May 02, 2013

Time To Clean Out The Stables

Earlier this week I posted a piece called Online Advertisers Getting Hosed.

In it, I discussed the alarming amount of fraud being perpetrated against naive and confused online advertisers.

But there's more. Not only are online advertisers getting screwed by crooks, some of them are also getting screwed by their agencies.

For those of you who are too busy having a life to follow the arcane goings-on of online media buying and selling, I'll try to make this simple. (Actually, I'm making it simple because I don't understand most of it myself. Trying to understand what these crooks are up to is like trying to understand what the hell a hedge fund manager does.)

Anyway, it's like this. Some of the big agencies are both buying online media and selling it. If they were hookers, we'd say they're working both sides of the street. Except hookers have more integrity than these guys.

They buy online ad space at one price and then sell it to their clients at another price. And guess what? The price they sell it at is higher than the price they buy it at.

As far as I can tell, this is clearly a conflict of interest. But somehow the agencies have convinced some dumbass clients that this is perfectly okay. Here is the excuse they use:

After they buy the online media, they "add value" by slicing and dicing it in different ways that make it more targeted, then they resell it to the client.

This doesn't even pass the giggle test. First of all, their brilliant targeting can't even find human beings. As we discussed earlier this week, they're pissing away client money on bogus websites whose bullshit numbers are driven sky high by bots.

And second, what do they think agencies are supposed to do with media? Isn't analyzing and optimizing media their fucking job? They want extra money for doing what they get paid to do in the first place?

So here's the big question. Who's interest comes first? The buyer's (client's) interest in paying the lowest reasonable price? Or the seller's (agency's) interest in obtaining the highest reasonable price? It's got to be one or the other.

Everything about online advertising is corrupt.

The promises are corrupt. The data is corrupt. The suppliers are corrupt. And the buying and selling is corrupt.

This industry is in desperate need of investigation.


Brian Jacobs said...

There is a brilliant irony here too. In the 1970's and 1980's in France a media buying agency called Carat pretty well cornered the market in that country. They did this via a technique called broking - buying media time and space in bulk at one price and selling it on at a different price (not always higher - if Carat wanted to win a pitch they would often go in at a lower-than-bought price to win the business, then load it up having secured the business).

Eventually in the early 1990's a law was passed in France called Loi Sapin which (amongst a load of other non-ad related practices) banned the broking of ad space and time. The reason advertising practices were added to a law primarily designed to stamp out corruption in the construction and retail businesses was down to lobbying by the large advertising agencies.

The very people who were getting (justifiably) upset by Carat are now doing the self-same thing in the digital space.

Plus ca change - as they say in France!

Eric said...

The SEC goes after Brokers who don't act in the interest of their clients. What Fed Agency protects advertisers from agencies? It sounds like the fraud could be in the Billions.

Edmund Hershberger said...

I don't see how this is so different from traditional media commissions.

Fred Titmuss said...

Well said Edmund and Brian.Online buying is no different to traditional media and is becoming especially rife within the most traditional medium ,Outdoor, aided by the proliferation of digital technology;time as well as space on the same old billboard location.Bundles of screen time will be bought wholesale by OoH agencies and then sold on ata vast mark up to gullible clients disguised as bespoke digital OoH media plaN.Money for old rope.

Brian Jacobs said...

It's rather different from media commission as with commission, the client buys a plan at a transparent price. Auditors have an order paper trail to follow and so although there are all sorts of wrinkles, the wrinkles aren't all that serious (not to minimise those who manage to make serious money under the table via kick-backs: Carat Germany's CEO was sent to prison for just this sort of thing). It's complex, but as all (well, nearly all - OOH is an exception) media forms pay the same level of commission a level of objectivity is maintained.

Broking is quite different. If you've bought a garage full of space in Magazine A for a set price; and your client is looking to advertise in magazines, guess which title you're going to recommend? Objective? I don't think so. And if you have no idea of the price paid by the agency for Magazine A, how are you to know if what you're getting is a good deal or not?

As I said before the great irony is that those who slagged Carat off all over the place in the 1990's are the self-same organisations sanctioning the same practice in online.

It's shameful and is one reason why media agencies are held in such low regard by so many large, sophisticated advertisers (many of whom won't let their agency's trading desks handle their online budgets).

Shanghai61 said...

Japan is the same. Advertising agencies there are huge media brokers, which is why Dentsu can lock in all four major car makers as clients, simply because they have a stranglehold on key media properties. In most places, that sort of thing is illegal.

But it seems, even outside of Japan, digital isn't covered by the regulations that rule 'old media' relationships. So the advertising agencies that lost their 'media' revenues when the agency world split in half can have another crack at making money trading media. Not always honestly, and never without a direct conflict of interest.

A second thought: The 'automation' of advertising media, through the adoption of planning and buying software has largely excluded human oversight and quality control over scheduling decisions.

The quality of the data that these systems rely on has always been 'iffy'. (No need to get into the merits of 'diaries' versus 'peoplemeters' here, but it's all quite crude considering the amount of money that's wagered on the basis of it). Suffice to say the computer doesn't question the data it's been fed.

And there's a whole generation of people in media agencies who've never known it any other way. (And there's a whole generation of account people in creative agencies who know nothing at all about media so never question it). So they never question the data, either.

So the computer doesn't know it's churning crap, and the screen jockey never questions it, because the computer's never wrong, is it?

Now factor in the automated creation of intentionally false data for digital media (through the use of 'bots' and 'fake' likes/clicks/whatever) and the whole system becomes a nightmare of lies, error, blindness and stupidity.

But the computer never lies, eh?

Yeah, right ...

Disclosure: A few years ago I worked for a large media agency in a strategic planning (not media planning) role, and tried to have this conversation with senior colleagues. All I got back was blank looks.

Vic Norman said...

it's the difference between a kick back (commission) and a mark up. ie there is none

Brian Jacobs said...

There's a huge difference. A 'kick-back' in media language is a payment made by the media owner, based on the agency's total volume of money spent (not the client's), and is paid to the agency almost always without the client knowing. In the case I referenced of Carat in Germany the CEO was pocketing this as opposed to returning it to his employers. A different degree of dishonesty but we're still talking of unofficial payments.

A commission has, since the start of advertising agencies been how the agency has been paid. It's a rebate by the media owner, is on all rate-cards (where rate cards exist), is known to the client and is at a standard level (typically 15%) regardless of spend or client. The agency these days returns a set amount of this commission to the client depending upon the contractual terms for that client. So if a media agency agrees to charge 3% then 12% of the 15% is returned to the client.

This over-simplifies things I know but basically a commission is 'official', set at a standard level and 'transparent' and a kick-back is not.

Brian Jacobs said...

Quite right - Japan is and always has been different as the large agencies buy and sell.

I'm also an ex-ad agency and media agency guy. I can tell you (as an ex-MD) it's quite hard to unpick what you've so accurately described, especially when it's been going on for years and when targets have to be met!

Plus - sometimes the client is complicit.

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paulbenjou said...

"For years, now, your agency has been spending millions of dollars
and nobody's been really watching them. My suggestion is, let us spend
[the money] and have your agency watch us." The late Norman King, Founder of US Media in 1970.