The Rise of Transparent Digital Ad Buying

By Alexandra Bruell Features Dow Jones Newswires

As marketers push for greater transparency in how the murky world of digital ad buying works, agencies are rethinking their approach.

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For the past several years, as automated ad buying has taken flight, agencies have made a lucrative business out of running an arbitrage-based model -- buying digital inventory in bulk and then marking it up for advertisers. The clients didn't cry foul, because they were happy with the performance of digital campaigns or because they weren't clued into the complexities of digital ad buying and agency profitability.

But now marketers are becoming less comfortable with that approach, and more interested in knowing the underlying cost of the media inventory and agency support that they purchase. Agencies are evolving in response.

At Omnicom, clients are opting for an "unbundled" deal structure, which "puts us in a position of treating it as if we were their agent and not selling them a product," said Omnicom Chief Executive John Wren on an earnings call last month. An unbundled model typically involves itemizing costs instead of the approach in which media costs are bundled with agency and tech costs. That has had an impact: the company said first quarter revenue from digital ad buying group Accuen was "basically flat" and "down slightly" in North America -- a shift from previous quarters of growth.

Changing client requests also were one motivation for WPP to elevate transparent buying within its digital ad operations last September, executives at the company say. Dentsu Aegis, which already was focusing on transparent ad-buying in recent years, continues to invest in that approach while offering clients new controls for when they choose to buy through a model that masks costs.

A report last year from the Association of National Advertisers and corporate investigative firm K2 Intelligence outlined the many ways in which agencies have been making money through digital ad buying operations. The report motivated advertisers to take a closer look at their agency relationships and buying models.

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Since the findings were published, powerful advertisers like Procter & Gamble's chief brand officer, Marc Pritchard, have called for more simplicity and transparency in digital ad-buying processes that have grown increasingly complex. Mr. Pritchard said during a conference in late January that the company is poring over every agency contract for "full transparency," including provisions for rebates to be returned and transactions to be subject to audit.

"What the k2 report did, if nothing else, is it forced more marketers to pay more specific attention to more of their contracts than ever before, " said Brian Wieser, a senior analyst at Pivotal Research. Now, he said, "They want to know how much everything costs," and they want "transparency in their agency fees, for the most part."

Arbitrage has been controversial due to the potential for conflict of interest when an agency acts as both buyer and seller. Advertisers also like the more transparent model because it enables them to benchmark costs and fees against other providers, and possibly "squeeze agencies on fees," said Mr. Wieser.

Ad companies including Publicis, Interpublic, WPP and Omnicom have broadly denied any wrongdoing related to the findings of the K2 report.

Digital trading desks fueled growth at agency groups when clients started buying more digital ads a little over five years ago. According to the ANA report, markups on so-called "principal" transactions -- in which agencies take ownership in media they sell -- ranged from approximately 30% to 90%. But growth from some of these more traditional digital ad models has slowed, forcing holding companies to evolve.

"We don't expect that [Accuen] is going to go back to the growth profile we had in prior years," said Philip Angelastro, Omnicom Group's chief financial officer, on the company's first-quarter earnings call. Still, Mr. Wren added on the call that the underlying business is healthy, and that the flattening out at Accuen merely represents a shift to a different buying model. "The way that we offer those services are on a bundled and on an undisclosed basis," he said. "A lot of the clients have shifted to wanting those services on a fully disclosed basis."

Dentsu Aegis, an agency network owned by Japanese company Dentsu Inc., has been witnessing the change in clients' preferences for years. From about mid-2015 through most of 2016, about 50% to 60% of a small group of clients that had opted into the company's non-disclosed buying model moved over to alternative models that offer more transparency into the costs associated with the ad buy, said Robert Horler, U.S. CEO of Dentsu Aegis.

"We're definitely moving more toward a disclosed model," said Mr. Horler. "That's been happening for some time." Mr. Horler said that "non-disclosed" programmatic buying only makes up a small part of Dentsu Aegis' overall programmatic business.

To eliminate future concerns around the non-disclosed buying model, the agency group last year introduced a "double opt-in" process, which asks clients to sign off on a programmatic media plan, on a "line-by-line basis," every time a campaign runs. Dentsu Aegis last September acquired digital buying firm Accordant, which helps clients buy media on a model that discloses costs.

At WPP, media agency network GroupM raised the profile of its transparent ad-buying operation by moving it into a new central digital buying unit called mPlatform. The platform, which connects digital trading with other digital buying functions like search, promises "completely open and fully transparent data and technology architecture, " the company said during its announcement. It was a major shift for GroupM, whose Xaxis digital buying operation, which uses an arbitrage model, had long been touted as its main programmatic offering. Xaxis continues to offer its arbitrage model, but GroupM is making it a place where clients can buy based on outcomes, like guaranteed completion rate on a video, versus just the common metric of cost-per-thousand-impressions.

More clients are buying through mPlatform and the performance-based offering at Xaxis, said Brian Gleason, chief executive of mPlatform. "I don't think the ANA was the only contributing factor [driving change]," he said. Broader digital ad ecosystem concerns, such as controversies over measurement and brand safety, influenced clients. He noted that the timing of mPlatform's launch also had to do with the advancement of GroupM's data and technology capabilities.

"Everybody wants to make sure they're getting true value out of where they invest," he said.

Write to Alexandra Bruell at alexandra.bruell@wsj.com

(END) Dow Jones Newswires

May 08, 2017 06:14 ET (10:14 GMT)