Disarming the Ad Bomb

by David Smith
Founder & CEO

*This article originally ran as a four part series on MediaVillage. It, along with Mike Drexler’s initial article and the responses from industry leaders, has been among the most-read and most-discussed articles in the history of MediaVillage.

Part 1 Mike Drexler has been an industry leader for over five decades. So when he talks we listen. Drexler’s recent article The Advertising Industry As We Know It Is About To Blow Up! resonated with many readers. All of Drexler’s points are valid, in that they are being talked about in the industry, but there are counterpoints and possible solutions that beg to be heard. 

Let’s dive right into Drexler’s first point, which speaks to the transparency issue that has put advertisers, agencies and media companies in a confrontational zone. “Agencies need to be assured of a reasonable profit and advertisers need to understand the significant investment agencies are making to deliver what they want. Media companies also need to understand the deal flow and that they can’t get in the middle of the advertiser/agency relationship to only serve their financial self-interest.”

Response: The lack of financial transparency across the digital landscape has led to a lack of trust on all sides. This was confirmed by the virtual no show of most major agencies at the 2015 ANA Masters of Marketing Conference in early October. The rampant spread of stories about arbitrage, kick-backs, agency discounts not being remitted to clients, and bogus fee arrangements between agencies and media properties has resulted in the ANA appointing two auditing firms to look into these situations. Mediasmith is (and has always been) among the agencies taking the position that it is the client’s money and that they should know where it is going. Agencies which practice full disclosure are important to the infrastructure of the industry. The client should always know the price and the mark-up for anything they buy from an agency (again, it’s their money). The agencies being investigated have said they have done nothing wrong. If so, the ANA owes them all a big apology. The agencies that are full disclosure applaud the recent ANA actions. Clients also need to take responsibility for their own due diligence by asking if their agencies are actually agents or just vendors. If you are going to use an agency make sure they are representing you as your agent, with fully disclosed media costs and fee structures, and are not selling you point solutions with opaque mark-ups.

Another of Drexler’s points speaks to the fact that client relationships are judged to be less than satisfactory. “Look at any survey among CMOs and you have the answer. But what really brings it to bear is the number of agency changes that continue to go on among clients. Unprecedented. What’s even more stunning (as was recently announced) is that a client who changed media agencies about two years ago changed again last year and recently changed back again to its previous agency about a year later (and the press release read about the same as it did the last time).”

Response: The Bedford Group (competitive to Drexler’s Drexler Fajen Group in performing agency searches) produced a white paper titled Client/Agency Relationship Sustainability. This piece outlines a number of issues that cause agencies to be terminated including turnover on both sides, lack of understanding of a client’s business, lack of relationship between strategy and creative, and a number of other cogent points. It also lays out some best practices for clients relative to trust, respect and overall treatment of agencies, permitting them to make a profit and a number of other ideas. Anybody on the client or agency side would be well off in reading this piece. After all, changing agencies is often much more expensive than fixing the current relationship. Interestingly, just because some businesses are churning over who they work with doesn’t mean anyone is getting out of the pool. They are just going to another, often similar agency. We need to all work together. True agencies need to stop acting like they are selling point solutions and clients need to stop treating agencies like vendors and more like partners. This is especially true in the procurement process. Procurement processes haven’t always been something that is done with the best interests of marketing considered.

Another of Drexler’s facts talks about clients wanting to bring certain operations in-house. Not only media but creative services, too. “With the advent of technology and automated processes, client in-house trading desks and strategic resources are gaining ground. Some are even bringing creative people on board. The reasons are primarily cost, data sharing, control and response time. Of course, many advertisers don’t fully realize the full cost associated with bringing communication and technology services in-house, but once they get started they will be committed to getting it right (with plenty of help from ad tech companies, consultants and the media who all expect to benefit in their own way).”

Response: Last year, Anheuser-Busch InBev’s decided to outsource media-buying, bringing about an end to the Busch Media Group. The fact that one of the biggest advertisers with the most resources could not make in-house buying work is a prime example of the resources and experience media buyers bring to the table. They apparently realized media buying wasn’t all about deal making. It is a complex landscape and if you don’t know how to navigate the terrain you will lose. Before bringing anything in-house a marketer should consider if they have (in addition to the media people), the engineering, adtech knowledge, data sciences and marketing analytics support needed for the initiative. We hope that going in-house is more than just hiring a DSP and letting the algorithm do the work. That’s akin to going back to the site network model, which was largely inefficient and expensive.

