Sir Martin, This Is Why There Is Debate About Transparency

JimAt ad:tech London last week, Sir Martin Sorrell, the omnipresent, omniloquacious leader of WPP, expressed befuddlement and concern by the growing debate about transparency in the programmatic marketplace. He said, “Being agnostic is critical. I have to say I’m a bit troubled by the debate around transparency.”

Now, forget for a minute how much I hate – I mean, REALLY hate – the way this industry uses the word ‘agnostic.’ The word in a non-religious context means noncommittal or doubtful. The word we should be using is ‘independent.’ But whatever…

I’ve encountered the issue of transparency plenty of times over my career. Just about anyone working at an agency has. Early on, in traditional media during the early to mid-90s, it was related to actual media COGS a buying service paid versus what the client was billed. With the early days of online ad networks, it was related to inventory source and quality (Tribal Fusion, before becoming part of Exponential, made transparency a foundational plank in its platform). Now the debate, if you can even call it that, is about both costs and origin of inventory sourced programmatically.

If Sir Martin and the holding companies really find the debate about transparency opaque, let me try to provide a bit of illumination.

  1. Cost. Clients have pretty much always liked knowing how much they are really paying for something, now more than ever. In the old days, agencies could buy media for their clients and more or less pay whatever they could get it for and charge the client whatever the agency wanted, so long as it fell within the range of average costs established by benchmarking services like SPARQ and SQAD. This sort of thing could only go on so long, and clients eventually balked at non-disclosure clauses in their contracts with their media buying services.  This is the exact same thing WPP is facing with XAXIS clients. In an industry that advocates a data-driven approach to pretty much everything, it would stand to reason that one of the primary variables not be kept hidden.
  1. Quality. The client wants to have more comfort with quality of the placements their brands are falling into. This, too, has always been important to advertisers. The current spate of programmatic solutions are pretty good at controlling for this when given the proper input upon which to make placement decisions – preference lists and hit lists have been common since buying Radio and TV. But on a post-buy, the client always wanted a run down of just where their ads showed. Advertisers have always been willing to sacrifice some pre facto knowledge of where ads will show for a gain in cost savings – and that’s what programmatic offers. But full disclosure on a post basis just makes everyone feel better. And that’s a lot more important than we sometimes think.
  1. Trust. There’s something that just doesn’t feel right about an agency that buys media also being the source of the media being bought. The origin of the ad agency was publishers recommending their own publications as placements for ads. But that was the 19th century (this was J. Walter Thompson, both buying and selling ads for religious publications). The task of the agency eventually become one of actually being an agent: acting on the advertiser’s behalf, in the advertiser’s best interest. Holding companies have been using their trading desks as a means to yield higher earnings on greater margins than their standard services business units. The agency holding companies have essentially been arbitraging media they buy. This isn’t terribly dissimilar to how old-school buying services like Western International (eventually becoming Initiative) used to make goo-gobs of money. While the numbers may not be quite as big as they were in those days for broadcast relative to total advertising spending, it is not insignificant.
  1. Another dirty little secret a lot of people don’t know is that the way holding companies use trading desks, they are frequently taking principle risk in the inventory, which allows for an interesting accounting trick. If you take principle risk in the inventory before you sell it, the company is allowed to report gross rather than net revenues upon the sale of that inventory. This provides a nice shot in the arm to earnings reports. Kind of sneaky, eh?

These are the main reasons why there is debate about transparency, Sir Martin. The first three being the most top of mind, the fourth being a more sublime, but more insidious, reason for clients raising questions about transparency.

Agencies and their holding companies are trying to have things both ways, being independent sources of media purchasing decision-making that are more and more frequently deciding to buy its own wares. As I wrote once 5 years ago when holding companies first started getting into this space: “The question the advertising industry needs to ask itself about this kind of cross-breeding is whether or not we look on it like a general contractor owning his own kitchen-and-bath tile storefront, or if we look upon it as an ambulance company owning a mortuary.”

The transparency discussion is here to stay, particularly as 3rd party programmatic PaaS providers (Platform as a Service) make it part of their value proposition. It’s no puzzle why there is a debate about transparency. If it were your money on the line, you’d want transparency, too. 

Jim Meskauskas is a co-founder and Chief Strategic Officer of Media Darwin, a consultancy specializing in strategic planning of commercial communicative action. He’s a medialogist who has spent the last 20 years living, breathing and thinking about how to use media to move people to action. Outside of that, his likes are horror movies, Southeast Asian cuisine, his wife and his cat — not necessarily in that order. His dislikes are mean people, people who text while walking in or out of the subway entrances, pestilence, war, famine and death.