Programmatic buying: Clients and agencies locked in war of trust

Programmatic buying is taking off in Asia-Pacific, led by Japan, China and Australia. A study by eMarketer and IDC forecasts that Japanese adspend on RTB tripled in 2012  and will grow 80 per cent this year, while China is expected to grow 300 per cent, with the rest of Asia-Pacific set to follow suit in 2014. 

It is perhaps this rapid growth that has clients doubting trading desk transparency. Client concerns centre mainly around the fee agencies charge over and above media costs and the use of arbitrage by audience buyers .

A recent study by the World Federation of Advertisers (WFA), which surveyed 46 MNCs, showed that 83 per cent of clients found media trading less transparent than traditional methods. 

“While our members are definitely seeing value in trading desks, with 65 per cent reporting lowered CPM [cost per thousand], they’re finding that some agencies are setting limits on what can and cannot be audited,” says WFA marketing communications manager Rob Dreblow.  

Darren Woolley, MD of marketing management consultant firm TrinityP3, says the debate is driven by clients obsessed with the cost of media. He finds that advertisers expect precise breakdowns so they can ‘manage the profits’ their agencies make. 

While marketers and procurement officers agree that media agencies should make a profit, the question is: how much? “Ask clients what they think is a fair profit and they’ll tell you six or 10 per cent. This is from companies that make profits of 20 per cent or more,” says Woolley. 

Dreblow, counters that WFA’s members want their agencies to make a profit, but desired “full transparency on how their money’s being spent”. “Clients are facing limits on what sort of loading’s going on in the inventory,” he says. 

The agencies don’t see the issue in the same light. “When you buy a bottle of shampoo, the brand doesn’t justify the retail price to you by detailing its profit margins or how many people were involved in its production. It doesn’t make those companies less transparent. Why then, when agencies charge for intellectual property, does it make us opaque?” asks Arun Kumar, president, G14 markets at Mediabrands Audience Platform. 

One of the biggest myths, says Kumar, is that agency trading desks are making 40 to 50 per cent profit margins. “To build a trading desk takes a huge amount of investment in terms of talent and technology — don’t believe everything you read.”

Unfortunately, says Woolley, clients are eager to discount the value this investment brings. “Clients are asking, if it’s automated, why do I have to pay for it?”

One industry source points out that clients also feel antsy because they don’t fully understand how trading desks work, believing they are making money hand over fist at the expense of marketers. 

Education could be a way forward, agrees Dreblow. In an earlier study, the WFA asked its members how confident they were in their knowledge and experience of demand-side platforms. Only eight per cent said they were very confident.”

The biggest issue, he says, is around the issue of arbitrage, where agencies bulk-buy from publishers at a discount and sell to advertisers. The top issues keeping clients awake at night is that they are unaware of the premium agencies are placing on resold inventory and that the agency may be motivated to offload unsold inventory. 

Michel de Rijk, MD of Xaxis Asia-Pacific brushes these doubts off, saying that the issue is driven by sensational journalism and companies negatively affected by the rise of programmatic buying. “When we have conversations with clients it’s because they’ve been approached by these parties or have read an article,” he says. 

When it comes to the use of arbitrage however, Xaxis is the exception among trading desks, says a senior audience buyer. Neither MAP nor OMG’s desk, Accuen, for example, uses arbitrage. 

“IPG does not do arbitrage, we’ve stated it up front and declared it to clients,” says Kumar. “We’re about RTB; you can start and stop campaigns in 24 hours and there are no exclusive partnerships where I’ve pre-blocked media and am trying to offload it 

Despite their openness in adopting this method, Xaxis remains Asia’s leading media trading agency. 

“We buy it in bulk, when the seller wants to sell instead of when the buyer wants to buy and we assume that risk. We enrich the media and sell that on to the client at incremental value. We can’t be biased because as long as we prove the product works better, is beating earlier benchmarks, we have no chance of offloading inventory to the client that doesn’t work for them,” says de Rijk.

But Dreblow has noticed that a small number of WFA members have opted to work with independents or have set up their own trading desks. 

“If the issues between agencies and clients aren’t resolved this practice could potentially become more widespread.”

In contrast, Woolley believes it’s the clients who need to shift their mindsets away from cost cutting towards value. “Smart marketers who inspire agency trust will benefit most in the end. It shouldn’t be about control, it’s about paying people for the value they are yielding for you and ultimately having the agency and media owners aiming to generate more value for you than anyone else.”