Part 2 Drexler has pointed at technology as the game changer that nobody has yet figured out how to best deal with. And “If you think programmatic buying is unsettling, with all that goes along with it, think about Fact #3.” or Ad blocking.

Response: With all due respect to Mr. Drexler, it is an exaggeration (maybe for effect) that “nobody” has figured out how to deal with these changes. At Mediasmith, we tackled this initially through crowdsourcing solutions. Everyone on our team became a resident expert in an emerging technology and sharing their findings with the rest of our group. The knowledge then permeated the entire agency and became a part of our culture that persists today. Yes, it is complex. There are too many new media technologies and too many vendors to deal with practically. But consolidation is in the air. While many of these technologies provide point solutions to client needs or agency/publisher/client pain points, there is no question that there is significant overlap and inefficiency in having to deal with so many technologies to launch a plan/buy and track success/optimize. Mediasmith, like many newer agencies, has made a point of studying these technologies to ensure that the correct ones are deployed for campaigns. If your agency is not doing this, get a new agency. There is no question that the metamorphosis from traditional ad buying to programmatic ad buying has opened the door to a host of issues surrounding the “ad tech stack”.

One of the challenges created by these technologies is ad blocking, which will be dealt with in our following response. The other challenges are in the area we label as Trust/Quality. This includes viewability, fraud and malware. There are a host of companies with solutions in this arena, selling their services to agencies and clients. But the reality is that these issues rightfully belong on the publisher and exchange side. Some are stepping up. Just this month, Google introduced 100% viewable ads. All campaigns bought on a CPM basis can be viewed through the Google Display Network (GDN). AppNexus announced that it would provide historical placement-level viewability in bid requests (and has started filtering for fraud and invalid activity such as resale). In March, the Ad Industry, working as a collective, launched the Trustworthy Accountability Group (TAG), which recruited multiple CMOs from big-name companies to combat industry-wide ad fraud. These issues need to be resolved ASAP so we can trust what we are buying and move on. The best solution would be one in which the publishers and exchanges promised to sell only “clean” inventory, without the problems mentioned above.

Drexler believes ad blocking really is a problem. “Digital ad spending continues to outpace all traditional media forms. And all traditional media forms are still trying to figure out what to do about digital platforms…Ad blocking technology can literally take down the industry unless proper solutions can be found. Honestly, it’s not a legal issue, it’s a consumer issue and a business issue. Content and creativity (including native advertising, product placement, sponsorship, etc.) will obviously play an important role, but ad blocking will change the monetization and metrics of digital media.” 

Response: Ad blocking is a very dynamic issue and every week something new comes out about what may or may not happen. IMHO everyone should relax about this. Ad blocking isn’t a new thing. Desktop browsers have been using ad blocking software (at a rate of about 15%) for years as have Android devices. From Q2 of 2013 to Q2 of 2014 the numbers of ad blocker users on Chrome doubled from 44 million to 86 million. And ADI reports Google has captured the marketing share of ad blocking from Internet Explorer. Companies have been vying for that title for a while. Ad blocking is only a new thing for Apple (iOS) users. The real rub will come when consumers begin to realize that these new ad blockers don’t block ads, they block all 3rd party content. And that ad blockers still allow advertisements through; they’re now just charging the advertiser for their content to be seen. The consumer appears to be the only one getting the short end of the stick on both accounts. What will happen when they realize this? I think you’ll see a normalization of ad blocker usage, back to the percentages they’ve always been. But either way, the recent attention is warranted. Invasive and inappropriate ads have gone too far. At a Wall St. Journal conference last month, Google ads boss Sridhar Ramaswamy spoke about this and other quality issues. He believes that it is essential to our survival that we create a more sustainable ad standard that we voluntarily define and things in that standard should not get blocked. He said this needs to happen right away and is looking to declare these standards in months. We support this approach.

