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The incentives Google gives to ad agencies who buy media space on its properties are, in part, fueling a cesspit of conflicts of interest among those agencies, and hurting clients as a result, to hear the trade press tell it.Ad Age, DigiDay, and TechCrunch normally treat adtech executives like gods. But over the last year they’ve kept up a drumbeat of stories suggesting that the way ad agencies use their own trading desks to buy online ad inventory—from Google and elsewhere—is somehow unseemly, verging on the fraudulent, or possibly even illegal.
The stories threaten to tarnish the names of the agency holding companies’ trading desks, which include Interpublic Group’s Mediabrands Digital Exchange, WPP’s Xaxis, Publicis’ VivaKi and Omnicom’s Accuen.
The world of agency trading desks—the automated buying systems that ad agency holding companies use to buy ads for clients—is a complicated one. They compete for advertisers’ business against so-called “demand-side platforms.” DSPs are independent and develop their own ad buying technology; agency trading desks are owned by ad agencies and often licence their ad buying technology from someone else, often a DSP.
What clients don’t know
The agencies, naturally, deny they’re doing anything wrong and generally argue that their negative reputation stems largely from clients’ lack of understanding of how online ad buying works—and propaganda from their DSP rivals, against whom they compete.
(It is, to be fair, extremely complicated. In 2010, for instance, the ad chiefs at Mercedes-Benz, Lexus, Honda and Volkswagen were caught on video confessing that they didn’t know what DSPs or agency trading desks were, even though they spend money through them.)
The nut of the complaint against agency trading desks is this: Agencies take fees from their clients to buy ads on the web. Those agencies then pass a portion of those ad budgets to trading desks, which are owned by the same parent company. The desks then take another cut for buying the ads. That’s double-dipping, critics say, and clients should pay more attention to it.
The person who has perhaps been loudest in making that accusation is Zach Coelius, CEO of Triggit, an independent DSP.
His accusations are “bullshit, bullshit” says Mac Delaney, vp/brand relations at VivaKi, who angrily debated this issue with Coelius last year at an industry conference. “Clients approve their plans. It’s naive and insulting to say they don’t.” Delaney got so angry that near the debate’s end, he called Coelius a “preschooler.”
To make matters murkier, Google—the largest single seller of ad space on the web—offers financial incentives for agencies and DSPs to place ads on its properties. At least one agency, Publicis, has been accused of taking “kickbacks” or “rebates” from Google. Publicis has denied that it does anything wrong, but Google told TechCrunch last year that it invests in the VivaKi trading platform at Publicis, and offers the agency co-marketing deals and training.
Lots of businesses offer incentives or discounts to bulk-buyers. The problem in this case is if the incentives go to the agency, not the client whose money is actually generating the incentives in the first place. On top of that, Google’s incentives imply that ads might get placed on its properties even though they may perform better with other media providers who don’t offer Google’s incentives.
A source on the DSP side of the business tells us that agencies get away with this because they provide so many deeply embedded services for clients, across multiple media, that it is onerous for a client to opt out of using an agency’s trading desk.
What they’re saying
Here’s what the trade press is saying about agency trading desks:
Ad Age: Presenters and questioners raised issues of transparency, kickbacks and agency self-dealing surrounding the digital-ad-buying phenomenon. Yet the biggest problem may be lack of information. In a fairly sophisticated crowd largely composed of corporate marketing procurement managers, fewer than 10 said they had extensive knowledge of agency trading desks.
More broadly, [ANA group vp Bill] Duggan said some marketers see trading desks as “double dipping,” since clients pay agencies to manage media and then also pay agency trading desks a margin to buy it.
DigiDay: There is double-dipping within many agency/trading desks, and your advertising dollars are not as impactful as they have been. The tires need to be violently kicked at a trading desk before agreeing to allow your dollars to go through there. Also, the big publishers need to man up, regain their integrity and pull out. Madoff pulled off his scheme under the watchful eye of the SEC. You think the same thing isn’t happening under the oh-so frightening eye of the IAB?
DigiDay: Many holding companies have opted to take financial positions in the vendors they do business with, for example. They charge advertisers once at the agency level, but they also stand to see upside at the vendor-level, too, through their investments.
DigiDay: After all, there’s something inherently fishy about an agency that’s supposed to be unbiased funelling money through a vendor that’s a sister company.
“A lot of the clients I speak with are becoming more and more concerned about the mandates and conflicts of interest,” said Joanna O’Connell, a senior analyst at Forrester who helped build Publicis’s AOD trading desk technology during her time working at Razorfish.
TechCrunch: Publicis, is pushing a ton of advertising dollars through Google in return for what two industry insiders independently refer to as “kickbacks” or “rebates.” Kurt Unkel, an SVP at Vivaki (the digital arm of Publicis) flatly denies there are any payments of this kind.
What Google says
Here’s Google’s ad policy. The search giant is clear that it provides incentives to advertisers:
Google offers incentives to accelerate the adoption of and investment in Google’s advertising programs. These incentives are offered to participating advertisers and persons who place advertising on behalf of others. Advertisers and those who place advertising with Google on their behalf may receive financial incentives, including but not limited to credits to help fund their campaigns.
We also talked to an insider on the agency side this week, and he confirmed it was complicated and that there was potential for abuse. “Double-dipping” was a particular issue, this exec said, but “sophisticated clients won’t tolerate it.”
However, the source noted, DSPs such as Triggit have a vested interest in running down agency desks because they compete for their business.
And DSPs have their own dirty laundry, our source says: One way DSPs can make money is by promising clients to increase ad performance. In that scenario, the DSP simply buys the same media at a lower cost, and keeps some or all of the difference. The ads themselves don’t actually perform better, they just look as if they do because they’re cheaper. The ads are cheaper because they’re lower quality exposures. (An ad that’s being shown to a consumer for a 15th time in succession costs a lot less than one that’s shown the first or second time.)
A shakeout is coming to the business. At a recent Association of National Advertisers’ conference, a panel on trading desks was attended largely by client procurement executives—the advertiser audit staff tasked with rooting out excessive payments to ad agencies. They heard that, already, some advertisers are refusing to work with agency trading desks, “owing to a host of concerns that can be summed up broadly as ‘lack of transparency.’ Among them are allegations of ‘double dipping,’ publisher kickbacks, and holding company mandates,” according to AdExchanger.
They are not likely to tolerate that kind of behaviour, should they find it.
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