Is the elephant in the room quietly stifling the digital advertising ecosystem?
In recent years, we’ve seen one brand owner after another part ways with their advertising agencies and bring their digital marketing operations in house. Why? Simply put, the current digital media marketing industry is not incentivized to maximize advertiser return on investment. And what’s worse, everybody knows it but few are talking about it. For brands, that’s more than enough reason to want to repatriate their online advertising operations.
What went wrong?
A number of factors contributed to the growing sentiment of dissatisfaction. First, there was the advent of new ad platforms—Google, Facebook, etc.—that offered a self-service model, large audiences of engaged users, specific campaign-optimization controls and a pricing structure based on supply and demand. These options suddenly made it more feasible for brands to take charge of their digital advertising initiatives while getting more for their money.
Unfortunately, the ad industry has been very slow to respond to this new reality. Instead of revamping the revenue model, the various players in the digital advertising supply chain turned a blind eye and clung to their old linear system, in which each intermediary is incentivized based on a contractual revenue model. This encourages them to make decisions that are not entirely aligned with the advertiser’s established target—and the result is misaligned interests.
Here’s a simplified map of the digital advertising supply chain, including the respective incentives and expected behaviours of each intermediary.
The purpose of this map is to provide marketers and publishers with a common understanding of the forces at play and offer a starting point to initiate business discussions. The idea is for the ecosystem to better serve the brand advertisers so that they keep spending money within the media ecosystem.
The misaligned interests shown above aren’t a new problem, but the issue was compounded by the recent addition of new technology platforms and products. With more intermediaries, the potential for distortion increases. To make matters worse for advertisers, the industry is plagued by confusing technical jargon, commoditized differentiation, hidden fees, truth bending, obfuscation and even rumors of fraudulent activity. All this adds friction to marketplace interactions and leads to inefficient and underperforming budget spending.
A need for industry self-governance
The inertia with the digital marketing ecosystem is slowly—or not so slowly—spelling trouble for the industry. Failure to address alignment-of-interest issues could lead to substantial losses in business opportunities for traditional ad space suppliers as brands choose to in-house their digital marketing operations and focus their spending on modern self-serve platforms.
The actors need to acknowledge the problem in the payment incentivization model. They need to come together and find a more responsible solution that puts advertiser interests first. There’s no question that this may result in a short-term loss of revenue from the clients they still have—of which there are still many—but it’s the only way they can protect their long-term viability.
Until this happens, the in-housing trend will continue, especially among brand owners who can afford building their own digital marketing teams. If the task looks daunting, an impartial external consultant can help with the transition, streamline the in-housing process, and bring some much-needed transparency into the media procurement strategy.
For advertisers that don’t have the budget to set up an entire internal digital marketing department, having at least one solid specialist on board is crucial. They’ll need strong communication skills to express goals and expectations to their external marketing agency, as well as the ability to walk the line between being a cooperative customer and a savvy digital wrangler to keep the agency in check.
Jonathan Brunelle, Consultant @ Digital Minimal