What lies ahead of our industry is an exciting challenge, and publishers, advertisers, and clients are once again talking about what’s best for the consumer; what aids a user’s experience, not just what ad to place in the middle of it. I believe our industry should, and does for the most part, feel the same way. We need to work on methods to win back customer loyalty, keep a democratic World Wide Web, and create better advertising technologies. Acting as a proposed bearing for future practices, the IAB has admitted they messed up and launched the L.E.A.N. Ads Program: Light, Encrypted, Ad choice supported, Non-invasive ads. These principles are designed to guide the next phases of advertising technical standards for the global digital advertising supply chain. I hope that’s enough and that these practices will be refined until the best practices materialize and become gospel.

Part 3 Drexler believes advertising in all forms is not necessarily getting any better. “If you spend time with virtually any medium (on or offline) you can understand why ad blocking is so attractive. Sure there are exceptions, as there always have been, but advertising today seems to be more about getting attention than making genuine emotional connections.”

Response: Tell that to Coca-Cola, Nissan, Nike, Gap, Dove, P&G, and Budweiser to name a few. It could be argued that SOME ad creative has never been stronger. The new approach—story-telling, sharing personal, relatable life experiences to ultimately sell a product or service has replaced “speeds and feeds”, and “features and benefits” with how it makes you feel, or improves your life. Great storytelling informs Demand Generation—a more subtle approach to driving demand for an industry or product based on identifying pain points that a brand can ultimately solve. If good creative puts a face on a brand, the new creative approach puts a story in your mind. Xerox recently reinvented themselves with great storytelling, Apple (arguably the first, best storytellers), Google, Lenovo, et cetera. Tide caught on to storytelling and replaced their stale offering of features and benefits, with personal, humorous, relatable stories-attracting a new generation of couples and families. However, the drive towards immediate ROI can be a spiral of death. It is fueled by public companies who must always make or beat “The Street” in their quarterly sales and earnings. Back in a kinder/gentler world, most advertising was brand advertising. Sure, DR existed but in its own silo, often in its own time period. Today, every campaign seems to have a DR or DG component—often at the expense of establishing long term brand equity. And it is to a large degree these DR ads that lower the bar on standards. Companies have forgotten, or some are so new that they never learned, that responsiveness is much easier when you have brand equity. The industry needs to educate advertisers in this area. It’s not enough to say “Produce better ads”. The benefits of doing so must be clear. IAB/ANA/4A’s, this is worth funding.

Drexler also believes advertising isn’t attracting the talent it used to. “The agency business was not just about making money. It was art and science as well as financial interest. Writers and art directors had strong motives for doing great work (not just to win awards) and they understood the commercial side about building client sales. Big ideas, unique storytelling, compelling connections that sold products, that was the end game. Now the agency attraction has waned and, even worse, there is little investment in training young people. Get it from the get-go or find a job somewhere else.”

Response: I think this problem is interrelated with the always looming financial crunch. Cutting margins means cutting the biggest cost, which is people. If clients want strategic media planning and buying, they are going to have to start paying for it again rather than use each agency change or contract review as a reason to reduce compensation. Training isn’t just taking the time to develop talent, it is also taking the time to truly understand a client’s business. For an agency to be truly effective, they must be a marketing partner. Or the agency model as we know it is doomed to fail. Especially in the creative arena. Interestingly, according to estimates by Amy Hoover, the president of Talent Zoo, a reported 50% of jobs in creative aren’t at advertising agencies—they are at Facebook, Google, Vice, Apple, BuzzFeed, et cetera.

From a media perspective, it’s also a function of funding. The slim margins in media result in a training ground, but one where media folks flee to the tech companies who are sometimes offering as much as double the pay with unlimited vacation and other benefits. The long term question for the tech companies is whether this is sustainable. Right now, the tech companies don’t have to make money. But as they do, aren’t their salaries likely to be more in line with the market? And can a job at a vendor be as satisfying long term as one at a strategic partner?

Drexler thinks the above also might have been exasperated by the rise of the start-ups, which offer full support and flexibility to clients. “Personal service and unequivocal commitment has also given rise to smaller creative shops in addition to specialized media agencies, consultants and ad tech companies who dedicate themselves to clients in a way that used to be mainstream.”

