With all the Wall Street fantasy IPOs happening at the minute, it’s often easy to forget the fundamentals of our business. Display budget is very much controlled by the agencies — even more so in Europe and the APAC region. There is a small percentage of ‘hands-on’ marketers managing their own display budgets, but with the rise of centralised trading desks we are seeing a lot more marketers becoming increasingly vocal about transparency around data and margin.
We have had three-to-four years of the agency trading desk model. It’s been reasonably successful, eating up traditional ad network spend and becoming a permanent fixture on the media plan — but the model is about to pivot once again. Having been mostly marginalised from the execution of data-driven campaigns, big agencies (and creative agencies) within holding groups are trying to join planning and execution back together around programmatic.
The Rise of the Client Trading Desk
At the recent ATS London event, Andy Mihalop, Head of Biddable and Programmatic Media for MediaCom, spoke about the Client Trading Desk and why clients are looking at this model. However, before we dive into what this all means, a little bit of clarification is required for the term. Effectively, the CTD is about control.
The relationship with the buying solution is owned by the client. So, whether it’s AppNexus, MediaMath, Turn, DataXu or Google the licence is managed by the client, not the agency. In this particular model, the data also sits on the client side. Again, the marketer will manage the relationship with the data warehouse solution provider to manage and store all of the marketer’s data.
What does the agency do here then? Basically, it will be asked to execute on a transparent margin. Of course, it can layer on services like analytics and data, as well as specialist trading expertise; but ultimately the model is about transparency. The marketers like the concept and efficiencies around programmatic buying — they just don’t like current models.
The Media Plan Goes Away
While the media plan is not going anywhere soon, the reality is that if the Client Trading Desk model takes hold, it will mean that the plan is not required. If all programmatic buys are being executed by the agency, why do you need third-party buyers? It is quite amazing that recently IPO’d ad nets are being valued at twenty times gross run-rate revenue, considering what is coming down the line.
This has serious knock-on effects for the entire space. No media plan means the end of the middleman buyer; but only in DR, admittedly. The client is requesting its agency to plug in data and inventory sources, not outsource buys to vendors making 45% margin. That is the reality of this new model: that programmatic will be used to cut out unnecessary layers in the buying chain.
The Agency Trading Desk Pivot
While spend continues to grow at the ATDs, these new agency ad networks might find it difficult to keep expanding if clients decide to in-house some of the processes. So, what’s next for the likes of Xaxis, for instance? Unlike the rest of the ATDs, Xaxis is a different proposition. It works and functions like a traditional ad network. It very much depends on the plan to be allocated budget.
If Mindshare, MediaCom, et al. are forced by clients to build this CTD model, where does Xaxis sit? The solution is pretty simple. Xaxis, like all good networks, must chose a side — buy or sell side. Given that the buy side will be managed at the agency level, Xaxis has but one choice: become an SSP. Now, the margins might be a lot smaller, but the scale of spend and sustainability of the model would make it very attractive.
Xaxis is in the unique position of being able to leverage powerful Group M trading agreements. Imagine the possibilities around programmatic guaranteed if Xaxis flipped its model. There is no reason why MediaCom and Mindshare couldn’t buy from the Xaxis supply; and it wouldn’t be just those two alone. Many of the creative agencies are now getting into media buying, and there is likely to be a huge opportunity for the Xaxis SSP as that spend increases.
There is also the opportunity of external demand too. WPP has a ridiculous number of data sources within its organisation. If Xaxis could get access to this data and layer it on to inventory bought in, it could well allow external buyers access too. This could pose a significant threat to those sell-side solutions working with established premium publishers.
If successful, you could imagine other trading desks following a similar route.
Agencies Look More Like Ad Networks, and Ad Nets Look More Like Agencies
The ad network is the great survivor, but its traditional role has radically changed. Instead of executing third-party buys, the ad net now has to look more like a consultancy. It will have to think about becoming an enabler, offering value to agencies. Whether it is analytics or tech, its role in the ecosystem has changed forever. It is for this reason that massive scale will become a major issue, particularly if it is dependent on media spend for its survival. This is why these ad tech IPOs are beyond comprehension. Algorithms won’t matter if there is no plan. Going direct is a dangerous option too. Only one company in Europe successfully managed it, but then retargeting is both sticky and highly addictive. So, the ad net survives, but now looks more like a SaaS solution. This transition will be interesting.
The client is now taking control, and the market feels it is about to shift again. Let’s see who is prepared for the fallout.