In this extract from our Top 100 Digital Agencies Report 2015 , I look at the the new ad buying landscape and the need for agencies to prove their value in this complex, data-driven environment.

Programmatic advertising is a boom industry

It accounted for almost half (47%) of UK display ads in 2014 according to the IAB, while US programmatic ad spend is predicted to top $14bn this year.

And if the lure of programmatic is causing such a huge shift in the way advertisers buy media, what does this mean for agencies? The technology promises to bring efficiencies in ad spend, and what could be more efficient then cutting out the middle man entirely?

This may seem a very appealing prospect, and global corporations such as P&G, Mondelez (which buys 90% of social ads using programmatic) and Unilever have already set up their own trading desks.

But though we’ll likely see other brands follow suit, for the majority of businesses bringing the whole operation in-house isn’t a realistic option.

Ritu Trivedi, managing director for digital marketplace at MediaVest USA, told Adexchanger that cutting out the agency role isn’t as straightforward as it may seem.

Often these companies (DSPs) will pitch business to a client about automation, but forget to tell them what they're pitching is a lot of self-service. Who's going to manage it? You need someone to go in, look at the buys, make the buys, optimise.

As is often pointed out, programmatic ad buying is a complicated process. You still need humans to operate the machines.

But though it’s hard to see a future where agencies are cut out altogether, it would also be naïve to think that the agency model isn’t going to have to adapt to the new reality of programmatic advertising. 

So how do agencies fit into the new programmatic ecosystem?

What is programmatic?

No article on programmatic would be complete without a brief explanation of what the term actually means.

Well, in the simplest terms possible, it refers to the use of software and algorithms to buy ad space based on predefined budgets and target audiences. The benefits include improved targeting, price clarity, operational efficiencies and greater control over ad buys.

In a nutshell it’s sold as the ability to target the right people, at the right time, at the right price.

However, as with all new technologies, some marketers are still to be convinced of the benefits of programmatic advertising. I’ve attended several roundtables and speaker panels where those involved have bemoaned the lack of transparency and clarity from their agency partners, as well as the low quality of the ad space available through programmatic.

But then advertisers are ramping up investment in programmatic so clearly the positives outweigh any nagging doubts.

Agencies need to prove their value

If they are to continue to thrive, agencies need to find new ways to prove their value as part of the programmatic ecosystem. At our programmatic conference last year Mikko Kotila said that in order to maintain a competitive advantage agencies needed to prove they have some unique method of working with tech or data.

But as there is still so much variation in the way that brands use programmatic ad buying, the service offered by agencies will differ from client to client.

The smart money seems to suggest that this will either involve media strategy, analysis and reporting, or a consultant/educational role. Smaller businesses will probably still have to rely on agencies for campaign implementation and reporting, while bigger organisations might want to bring certain elements in-house so they retain greater control over their data and analysis.

Education

Programmatic is still perceived to be a complicated and even rather murky form of ad buying, which probably adds to the sense that agencies and DSPs don’t offer full transparency.

A Forrester survey from March 2014 found that just 23% of marketers understood programmatic buying and were using it to execute campaigns. Another 29% said they've heard the term but don't have a clear understanding of it, while a quarter (26%) said they understand the concept but need to learn more about how to apply it to campaigns.

In this respect agencies still have an important role in advising their clients on the use of programmatic marketing.

Caspar Schlickum, CEO of Xaxis EMEA, has previously said that many of the problems around programmatic can be addressed through client education.

This is a very nuanced space and it takes a lot to be well versed in it. We spend a lot of time talking through data strategy, inventory strategy, tech strategy, etc. and when you have these conversations you get to interesting conclusions. But you need technical people within client companies who can have those conversations.”

Fees

As a final thought, it’s fair to ask how programmatic buying should impact agency fees. One of programmatic’s biggest draws is that it increases efficiencies, so billing based on a percentage of spend or headcount would seem to conflict with that way of thinking.

Ad exchanges bring operational efficiencies for agencies and publishers, so should the cost benefits be passed on to advertisers? Or should the use of such advanced technology come at a premium?

A common criticism of the agency role in programmatic buying is that media agencies are forced to use their holding company’s trading desk, so clients aren’t necessarily getting the best deal. Based on the conversations I’ve heard at industry events, this is a problem that is still to be solved.

So how will agencies fit into the emerging programmatic ecosystem?

Pierre Naggar, EU managing director at Turn, believes that a hybrid model will be the most likely outcome.

In my opinion we’ll eventually see the media piece being managed by the agency, but marketers and brands will want to be much more in control of the data piece. Data is the most important asset the client has. They spend a lot of time developing these relationships with their customers.

Ultimately we’ll have to wait for the programmatic ad market to mature before we see the full impact on agencies, but it does seem that they will have to adapt both the way in which they service and bill their clients.

David Moth

Published 30 June, 2015 by David Moth

David Moth is Editor and Head of Social at Econsultancy. You can follow him on Twitter or connect via LinkedIn

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