How agencies are morphing into ad networks - and why networks will pitch directly to DR advertisers

Tom Hespos, President of Underscore Marketing, wrote an interesting post last week about how agencies are behaving more like ad networks. By using exchanges to aggregate ad inventory for their clients, agencies are evolving into hybrid models. They can buy impressions and data to target the right audience for their clients. Some are beginning to work on a commission basis with clients – especially in the area of DR. This will allow them to arbitrage ad inventory on behalf of their clients, taking away business from the ad networks.

Across the digital marketing landscape, agencies are beginning to look more like ad networks. But how far can agencies take the model before they cross ethical borders?

As agencies figure out how to best leverage ad exchanges for profit, we've been seeing a trend across digital marketing -- that of ad agencies taking on roles traditionally filled by ad networks.
That is, agencies are using a combination of ad exchange technology and external data in an attempt to zero in on the ideal customer profile of a particular advertiser. Once the right data resources are brought to bear, the model is given scale by the ability to bid on specific user profiles across ad exchanges. One day, this could allow advertisers to cherry-pick their ideal customer across the entire web.

It's a model that has particular appeal for direct response-oriented advertisers who find themselves in endless "test and refine" mode with respect to web advertising -- those who buy tons of remnant inventory in the hopes of garnering a tenth of a percentage point's worth of response and have hit a wall. But the model has applications for just about anybody who advertises on the web.

Interesting. I wonder if it’s possible to turn that idea on its head, and ask the question: why don’t ad networks go straight to advertisers and offer them an even more sophisticated optimisation service. Remember that ad networks have nearly got twenty years head start on optimising online advertising. What if an ad network in Europe decided to cut out the agency and pitch for an advertiser’s DR budget? How could it be done? Business relationships with the clients would be a key problem. Ad networks could target those brands which have a massive DR budget, figure out which agency staff deals with the big DR brands, and then hire them.

It would take some convincing for the brands to come onboard, but the ad networks could offer attractive commission-only structure and use their those new hires with agency experience to manage the relationships. They couldn’t call themselves ad networks. The new model needs a rebrand. How about “Media Optimisation Specialists”? The relationship between agencies and ad networks remains cordial and amicable. But what happens when the agency holding companies start cranking up their demand side platforms, and encroach on the networks’ traditional aggregating territory? Will some Account Directors in the DR space be soon getting calls from head hunters? It will be fascinating to see how this situation plays out.

Pubmatic data brings some respite to publishers, but reveal more complicated picture

Last week Pubmatic released data indicating that there has been a slight recovering in online ad pricing. The report received a lot of positive media coverage. Pubmatic’s nice chart (see below) did the rounds on the marquee digital media sites. And overall the data was well received. This was tempered by more sober analysis from the likes of Zachary Rogers. In his post on Clickz, Rogers speaks to a number of senior agency people who believe that the rise in ad pricing can be attributed to more premium inventory being to ad networks and exchanges. Here Rogers speaks to Sarah Baehr, Razorfish's VP Media, who puts forward her view on the price rise:

Baehr has an alternative theory about why prices of ads sold through networks have ascended. She believes the trend may actually be a symptom of publishers' pain rather than a cause for relief. Since many publishers are struggling - and failing - to sell inventory directly to advertisers, Baehr notes they're instead forced to dump it onto networks. Those more premium ad impressions are inherently more valuable, from a branding standpoint, than what's typically available on networks and exchanges.

Something that the online media didn't really cover is the possibility that yield optimisation might actually be working for publishers. By automating the way they allocating impressions to ad network and exchanges, publishers are getting better yield. Maybe that's the real story in the figures.

The Pubmatic Chart