our solutions expensive. As the technology moves away from standardized display, new “ad enablement” technologies will add value, and be able to capture more share.
  • Publisher: Agencies, networks, and technologists have bamboozled big publishers for years, but now smart publishers are starting to strike back. With smart data management, they are now able to realize the value of their own audiences—without the networks and exchanges getting the lion’s share of the budget. This has everything to do with leveraging today’s new data management technology to unlock the value of first party data—and more quickly aggregate all available data types to do rapid audience discovery and segmentation.

 The slide we are going to be seeing in 2012, 2013 and beyond will show publishers with a much larger share, as they take control of their own data. Data management technology is not just the sole province of the “Big Five” publishers anymore. Now, even mid-sized publishers can leverage data management technology to discover their audiences, segment them, and create reach extension through lookalike modeling. Instead of going to a network and getting $0.65 for “in-market auto intenders” they are creating their own—and getting $15.00.

Now, that’s a much bigger slice of the advertising pie.

[This post originally appeared in ClickZ on 2/1/12]

Epic FAIL

This is why agencies buy direct.

Much has been written about the notorious “logo vomit” map of famed internet banker Terence Kawaja. I reference his handy charts on my blog, and often his “Display LUMAscape” as a reference point for thinking about the digital display business, and what will happen to it. Many have tried to navigate through the various categories and dissect what may be “happening” in the space, which is a favorite pastime of company executives trying to raise money for many of the identified advertising technology outfits referenced within. Nobody ever really tries to explain the whole thing, though. It’s just too complicated, I guess. Allow me to try:

 “A few years ago, people started to figure out that you could use technology to target advertising to people on the Web. Ever since then, 250 companies have placed themselves in the middle of the transaction between the advertiser and the inventory, confusing everyone. Now, most of them are running out of money and will sell cheap, get acquired, or go out of business.”

Perhaps that oversimplifies things slightly, but the reality is that there are many companies in the space that are primed for one of those three scenarios. Unfortunately, most of them will sell for less than their investment, or go out of business. Here are the three big reasons we have gotten here:

It was a Bad Idea

The whole point of most of the companies on the Kawaja map is to help advertisers use data to find exactly the right audience at the right time, serve them the right ad, and maybe find something out about them that helps drive branding or sales. In the past, most advertisers used to do that contextually (putting ads for shoes in Vogue, for example) and it seemed to work pretty well. When that Internet thing came along, publishers could get something nearing their print CPMs for “site sponsorships” and premium banner advertising alongside good content. Sooner or later, however, publishers decided to put banners ads on all of their pages, creating the advertising largest inventory glut known to man. That created a big problem.

All of that banner space needed to be monetized somehow, and publishers were quickly discovering that it was hard to make money on the trillions of monthly advertising impressions they had created. But nobody wanted to buy $10 CPM banner ads on message board pages, and the “contact us” page. So, in order to “solve” this problem, exchanges popped up and allowed publishers to “monetize” this space by having various parties bid on the inventory. Things got even better when data companies came in, and were able to layer some demographic data atop those impressions, making audience buying possible for the first time. The venture money flowed, as smart young technologists created fast-moving software companies to help marketers exploit this trend as they sought a way to help reduce industry average CPMs from $20 to $2.

Mission accomplished! In the last 10 years, average CPMs have been drastically reduced, 100% of a publishers inventory is being “monetized” (often by 10 or more companies), and you can target an ad down to one’s shoe size.  So, what’s the problem? Hasn’t turning advertising from an art into a science worked?

The answer is: Yes, but not for all of the companies on that map. People visit three sites a day, and one of them is Facebook. If you want audience targeting, why not just find exactly what you want from a social network? They are the ones with the real audience data. They are also the ones with the audience scale, having about 5 times as many “profiles” as the next largest data company. The problem with all the companies trying to sell you audience targeting and ad technology is that it only works when you have audience scale (they don’t) and deep audience data (they don’t have that either).