Response: The rise of startups and the talent drain are interrelated. As stated above, the startups seem to be able to afford to pay the same people more than the agencies. As such, many of the marketing tech companies are supplanting agency services. It almost seems like agencies should be recreating themselves in the image of startups, with small specialized media agencies, consultants, et cetera. Perhaps agencies have grown too big? Jay Chiat used to say, “How big can we get before we get bad?” It’s possible that the big agency model will start to become a thing of the past. What good is a global AOR if you have to operate differently in every country? A team that works on a single piece of business (whether it be media or creative) can exist just as well in a shop of 50-200 as in an agency with thousands of people. The advantage of clout that these large holding companies seem to have is starting to disappear because technology is the great leveler.

Part 4Another point in Drexler’s reasoning for why the ad industry is on the verge of blowing up rests with the influences from Wall Street and the fact that most big advertisers are public companies. “They need to keep that stock price up. Show top line growth and good margins. Most agencies are owned by public holding companies, too. The financial pressure is on both sides. So what do you think motivates the business? In my view it’s immediate ROI. If that’s the game it’s being played on a quarterly basis. Maybe that’s ok. But it becomes a very high risk business with a lot less incentive to invest. And that can drag down even the best intentions.”

Response: Companies used to look at new programs as investments with year or two payouts. That’s how sustaining companies were built. Two of the most successful companies in history, Apple and Amazon, aren’t short sighted. They have concentrated on building businesses rather than thinking quarter to quarter. As agencies, we need to be able to pay attention to quarterly needs but also provide marketing leadership for issues and opportunities that are 24 months out.

A recent article in the Harvard Business Review called Don’t Let Big Data Bury Your Brand reinforces the need for what we have always called Branded Response. It is a retort to the immediate ROI game that is being played by all due to pressures surrounding quarterly earnings. The playbook that comes out of this piece includes 1) strategies and tactics such as using insight to take advantage of the news, 2) making every piece of messaging do double duty (response and brand), 3) pulling brand level insights from big data, 4) using data to make the case for brand building (remember the 18-24 month payout?), 5) don’t do it if you can’t defend it, and 6) getting branders and analysts to cooperate. I agree with Mr. Drexler about the extent of this problem. The HBR article represents a great start in the right direction.

Lastly, Drexler believes we are drowning in overwhelming data. “That’s good as long as we know how to interpret it with the right people communicating it correctly and effectively in simple language. The advertising business, particularly media, has a lexicon all its own. And digital speak has made it almost a foreign language. Let’s get back to straightforward discussions that all participants can understand. Otherwise we subject the industry to misinterpretation, frustration and clients who don’t have the tolerance for sitting through meetings with a lack of comprehension.”

Response: Back when he was at Internet Profiles in 1996, Bob Ivins was the first to liken our growing data problem as “Like trying to take a drink out of a firehose”. It’s still true today. The reality is that the world is more complex. For example, many media plans used to be evaluated based on GRP’s, Reach, and Frequency. However, the complexity of media—driven first by tech, but increasingly by the adoption rates of consumers—produces a world where more needs to be measured. The combination of engagement, influence, sharing and many other factors is where the true picture is drawn. The media epoch of broadcast and print was straightforward! But each new layer of media—digital+mobile+OTT+IoT+whatever is next—has a different aspect relative to consumer involvement. The true media mix professional of today has to have a much deeper understanding of how various media can complement each other more than ever before. We do need better tools to absorb the data into our systems (ETL, etc.) and people with different skills in analytics and math to interpret the data. We choose to look at it as an exciting challenge, not daunting. However, we do agree that the agency practitioner today must be able to explain all of this in a way that the client can comprehend. That does not mean dumbing it down. It means opening up the channels of communication. As far as data ownership, Mediasmith comes down on the side of client control. This gives the client the ability to utilize multiple specialty agencies that are best of breed, all drawing from the same DMP. DMPs can be limiting though, and we are visualizing a new class of data company that combines the in-house and historical data repository of a DMP with current campaign performance data.

In concluding this series, many of Mike Drexler’s facts and my responses have reoccurring themes with interconnected solutions. This isn’t rocket science and most of the answers are centered on using common sense. Transparency: be honest with your clients. Transparency: don’t steal. Ad Blocking: don’t be annoying. Ad Blocking: be creative. Data: understand who you are. Data: understand who you aren’t: Most importantly, CLIENTS and AGENCIES need to start looking at one another as PARTNERS and clients need to be checking that their agencies are in fact acting as agents. Sometimes we need to take a step back and look at the big picture. That’s what we’ve tried to do with our responses. We would love to engage in further conversations on these and related topics.