Mondelēz innovation head Pete Mitchell: Media agencies need to ‘grow up’ and stop arbitrage
Mitchell
The head of media innovation at one of the world’s largest advertisers has hit out at media agencies for the practice of arbitrage – not disclosing to their clients how much money they are making on programmatic trading deals.
Media agencies need to “grow up” and “think longer term”, otherwise risk losing programmatic buying business to other players, Pete Mitchell, the global media innovations director for Mondelēz International said.
“Programmatic buying is at a crossroads, and media agencies can choose one of two paths,” he told Mumbrella Asia.
“The first is the short-term revenue path, where media agencies charge us [clients] for additional services such as machine-based buying of digital advertising, and there’s an undisclosed margin within that.”
Mitchell said that approach might be acceptable to some direct response advertisers now, which are seeing a massive reduction in cost per conversion through programmatic trading so won’t worry so much about arbitrage.
“But media agencies can’t do this [arbitrage] over the long term, when all media buying is done by machines, and expect clients to accept it. In what other industry does the supplier keep its client in the dark about its margin? It’s ridiculous.”
“Media agencies need to grow up and think about their long term relationships with clients,” said Mitchell, who spent all of his career working for media agencies until joining Mondelēz from Mindshare nine months ago.
The other path is for media agencies to “be upfront” and disclose the margin they are making on programmatic trades, Mitchell said.
“If media agencies say to us [the client]: ‘We’ll make a bigger margin out of you from programmatic than we do for other media channels, because we have the technology and we’re making products and services for you that you don’t have, but we’ll disclose what the margin is – that’s fine,” said Mitchell.
“If media agencies are upfront about their margins, they’ll retain and grow the business over the longer term, since more and more money is being poured into programmatic trading,” he said.
Mitchell said that arbitrage would not push all advertisers away from media agencies and prompt them to take programmatic in-house or deal directly with demand-side platforms, as a report last week from the World Federation of Advertisers found was happening.
“For big procurement-led companies like Unilever and Kimberly-Clark, taking programmatic in-house is too difficult. They might make some noise about doing so, but they really need an agency’s help.”
“So do we. We couldn’t take it inhouse. We don’t have the resource,” he said.
“If, however, you’re InterContinental Hotels Group, AirAsia or a finance firm, it does make sense to take programmatic in-house. Like search, it has become a really lucrative sales channel. These companies are hiring 20 people, putting them in a room and treating the programmatic business like a startup.”
Mitchell said that while a “handful” of advertisers may take programmatic in-house, most will continue to rely on agencies. The WFA survey found that there had been a 15 per cent fall in the number of big-spending global advertisers who use agency trading desks.
Mondelēz, which in Asia works with Dentsu Aegis Network-owned agency trading desk AmNet, has addressed the arbitrage issue by striking a global deal with ad tech firm Tube Mogul for video ad buying.
“By signing a global deal with a DSP, we’re dictating terms,” Mitchell said.
The arbitrage debate is a wake-up call for the way media agencies are remunerated to be completely re-thought,” Mitchell concluded.
“Clients need to pay for data, not the buying cycle. Soon all media buying will be machine-based, and there will be no value in buying, only in thought and strategy.”
“Putting data together to create a thought-provoking communications plan – that’s what we should be paying for. The margin on buying should be zero,” he said.
Mitchell’s comments come soon after Grace Liau, the head of media agency Vivaki’s agency trading desk Audience on Demand, said that clients who move their programmatic trading business out of ATDs to work directly with DSPs risk losing their data.
She cautioned: “If the market moves, is that one provider agile enough to move with it? And if you decide to switch, will you be able to take all your data and insights with you? Very often there is a significant cost both financially and in intellectual assets.”
Robin Hicks
topics
Advertising
arbitrage
chocolate
Dentsu Aegis
GroupM
Innovation
Marketing
media agencies
Mediabrands
Mediacom
Mindshare
pete mitchell
UM
Just as easy to say clients should grow up and pay a decent fee as it is unsustainable to have teams of people on your business at 1-4% margin.
works both ways
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not difficult to take programmatic buying in house at all. you just have to be spending enough to warrant the spend for the staff you employ. but also be aware that market exposure/opportunity is then limited to how proactive those staff are!
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^^^ Media Buyer … very well said.
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Arbitrage is bad, buying ads which no one sees and being arbitraged is worse. As a client of a “premium trading desk” who tells me they only buy from major publishers, I am constantly assured the inventory is safe and of the highest standard. I recently ran a check on viewability and found only 12% of ads i purchased on so called “premium” site were seen. My $5 cpm was more like $50.
Premium sites does not equate to premium inventory. These publishers are using the trading desks to clear out their garbage inventory.
More transparency please agency TD’s. I’ll pay $5, but don’t sell me the dreggs.
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so will he start paying media agencies fairly to accomodate this switch?
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Grow up indeed. The CPM measurement is near to useless.
Grown ups are concerned with what they’re paying per click.
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“In what other industry does the supplier keep its client in the dark about its margin? It’s ridiculous.”
Erm – Google, Facebook, Youtube, Yahoo… Do they disclose their margins?
When I buy a pack of Oreos, do I ask for the margins?
“If media agencies say to us [the client]: ‘We’ll make a bigger margin out of you from programmatic than we do for other media channels, because we have the technology and we’re making products and services for you that you don’t have, but we’ll disclose what the margin is – that’s fine,” said Mitchell.
What margin would be considered acceptable, Pete?
How do you expect the agencies to develop new products and services and have the talent without considerable upfront investments which of course need recouping?
If the agency are transparent that there is a margin and leave it up to the client to decide whether or not to select that as a solution, why should they be under pressure to disclose what the specific margin is?
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Bitching about banner ads, pffffff
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I once challenged a client to sign off on a deal which was direct salaries plus overhead, then add on THEIR profit margin – if they won we won, if they lost we lost. First thing the client did was to calculate the implied commission which came in just over 4 per cent when they were on three. NO WAY was the answer. Says it all.
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12 months later: “How much money is your DSP REALLY making” – by Pete Mitchell
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I completely, 100% agree that agencies need to be upfront – but purely because otherwise they will lose the business. There are many industries that are not upfront about the cost of things… if you buy a top from a store – you don’t know the cost price of it?? Agencies are becoming resellers… which is dangerous… as they can be cut out! We need to establish our value. Which comes back to strategy and experience. God forbid – we will have to do our job and add value!
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Having worked in the programmatic video space, I wonder if Tubemogul are declaring their margins on the inventory they procure from various SSP’s and publishers directly? “Tech Tax” is rife in this market, supply is low, demand is high and the same inventory is becoming available through more and more sellers – albeit at marginally different CPMs. ATD’s may be under pressure to declare margins, but the real eye opener will be in all of the other margins being accrued as the impression passes through the buy chain. The smarter clients seem to be the ones who buy directly from publishers and then utilise the services of a DSP to traffic and manage their campaigns – and only pay the tech fees – as opposed to buying exchange inventory for much, much higher than it’s actual value.
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