Facebook, Google, and LinkedIn (and the next company that people are willing to share their private information with) are going to win the audience targeting game. When you are talking about audience buying at scale, social media IS digital media.

It’s Still about Art

If you believe that the average web user visits only two sites a day besides Facebook, then you better find them on those sites—and give them a really amazing experience with your banner ad. That thing should play video, games, talk to you, and almost pay you to look at it. Since only three out of every 10,000 people will click on it, you had better make sure the creative really tells a terrific story and gets your brand message across too.

That means standard sized banners that work with exchange-based buying are pretty much irrelevant, since they have a hard time doing any of the above. It also means that context has to accompany placement. It is not enough to reach a “35 year old woman in-market for shoes.” You have to reach her when she is on her favorite fashion site, or otherwise psychologically engaged in shoe consideration. The ad should be in a brand-safe environment that engenders trust—and compliments the creative in question. That sounds suspiciously like premium display advertising…the stuff that was being sold 10 years ago!

In a certain sense, we have almost come back full-circle to guaranteed, premium advertising. And that means an emphasis on the creative itself. If you look at the map, it’s clear that creative isn’t a part of the picture…but it might be the most important thing driving the future of the digital display advertising business.

It’s Confusing

Even if agencies and advertisers wanted to take advantage of a few of the of companies cluttering the “landscape,” they would need to log into and learn multiple systems. As a marketer looking to reach women, am I really going to log into Blue Kai and bid on demographic “stamps” from Nielsen, log into AppNexus and apply those to a real-time exchange buy, constantly log into my DART account to check ad pacing and performance, periodically log into my Aperture account to download audience data, and then log into my Advantage account every month to bill my clients? Maybe—but that’s exactly the reason why digital media agencies are making 3% margins lately. Most of these technologies are really great on their own, but string together too many of them and you start to get lost in the data, and are unable to react to it.

For digital marketing to be effective, a set of standards need to be created that enables systems to work together and share information. Basic B-school dogma teaches you that effectiveness starts to break down when a manager has more than 5 direct reports. If you believe that, then it’s not hard to imagine the effectiveness of a 22-year old media planner managing 5 logins on behalf of his agency.  It’s not just confusing, but impossible.

We have built an industry ripe for aggregation, and the Googles, Adobes, and IBMs of the world will not disappoint us! So, what companies will succeed in this ecosystem?

— Social Scalers: If you agree that all reach advertising targeting audiences will eventually be on social networks, then you should look to work with companies that are making social advertising scale effectively. Doing Facebook advertising is incredibly easy—but doing it right is hard. Doing it properly requires extreme multivariate creative optimization and, more importantly, knowing what to do with the mounds of truly actionable audience data that Facebook and other social networks will hand you. Companies like XA.net that are doing this are EPIC WIN.

 — Creative enablers: Since the conversation is coming back to the creative, how can technology help make great creative even better—and help advertisers understand how that creative is being engaged with?  The click is a dead metric to most seasoned advertisers, who are spending more time with branding measurement tools (Vizu) and creative ad analytics startups (Moat) that are well positioned to “science-ify” the truly important part of advertising: the creative itself. Companies doing that well are also going to be EPIC WIN.

 — Standard Bearers: With all of the logins out there, it is inevitable that one company is going to try and create the technology stack for next generation media buying that puts all the pieces together seamlessly. There are a number of companies trying to do this right now (full disclosure: I work for one of them), and I believe there will be a lot of advertisers and agencies relieved to log into a single platform, and be able to access all of their vendor relationships in one dashboard.  This will take some time, but the companies that enable standardization across technology providers will also WIN big.

