#13: In-House Migration Path (Part 1/3)
Where's the market today? Where is it headed?
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Today is National Memo Day! Here’s a memo on in-housing programmatic media operations.
Where are we headed?
Quo Vadis is Latin for “Where are we headed?” When marketers think about the notion of in-housing programmatic operations, that very question is top-of-mind. To help answer it, we use a framework called the In-House Migration Path.
Hopefully, in-housing programmatic is a means to a worthwhile end. The end game should be to get more out of programmatic ads in terms of cost-efficiency, total transparency, data protection, control over ad quality, reduced waste, better measurement, and ultimately, ad effectiveness. You know... all the stuff that was promised in c2010 that marketers are still waiting to get.
Conversely, if the exercise of in-housing is itself the end game, that’s a different story and probably a slow road to mediocrity. The right migration path is a different journey.
In-House Migration Path
Our In-House Migration Path simplifies in-housing into two mutually exclusive concepts.
A marketer is either using Easy Button Tech or Scientific Tech.
The hands-on-keyboard (HOK) people who use the tech are either outsourced agency staffers or in-house talent.
The in-house path illustrates how marketers (and agencies) move from one steppingstone to the next as programmatic evolves from a cobbled supply chain designed around spending ad budget as quickly as possible to a mature market that delivers provable advertising efficacy.
Easy Button Tech players are the big names in the programmatic supply chain. If you’ve been through enough adtech bake-offs, then you know the sales pitch:
“Our tech is the best. We are the most transparent. We use AI. You put money in. We press a few buttons. Voila…advertising magic. You get 8 gazillion percent ROI.”
Scientific Tech is the opposite of Easy Button Tech. It’s radically transparent by design and built to overcome our thesis called “the Struggle.”
You get all the data (e.g., clearing price, bid price).
You can price an impression for what the ad quality is actually worth instead of chronically over-bidding and never been shown by how much.
You know if your media dollars are working or not, and you make adjustments until you’re satisfied.
Hands-on-Keyboard Options: When it comes to the “you,” there are two operational flavors: you either outsource staffing to media agency people or recruit programmatic talent to your marketing organization so they all wear the same team t-shirt as you do.
Manure is nature’s fertilizer… and adtech’s too
Let’s face it, the first 14 years of programmatic created a lot of manure in terms of ad quality issues. Dr. Augustine Fou (Ad Fraud Consultant) counts the ways…
Bots
Sourced Traffic
Datacenter Traffic
Redirect Traffic
Apps Loading Webpages
Ghost Sites
Cash Out Sites
Fake Apps
Stacked Ads
Invisible Ads
Pixel Stuffing
Auto-refresh
Page Reload
Pop-Unders
Pop-Ups
Incentivized Browsing, Views
Infected Device
Hijacked Device
Malware
Ad Injection
Domain Spoofing
Retargeting Fraud
Arbitrage
Residential Proxy
Fake Viewability
Brand Safety
Faked parameters
Click Farms
Clickjacking
Click Injection
SDK Spoofing
Fake Leads
Attribution Fraud
Cookie Stuffing
All this manure is nature’s fertilizer, and adtech’s too. As luck would have it, yesterday’s programmatic lemon market has sprouted new adtech green shoots like Beeswax, Avocet, Scibids, and many other new tools that put advertising results ahead of the insatiable need to spend ad budgets.
Quo Vadis Tip: If you’re an agency-dependent marketer, and haven’t heard about these tools, then you should ask them why not? What’s the holdup?
Easy Button Litmus Test
If you’re not sure how to recognize Easy Button Tech, here are three litmus tests to ask your DSP, SSP, verification vendor, and media agency.
Exactly how does our DSP’s bidder work, specifically?
Can we get impression-level data, including clearing price and bid price?
Since we use MRC viewability standards, and we are told it’s good enough, can we at least set up a backend “what if” data collection test to measure what would have happened to budget pacing with higher viewability standards?
5 Stops to the Promised Land
1. Starting Point
Most marketers today still rely on large legacy media agencies for programmatic planning and buying. When these “traders” get to work (what are they trading anyway?), they use what programmatic OG Ari Paparo at Beeswax calls “easy button” technology because it makes spending ad budget easy.
