Free Report: The State of the Agency

1. incitemc.com/programmatic
By Alexander Cherry
17 February 2015
The State
of Agencies

2. THE STATE OF AGENCIES
2Join the conversation at inciteMC.com and via @incitemc
Programmatic advertising – conceived less than a decade ago as
a way to sell off remnant inventory to DR advertisers – promises
to upend your entire media model. Whether you’re a brand, an
agency, or a publisher, big or small, programmatic is poised to
turn the industry on its head. Or is it?
2014 was a year of bold prognostications, and one that ruffled more than just a few feathers was the
announcement that programmatic has rung the death-knell of the media agency. According to this view, the
agency trading function no longer offers clients any added value and simply represents yet one further toll on
the already over-priced highway that connects brands to media owners. Add to this brands’ growing concerns
with data stewardship, transparency and media arbitrage, and it appears to be a perfect storm.
Last year the number of big brands shunning the traditional agency model entered double figures. A CMO Club
poll,1
which surveyed 600 CMOs, found that almost every brand plans to evaluate a direct relationship with DSPs,
with 15.4% already doing so, figures suggestive of an impending exodus. WPP’s Sir Martin Sorrell, quizzed last
year on this apparent threat, struck a rather different note: “It’s a temporary phenomenon… Our view is after a
year or two it will change. I question whether [clients] will be able to apply technology successfully.”
So How Much Has Programmatic Really Changed the Playing Field?
For years media agencies used in-depth knowledge of consumers and the media they consumed – a mixture
of market research and good, old-fashioned gut instinct – to find audiences for their clients. Leveraging their
long-established relationships with premium publishers, they made cost-effective purchases at scale and took
care of all the paperwork.
While the precise definition of ‘programmatic’ has been almost as controversial as the question over the
role of agencies, most would agree that it includes automating previously manual workflows, data-driven
targeting and frictionless purchasing. So nowadays we see brands that can buy advertising space without
drinking so much as a single martini or even picking up the phone; data firms that slice and dice browsers into
lucrative marketing segments; and marketers no longer needing a publisher relationship at all (let alone a long-
established one) in order to access their inventory. So, if all an agency does is to log into an API on behalf of
its client, select a pre-defined segment and click ‘buy’, it stands to reason: what value exactly are they adding?
The above scenario is of course a crass oversimplification. Third-party firms have always been slicing and
dicing audiences in some respect – think the Nielsen ratings which still underpin so much of linear TV buying
– and this was always seen not as the agencies’ hemlock but as their bread and butter. Despite the widely-
held assumption that programmatic has made media transactions easier than ever, somehow the complaint
heard most often, from all corners of the industry, is that there is an enormous talent gap: programmatic
cannot live on APIs alone. To make it effective – that is, to do truly amazing things with it rather than just add
liquidity to the teeth-whitening market – you still need individuals with deep market knowledge and, yes,
direct relationships, both with publishers and with tech providers.
Media data scientists and media consultants have thus never been in higher demand. The question really is
whether they will be housed within brands or work for independent companies. The argument for agencies
as a central hub for training, innovation and investment in media-planning excellence, not limited to any one
industry or client, is still compelling.
1
Kantrowitz, Alex.
"Poll: Majority of
CMOs Look to Buy
Programmatic Ads
Directly, Bypassing
Agencies." N.p.,
20 Nov. 2013.
Web. 17 Feb. 2015.