[This post originally appeared 7/20/11 on eConsultancy blog]

There’s No App for That

Building the Technology Stack for Next Generation Digital Media Buying and Selling

Last week’s IAB Network and Exchanges conference was full of the usual self-congratulatory “use cases” of byzantine, data-based strategies for squeezing conversions from web-based display banners for direct response campaigns—or, alternatively, helping to drive “branded performance,” based on the listener’s preference. I was sitting next to an attorney from a large media company, tasked with making sense of the ad technology business. “I have to be honest,” she said, “I have been looking at this business for 18 months, and I still don’t understand what you people are talking about half the time…and I’m a smart person.”*

Unfortunately, that is the exact sentiment of many media planners, account managers, and marketing managers confronting the vast array of choices in display advertising. Once they figure out the alphabet soup of DSPs, RTB, and (now) DMPs, they start to wonder if they actually want—or need—the technology in question. Agencies are trying to figure out how to be the gatekeepers, and advise their clients on the best technologies and practices to drive branding and performance, but the work required to string together all of the various options makes earning money difficult. Digital media margins are in the toilet right now, and will remain there until agencies can manage all of these disparate systems with efficiency.

In the ad technology business, there’s an “app” for almost any way one wants to find and buy an audience—and many more applications for getting and understanding performance. Unfortunately, there is no operating system that can host all of these and make them work together seamlessly. The ideal scenario would be a world in which marketers could bring the different media applications they want to use into a single, unified system. Call it a “media dashboard” that would enable an agency to create a campaign, plug in their 3rd party research data, ad server of record, segmentation data licenses, audience measurement/verification providers, and billing system and enjoy access and control from a single interface. Down the road, as more mature APIs become available, the OS would enable marketers to “plug in” their mobile ad providers, video DSPs, and bid management tools for search marketing.

Almost everyone agrees that this is the future of the business. A famous media investment banker recently remarked that “there are some very smart companies out there

Are you developing your ad technology for the wrong system?

building a technology stack” to address these very issues, but wondered whether SAP or Oracle will be first to the party. My opinion is that the IBMs and SAPs of the world will let a smaller company fight through the growing pains, and let the preferred standardization technology come to light, before swooping in. The big boys can afford to be patient—and nobody wants to be the guy who backed Betamax. The question now isn’t Betamax or VHS—or even PC vs. Mac. The question is, what will be the operating system of next generation digital media, who will support it, and can an active “ecosystem” be maintained that enables technology companies to develop smart applications for it?

I think the answer is yes—and that the next 12 months will be critical in determining what companies will fit into the increasingly complex landscape and those that fail to meet the task. Not long ago, it was extremely difficult to buy from a variety of networks and exchanges efficiently. In comes AppNexus, and suddenly every Tom, Dick, and Harry has access to over 800 inventory sources, and a great bid management tools to boot. Their OS for real time bidding creates real efficiency for marketers—especially when they go through the pain of integration on your behalf. I know quite a few AppNexus users—but very few who will work with data segments that are not natively available in the platform.  The next great media technologies are going to be built for integration into specific systems, offer APIs that enable “easy” data export and ingestion, and flexible so that others can customize them for specific needs.

Evolution is natural to the technology business. Networks become “platforms”…data providers become “DMPs.” Technology companies will forever try and stick their hand in the middle of the transaction between the demand and the supply side, and shave off a sliver of the pie. But, eventually, evolution becomes “revolution” and the game changes for everyone. We are about to find out who has the capital, talent, and vision to devise the next generation operating system for digital media. That system is going to be the one that every company has to develop an “app” for and support, and that system is going to shape the way digital media is bought and sold for a very long time.

As an ad technology company, it’s time to start figuring out how your technology will fit into the larger puzzle if such an OS becomes standard. Is your technology built for an open system, or does your technology (and, more importantly, business model) only thrive in a closed environment? There are a lot of “platforms” out there, but eventually there will only be one operating system. I think there are a lot of really awesome “apps” out there waiting to be plugged into this new operating system, which would benefit from standardization and an installed base of users.

There’s definitely an “app for that.” We are just waiting for the OS.

*That sentiment was also expressed wonderfully in Doug Weaver’s amazing keynote presentation which he was kind enough to make available this morning on iMedia.

[This post appearred on 5/23/11 in Business Insider]