I have had the opinion for a long time that the established barriers between buy-side and sell-side players in the display eco-system have completely broken down. Increasingly, you are seeing agencies, ad networks and publishers all encroach on each other’s territory – trying to take margin from each other. Let’s look at some changes, trends and developments that are turning traditional roles in the display supply chain on its head.
The morphing of the agency model: People will ask who is driving this current evolution in display, and you would have to point to the agencies. Agencies see their future as not only servicing client requirements but also in media trading. They see massive margin in acting as the “ad network” layer in the media transaction – and arbitrage is still a highly lucrative game to be in. Just look at what WPP is doing. Never mind about Zap and B3. They are merely bit part players in the grand strategy. It’s the ad network play that fascinates me, and indeed supports my argument of a “free-for-all” in the space. It has hired a raft of ad network people to help build out the WPP ad network proposition. I did say it was doomed to fail but have since concluded that WPP can leverage its incredibly powerful buying position to entice publishers onto its platform. What clients will make of it is for another day’s post. They’ll probably have to spin it out as a separate company once marketers start kicking up a fuss about pricing transparency. But senior agency people see this is a massive growth area. The ad network/agency hybrid has arrived – and it’s going to get ugly out there.
Ad networks owning the client direct relationship: When I’ve floated this idea to a couple of senior people in the industry they have looked at me with pity. Foolish Irish man, they would say, ad networks have an established relationship with agencies. Don’t be hoodwinked by this cosy industry BS. Ad networks are all too aware of what agencies are trying to do. Let’s take the example of the biggest performance network in the market, Specific Media. Specific make a decent chunk of money in the UK DR market. People like to give Specific a hard time, but everyone has a sneaking respect for its undeniable successful model. I would estimate turnover at the company to be anything between thirty-five and fifty-million million pounds. Let me tell you now that if a WPP sought to cut it out of the supply chain, Specific would not hesitate to go straight to marketers. It could successfully offer a CPA solution to source – because nobody can do it better. Specific could easily augment reach by teaming up with other CPA networks.
Some would say this kind of move would be tantamount to heresy – but it’s a logical step especially if another party is trying to disitnermediate you from the process. Is it feasible? It’s already happened: Criteo was the first to disrupt the agency model. Going after direct affiliate budget instead of fighting to get on an agency media plan was a genius move by the French re-targeting specialist. It has no doubt won Criteo new budget, and cemented its position in the display market. Don’t be surprised to see more of this in the next twelve months. Incidentally the widely-held view that an ad network would be unable to manage relationships with advertisers is absolute rubbish – just hire some agency people who can do the client relationship piece for you.
The publisher assumes the mantle of agency: Again this might seem a little far-fetched – but lets work through this. Imagine for a minute that a UK publisher with an amazing audience sells out every month. Its direct advertisers and smaller specialist agency partners are always asking for more inventory. The publisher knows it can make more revenue if it could augment reach, and re-target its own users. This publisher is sitting on a lot of user data it can leverage in any media buy. Using a DSP, the publisher can augment its particular vertical by buying inventory across relevant sites that have its users on it. Suddenly the publisher is a media buyer, and has developed another revenue channel. You might think this is crazy, but it’s already happening in the US and the UK. And why not? Sure, it would require some new resource and a decent chunk of investment. What makes this possible is the publisher data. Why sell it? If the demand for more inventory is there from advertisers and agencies, build out a media trading solution to facilitate buy-side requirements. I’m thinking financial sites are in the best position to do this – CNBC, WSJ and the FT are prime candidates. I honestly can’t understand why this hasn’t clicked with niche publishers.
We can work anywhere now: This for me is a true indicator of the evolution of the display model. Agencies are hiring like mad from the ad network space. And they are also hiring senior people with solid publisher backgrounds. This just shows where agencies are trying to position themselves. What will surprise people is that ad networks are actively head hunting agency staff with solid exchange trading experience. The ad network is iterating its model, adjusting to the new realities of the industry. Exchange trading is a no-brainer. Ad nets have a superior optimisation layer, and having access to that amount of supply will give it a commercial edge as it looks to do battle for the client direct relationship. But exchange talent is thin on the ground – very thin. So raiding the agencies makes sense. With a free-reign and better salaries, some agency based traders would happily make the jump. I think the moves that will most perplex industry watchers will be talent moving from agency to publisher. I guarantee more niche publishers are going to go down the route of exchange trading. Again these skills are not readily available on the sell-side. Publishers could offer agency staff with exchange game time the opportunity to work with proprietary data (yes, some quants see this as a real attraction) and build a brand new business model within an established player.
These are just some of the observations I have made over last few months that have lead me to conclude that display market is undergoing fundamental change. I could well be wrong in my assessment. After all, ad networks still have good working relationships with agencies, and the majority of publishers are still happy to sit on the supply-side. But we are in the middle of a change cycle that is going to distort completely the traditional relationships between publisher, ad network, agency and advertiser.