Rule of thumb: Don’t confuse the easiness of spending ad budget with successful advertising. Getting a positive ROI is still really hard to do and even harder to prove. But that’s what makes this industry so much fun. If you like a good challenge, you’re in the right place!
Don’t hate the players, hate “the Struggle”
In programmatic land, pacing ad budgets is the top priority handed down to media agency traders. When this is the incentive media agencies get, all the downstream supply chain actors get in line on the gravy train. Who wouldn’t, it’s easy money!
A more sensible advertising incentive is to buy the best ad quality possible, but this is a secondary priority at best in the programmatic auction world. So, when the need to spend budget is traded off for low ad quality, “the Struggle” emerges.
“The Struggle” is a trade-off curve, also known as a "utility curve” in microeconomics language. On one hand, when large budgets are aimed toward buying unsold inventory (of varying quality) in competitive auctions and simultaneously nudged to pace budgets on schedule, buyers have to sacrifice ad quality standards.
On the other hand, if buyers try using “Jeff Bezos” high standards, they’ll struggle to spend all ad budgets as planned. The next thing you know, agency folks get uncomfortable phone calls from clients concerned about pacing. It’s a vicious cycle worthy of avoidance.
Irony is everywhere in programmatic land. The Struggle Framework captures the essence of why marketers are taking programmatic in-house. The further they get down the migration path toward scientific tech mastery, the more they can ratchet up ad quality standards while finding better ways to spend the budget along the way.
2. Halfway House = Mama-say-mama-sa-mama-coosa
As Michael Jackson riffed from Cameroonian artist Manu Dibango, “mama-say-mama-sa-mama-coosa… you wanna be startin' somethin'” — the same goes for in-housing programmatic. That’s why marketers tend to break in-housing into three parts:
Technology contract ownership
Processes and competencies redesign
Hiring hands-on-keyboard (HOK) talent with the right competencies and incentives to execute better processes with technology tools. In Sir Martin Sorrell’s words, they want it “better, faster, cheaper.”
So, when you read trade press headlines about a big advertiser going in-house, most of the time it simply means taking ownership of easy button tech contracts away from a media agency partner and hiring one or a few subject matter managers to implement this new way of working with incumbent agency partners. It’s seldom about taking on staff ownership, at least not yet.
But you have to start somewhere. Although reaching the halfway house is often a small incremental change that usually relies on the same easy button tech, it shows positive mojo and opens up a whole new array of valuable options.
Rule of thumb: Set high aspirations (go in-house). Get quick wins (halfway house). Leverage momentum (increased ad quality). Sustain the impact (new system runs on its own).
3. House Talent
The halfway house is a warm, safe place. Leaving the womb and entering the wild is a big step, so, marketers can get comfortable in the halfway house and feel reluctant to take the big plunge into hiring HOK staff.
But when they are ready to make a move, they typically recruit from media agencies. As Jay Pattisall and Joanna O’Connell of Forrester pointed out in their 2020 research “The Brands’ Guide to In-Housing Media:”
“Staffing with agency talent is vital to the success of an in-house media operation. Tapping into agency-grade experience ensures that you have leaders who can guide not only capabilities but also the appropriate culture. Fifty percent of in-house leaders have both internal and external agency experience.”
Quo Vadis says “Hold on a second!” If in-housing programmatic means moving away from your current agency model because you’re dissatisfied with a host of issues that trace back to human management, skill, training, and decision-making — not to mention a long list of ad quality traps — then how on earth will the same talent, using the same easy button technology, get you anywhere different?
It seems like a lot of pain for no real gain. Sure, you might gain a bit more transparency (depending on your tech contract terms) or more perceived “control,” and maybe some cost savings, but is the juice really worth the squeeze?
Shortcut: Why not just set higher standards for ad quality, internalize ad quality measurement, and then judge agency performance based on their ability to buy high-quality ads while finding better ways spend the budget at the same time? Will your agency need to work a lot harder, smarter, faster, and more scientifically to get the job done? Yes, but isn’t that what you pay them to do? Will marketers have to reverse their priorities and put ad quality first? Yes, that’s the point of advertising.
