What Business Are We In?

24 April 2014

In a time long, long ago (October last year, to be precise) I posed the question: “What business are the media agencies (and more specifically their sibling trading desk partners) in?” You can read the original post, called Traders 0; Ideas 1 here.

I have been prompted to go back to this issue by an excellent article in the US publication Media Post by Joe Parchese, (here). In his piece, Joe makes a comparison between the online media business, and the sub-prime housing crisis of 2008. His point is that the root cause of what turned into financial meltdown was the practice of loaning money via mortgages to people who were most unlikely ever to be able to repay. Explained on a one-on-one basis no-one could ever think anything other than that this practice would have disastrous consequences. Why lend to someone unable to repay with the loan secured on a property worth less than the loan?

But, as Joe points out, wrap many thousands of these loans up, add the requisite amount of incomprehensible financial jargon and suddenly you’re in a position where you can fool many people for a great deal of the time. Although not everyone for all of the time as it turns out.

Online advertising is a little like that. It doesn’t really matter whose figures you believe, a very great deal (30%? 40%? 50%?) of ad impressions are never seen by a human, and even if they are seen they’re seen fractionally and fleetingly at best. So, why would any advertiser make a decision to spend money on a medium a large part of whose audience doesn’t exist? But add a pinch of fashion and a sprinkle of salesmanship, garnish with some meaningless mumbo-jumbo and guess what? A business is born.

A media professional’s job used to be easy to explain. Place the right ad in the right place to be seen by the right people, and measure whether it’s worked or not. In other words media people were in the ad business. Clients paid the bills; an agency succeeded or failed on the back of the quality of the work produced, and the number of clients attracted and retained.

Today the long-ago debate as to whether or not agencies should become publicly quoted businesses, or whether in so doing they would find themselves conflicted between the interests of their clients and those of their shareholders seems ridiculously arcane not to mention quaint. And yet today there are echoes of relevance – as more and more media agency (and technology partner) revenue comes from suppliers as opposed to clients – and this at a time when the media agencies are under pressure to continue to deliver margins significantly above most if not all of the other disciplines owned by their holding companies, thus keeping the holding company’s shareholders happy.

I suspect that these days many media agency hours are spent working out how to increase revenue from trading; maybe even more than are spent debating how best to grow the client’s business. In the midst of which the advertising per se becomes almost an irrelevance.

When Sir Martin Sorrell made his much quoted remark about the maths men taking over from the mad men he was reflecting a rebalancing of the disciplines within the ad business. Rebalancing doesn’t mean losing sight of the overall aim – which surely must be to use your professional skills to help your clients succeed.

Clients want to believe that the agencies they hire will work towards that aim. They believe that the media end of the advertising equation will do what they always set out to do – place ads – even though they will do it with a great deal more knowledge, insight, creativity and sheer professionalism than ever before.

In effect clients think media agencies are in the ad business. I’m not sure that many trading-driven organisations agree. And that’s where many of today’s problems between agencies and clients start.