3. THE STATE OF AGENCIES
3Join the conversation at inciteMC.com and via @incitemc
The Future of Trading Desks and Media Services
The key question, then, is not so much what the future of the agency is, but revolves around the future of the
Agency Trading Desk (ATD). These entities, founded originally as a central place to execute programmatic
trades, have recently attracted a lot of flak, especially with regard to the practice of arbitrage. Here the desk
trades not as an agent of the brand but as the primary buyer, effectively reselling inventory to its clients
at marked-up prices. The arbitrage debate cuts right to the question of the desk’s added value. During a
round-up of the ATD heads in Cannes last June,2
Brian Lesser, CEO of Xaxis, pitched his company neither as
an agency nor as a trading desk but rather as a programmatic products company, whereby customers buy a
package enhanced by Xaxis’ long-term investment in technology and data (and which is priced accordingly)
Source: WFA survey; Trading Desks & Inventory Media; Base = 43; May 2013
The market should eventually reveal, through brand performance, whether this added cost represents value for
money. For now, though, clients want transparency into ATD margins (see above), as well as any other third-
party commissions along the way.
Another major concern is data ownership. The most compelling support for targeted ad campaigns is brands’
first-party data, and brands want to own and control this data themselves, without locking it into an agency.
These reasons – arbitrage, transparency and data ownership – have given rise to alternative trading models
such as the ‘private’ or ‘brand’ trading desk.
2
Joe, Ryan.
“Agency Trading
Desks Go Separate
Ways.” N.p.,
18 June 2014.
Web. 17 Feb. 2015.
Q.
Do you consider business
practices such as ‘arbitrage’,
where TDs can make significant
mark-ups on inventory, to be
acceptable, as long as you
are getting improved value
compared to the ‘traditional’
way of trading?
21% Yes
64% No
15% Don’t know

4. THE STATE OF AGENCIES
4Join the conversation at inciteMC.com and via @incitemc
Source: WFA Guide to Programmatic Media (2014)
By establishing direct relationships with the different parts of the value chain, brands retain more control,
purchasing only those services best-aligned to their requirements. However, this is by no means incompatible
with the incumbent agency model. Indeed, many private, ‘in-housed’ desks are actually run by agencies as a
‘managed service’. For example, GroupM last year created a private alternative to Xaxis, letting clients use the
technology of their choice but execute the buy through GroupM’s buying agencies, like MEC and Mindshare,
instead of the central ATD.
This portends a reshuffle within the holding companies that may be of longer-term significance than the in-
housing trend. We could see media-buying (that is, programmatic execution and the ownership of the data)
moved partly into brand marketing teams and partly (back) into agency buying groups. This may result in
agencies losing some execution work; however, execution in the programmatic era represents a shrinking
part of the pie anyway. The lion’s share will be in data products and media-planning services, something the
current ATDs, as they evolve, may have a significant opportunity in. This appears also to have been recognized
by the major multi-service consultancies and tech firms, who have begun developing media practices of their
own. Whether the firms that win the services battle will choose to call themselves ‘agencies’, ‘trading desks’ or
‘programmatic product companies’ remains to be seen. What is certain, though, is things will remain in flux for
the near future, and everyone needs to prepare for what comes next.

5. MEET AND WORK WITH MAJOR BRANDS:
The Incite
Programmatic
Summit
May 4–5, New York City
The here-and-now of
programmatic marketing
and frictionless
ENGAGEMENT
Senior Executives from brands, agencies and publishers answer
your questions on the future of programmatic advertising
Speakers:
Brands, Agencies and Publishers – all in one place, including:
Wells Fargo
Michael
Lacorazza
Senior Vice President,
Brand and Advertising
IPG
Mediabrands
Matt Seiler
Global CEO
Activision
Jonathan
Anastas
Vice President, Global
Brand Marketing
USA Today
Chris Pirrone
General Manager,
Sports Digital
Properties
Lenovo
Gary Milner
Director, Global
Digital Marketing
The Weather
Channel
Jeremy
Hlavacek
Vice President,
Programmatic
Cadreon
Arun Kumar
Global President
Prudential
Anna
Papadopoulos
Vice President,
Integrated Media
Services
Disruption
and agility
Programmatic
everything
Video as the
new display
Customer data
& user behavior
What needs to
happen internally for
programmatic to thrive
at your company
Move beyond just
digital and prepare
for programmatic to
take over TV, mobile,
outdoor and more
Prepare to flourish
in new forms of digital
advertising
Data to serve your
business goals
what you’ll learn: