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Last year, I wrote that the digital agency was dead. I was mostly talking about how platform technology was going to knock a lot of digital media agencies out of business. In a world where over five trillion banner impressions are available every month, I argued it was simply too much for humans to navigate through the choices and wring branding effect and performance out of campaigns.

Well, digital media agencies are still around—but they continue to lose share to platforms as the amount of programmatically bought media increases. With RTB-based spending estimated to rise at an annualized rate of nearly 60% a year, according to market intelligence firm IDC, we could see as much as $14 billion in spending by 2016, or 27% of total display spending. Looks like the machines are slowly taking over.

Fairfax Cone, the founder of Foote, Cone, and Belding once famously remarked that the problem with the agency business was that “the inventory goes down the elevator at night.” That’s a big problem for an industry that relies on 23 year-old media planners to work long hours grinding on Excel spreadsheets and managing vendors to produce fairly mediocre media plans.

Has platform technology and the ascendancy of first party data made digital media agencies even more irrelevant? 

Cone was talking about IP—what, exactly is the digital agency’s core intellectual property when the majority of the work seems to be hard labor? Digital creative agencies have no such worry. In this world of ubiquity, where everyone has access to wonderful SaaS-model technology that enables real-time bidding and access to trillions of exchange-based advertising  impressions, the one place an agency can make an impact is on the creative side.

Agencies that can create the miracle of getting more than 1 in 10,000 people to click on an ad, or watch a :30 pre roll video to completion are considered geniuses. But, what about the media shops? Can they really buy more efficiently than machines? More importantly, can they leverage the right machines to once again own the middle position between the advertiser and his prospect?

As I write in my recent report, looking at the history of display advertising, the future doesn’t favor the agency. In the beginning, agencies’ favored relationships with publishers made them a great way to buy media. Publishers aligned their content with the audiences that advertisers wanted (ESPN for sports enthusiasts), and largely controlled their inventory and audience data.

Soon enough, the Network Era told hold, and smart companies like Tacoda started segmenting audiences based on context and behavior. By using technology to understand audiences better than the publishers themselves, they put yet another layer of IP between agencies and audiences. Then the DSP Era started, which further decoupled audiences from media. Agencies scrambled to create new vendor relationships with the MediaMaths of the world—but grew nervous that they would be disintermediated, and formed their own trading desks. This era is now evolving in the DMP Era. 

After all of promises of easy audience targeting and automation, advertisers are looking at the same disturbingly low click-through rates, near impossibility of true attribution measurement, and spending waste—and determining that their own data is more valuable than most data that they can buy. Their desire to activate their “first party” data has given rise to the “DMP era.”  Andy Monfried, who has brought his company Lotame through this transition, sees it this way:

Agencies are attempting to become technology providers for their clients, and from our perception, clients are hesitant to adopt. The larger agency holding companies have made an attempt at understanding first-party data but have come to be just a solution for clients to leverage third-party data. This is due to the lack of agency technology and lack of trust that clients put in agencies accessing their first-party data in a raw state.

So, what happens now?

Are advertisers simply going to license DMP technology, and build small practice groups for audience segmentation, targeting, and analytics? Or, are agencies going to adopt and learn how to become the centralization point for evaluating and helping clients implement new advertising technology?  Media Kitchen digital head Darren Herman thinks the way through the trees is through education:

We are super bullish about teaching our strategists to learn the skills of data scientists. While the average media strategists will probably not have the skills of a robust data scientist with a PhD, from Stanford, an entire organization that learns to embrace data and make it useful will be more powerful than a few data scientists sprinkled [through] many.

Knowledge of how to action data must both come from the top down and bottom up and be embraced by all. Building a culture that does this is hard as many people resist, but retooling and finding people who want this type of career is what we’re doing.

Is your agency ready to hire a data scientist? Looks like the days of agencies hiring armies of English majors is over, and the next MIT recruiting session you see may have a few agency folks in attendance. Are digital media agencies dead? The data says not yet.

Chris O'Hara

Published 13 December, 2012 by Chris O'Hara

Chris O'Hara handles strategic accounts at Krux, and is and a contributor to Econsultancy

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Comments (2)

Malcolm Duckett

Malcolm Duckett, CEO at Magiq

Chris I really like this. Understanding how we harness all the customer data that is washing around is a really interesting topic, and even more so understanding the role that agencies will play in this process.
Our current experience/analysis suggests the following (even though this is a more "general marketing" rather than "ad selling/serving" view):
The marketing technology is certainly available to understand and profile your online audience (and if you want to go the whole hog, also integrate offline too)...
...and the same technology is able to automatically deliver appropriate "content" via the web, email, phone automatically and in real-time...
...and increasingly these tools are really very easy to use, and with SaaS, very affordable too.
But a common stumbling block for marketing teams seem to be deciding who to target and with what.
This to some extent speaks to your point about the continuing value in the creative agency in developing the right "content"... but we also seem to see a strong demand from portions of the customer base for agencies who can also help them imagine and implement the campaign (using the available tools/services).
So we see a strong role for agencies who can work with a customer to wield the tech to understand their audience, conceive of campaign ideas and implement them. The good news is that the technology means that this should be achievable within the budgetary grasp of 90% of the online businesses.

over 3 years ago

Chris O'Hara

Chris O'Hara, VP, Strategic Accounts at Krux

Thanks, Malcolm. I think you are spot on.

over 3 years ago

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