Will more brands bring digital media buying in house?

Perhaps one of the more taboo topics of discussion amongst us agency folk is the threat that brands will one day buy all their digital media without us. I have encountered a certain amount of defensiveness over the years from peers unwilling to accept that this trend might play out. For the purposes of this article I will try my best to remain unbiased and present both viewpoints. The first being that brands will indeed bring more of their media buying capabilities in house and require the services of agencies less. The second that digital media planning and buying is a complex and specialist service that only agencies can provide.

Let’s look at some of the trends first. 45% of brands are now buying their paid search in house, up from 38% in 2008  55% of brands do their SEO exclusively in house and a massive 70% of brands manage their social media by themselves (Econsultancy UK Search Engine Marketing Benchmarking Report 2012, May 2012). Some of the biggest brands in the US (i.e. Experian) now handle all their display media buying without an agency. I myself have worked with many brands showing an appetite to buy media themselves.

Are the advancements in technology influencing this change? More and more media inventory can be purchased through self-service platforms. This is bringing the advertiser closer to the media source than ever before. Google has made in-house media buying too easy by removing the buying power element and providing one common global platform to buy on. Display too is being democratized in the same way. Through one DSP I can access inventory across a multitude of ad exchanges at the touch of a button. With Facebook owning 30% of display inventory and now flirting with ad exchanges one could pretty much cover the entire online population through 3 buying platforms. In this world of ‘plug and play’ what’s to stop savvy brands from doing it themselves? All they need is the relationship with the technology vendor, some smart in house traders and some occasional consultancy to keep them on the right path.

On the flip side of this there are many barriers for advertisers to bring everything in house. The challenge with display in particular has always been fragmentation and complexity. DSPs and ‘plug and play’ solutions are not the right approach for all brands. The truth be told many agencies struggle to make a margin from display media buying. More complex services like rich media tracking and implementation, dynamic creative testing and ad serving, attribution and measurement, coupled with the more mundane yet necessary components that include faxing IOs, billing and reconciliation, trafficking (I could go on and on) are all massive deterrents to brands thinking about going it alone. If agencies struggle to make a margin why would a brand want to take it on alone? There’s also the other challenge of finding talent in such a niche market, hiring good digital planners is very difficult, even in the US where the market is more mature. I don’t think these complexities are going away any time soon. We’re a long way off from having a single media trading and work flow platform. Until then many brands won’t want the headache of exclusive in house digital media buying.

In the future I think it’s very realistic that more brands will bring all their digital media buying in house. The trends speak for themselves. The agencies that will thrive will have more to offer than smart people and buying power; brands will always want incredible technology and useful data. Agencies will have to adapt to this and provide something more proprietary and bespoke. The next few years are going to be very interesting for us agency folk.

  • http://twitter.com/ROIFactory ROI Factory

    As I see it, the problem is in the way that agencies are compensated. They struggle to make a margin, because they give away the high-value work (strategy, REAL research and planning) in pitches order to win the execution business (trafficking, optimization, creative resizes, recurring renewals of high cost buys). If each component were appropriately billed, meaning true value placed on the high-value strategic services, and “digital grunt work” charged as the commodity service it is, then agencies would be in a position to be true strategic partners rather than commoditized vendors and to bill appropriately. When agencies try to charge 20% commissions to renew the standard Yahoo! $20k/month buy ($4000 commission to ship an IO) then they’re begging to be disintermediated. The true value of an agency lies in the services that they line up to GIVE AWAY in pitches in hopes of winning the execution. Who can blame clients for soaking up the value, then hiring cheap execution?

    One more thing, while we’re at it. (I write as a former agency owner with over 100 employees in digital marketing in San Francisco and Atlanta.) The approach I’m recommending would also allow agencies to charge according to their talents, rather than their hours. High-value strategy is not an hourly expense, but a project cost. As it stands now, 98% of agencies are paid the same amounts, give or take about 10%. There is little room for differentiated value propositions or pay-for-performance when you’re compensated for hourly grunt work. As you point out, automation and technology will continually eat into the digital grunt work (see QuickOps.com) and reduce the agencies’ revenue base. I think we need to start modeling our industy after architects, general contractors, and building managers. None of them are hired together, yet each has a pivotal and important role in the process of creating, building and maintaining a building. Can you imagine a building management firm bringing in a world-class architect to help them win a new management contract?

    Thank you,
    Michael McMahon

    • Nathan Levi

      Hi Michael,

      You make some great comments. I agree that agencies are being squeezed and are forced to offer up strategy for free to win a piece of business. We have create a rod for our own backs as it were but I think we’ve been left with no choice due to the pressures we face in this market. I have never been a fan of pay for performance (I wrote about this a while back http://nathanlevi.com/ad-agencies/why-pay-for-performance-media-can-be-a-false-economy).

      Seeing the light at the end of the tunnel, more and more digital agency people will eventually move client side and this trend will shift.

      Thanks for reading,

  • Michael J Massey

    No one wants to admit it, but the media planning/buying business is becoming a commodity. Clients are already buying traditional media direct-why not digital as well? As you’ve pointed out, Google has made it it fairly easy for most advertisers to get what they need, when they need it. And I couldn’t agree more with ROI Factory’s comments about undervalueing services and giving away what is really intellectual property! We’ve decided to create some unique tools and other resources to arm clients with valuable information and knowledge so that they can tackle it on their own- and we can charge them for it.

  • Srini Dharmaji

    Brands buy TV directly, because it is predictable, easy and does not change as a medium. User will see the ad on a channel, period. But, in digital, tracking user behavior through cookies is the norm, which may work on PC browsers (IE 10 ?), but does not work well in the mobile app environment. The fragmentation is unbelievable, and there is no easy way for brands to buy “digital” in the true sense across all these devices.

    The holy grail is when a merchant like Trader Joes who keep sending print fliers to homes, can do the same in digital. There should be a purpose for a single media trading and work flow platform you mentioned. And that is to let brands traffic ads easily for the best CPM or CPC (much like eBay) and let the platform do the magic.

    I agree with you that the digital agency world is ripe for disruption, as evidenced from Google’s efforts on creating a Digital Marketing Operating System that brands can use as a self serve platform to reach any digital device. Even Google’s efforts are herculean, simply because of lack of data sharing between a plethora of acquired platforms operating in between the brand and media, refer the classical LumaScape of digital.

    We are a long way from seeing a Trader Joes weekly ad targeted for San Francisco appear on the Weather Channel App on iPad, Facebook Sponsored Story on Android, Food TV site on your Windows laptop, as a search result from Siri on iPhone — all these devices belonging to a single digital home in San Francisco. IMHO, that is when the true cannibalization of print will happen. And the by product would be disruption of the agency world.