Radical Transparency Tip:
Ask yourself what you want from programmatic ads? Do you want to spend the dough AND maximize ad quality, or are you making a foolish trade?
What is true about programmatic ad quality?
Is your in-house program practicing what is true about programmatic to get what you want from advertising?
4. Destination
Ahh… the programmatic promised land. You’ve arrived! Your HOK team wears the same T-shirt as you do. Now you can finally tap into the full potential of data creativity with scientific tech.
Your talented, well-trained team was recruited from diverse backgrounds. They’re also really good at math.
Show us someone who loves math and you’ll very likely have a creative mind to tap. They seek truth in numbers to find better ways to get the job done. They don’t do vanity metrics, but you don’t care about that anymore and neither does your CFO. You’re aligned everywhere. Your team gets up every day super excited to test new adtech green shoots on innovative use cases.
But be warned — on the way to scientific land, advertisers must cross the “High Standards Frontier.” When marketers cross the chasm, they’ve moved away from low ad quality standards and embrace much higher standards turning ads into measurable business outcomes.
With a great in-house team manager who knows what to do, and always gets the team to do what he/she knows, they squeeze every last drop of ad quality out of every dollar spent.
Did the CFO just pop champagne with her CMO? Hell yeah!
5. Evolution
We start at the end and end at the beginning. Like the circle of life, the roads of in-housing might very well lead marketers back to an agency model. Sure, legacy media agencies are in a tough spot today, but they too will follow the advertisers on the same migration path and come up with alternatives.
The further advertisers go down the in-house migration path, the more media agencies will need to innovate. Have no doubt, agencies will figure it out as a matter of self-preservation.
Market Sizing the Journey
Easy Button Tech/Agency HOK
Despite all the buzz about in-housing, the largest market today still sits with the status quo approach where the lion’s share of $53 billion in programmatic budgets is spent through Easy Button DSPs and other downstream tech suppliers (see our Open-Web DSP Market Sizing post).
Sticking our thumbs to the wind, Quo Vadis guesstimates that ~60% is handled by status quo players using status quo easy button tech.
The next biggest area is the Halfway House approach, where perhaps ~20% of programmatic budgets are managed.
In either case, we expect competitive fears, retaliation tactics, and the proliferation of many more walled data gardens to drive programmatic marketers toward hybrid or fully in-house models over the next five years.
Easy Button Tech/In-house HOK
If we had to guess, we’d estimate that around 10-15% of in-housers have gone full monty and hired HOK staff.
As this rarified marketer class shouts about success stories and word gets out about turning the notion of better, faster, cheaper into reality, competitors will raise their game to compete, particularly if they believe the in-housers have gained a competitive bidding advantage.
Over the next few years, we expect in-housing staffing to grow. Specialized recruiting firms with post-grad training programs like Sphere Digital Recruitment in London will see more work in this area. Educating and training a new class of HOK minds to overcome the struggle is a great investment area for recruiters to tap today.
As post-pandemic WFH balance sets in, many of these HOK roles can be done from anywhere opening up labor pool options at different rates and in different regions around the world. Remote line management talent and training are essential!
Scientific Tech/In-house HOK
The smallest portion of the market today consists of marketers who have crossed the “High Standards Frontier” with HOK staff and Scientific Tech.
Much like when a hedge fund finds a profitable hedge, they may tend to keep it to themselves for as long as possible.
But just like Mark Twain said, “Two people can keep a secret if one of them is dead.” Eventually, we expect the secret sauce to unfold into a growth market where the best talent gets recruited into higher-paying jobs and scientific adtech players become unicorns.
Scientific Tech/Agency HOK
As far as legacy media agencies go today, they’ll likely spin mesmerizing pitch stories of scientific wonders, but ask them to prove it and you’ll get crickets.
For example, the next time programmatic comes up in an agency review, ask them about their “bid pricing error rate.” Crickets. (We’ll tell you more about bid pricing error in an upcoming post).
Yes, there are newer agency models like S4 Capital, Fimilac’s Jellyfish, Agency 55 at You & Mr Jones, and many more popping up. The future is bright for these digital-only players, particularly as $500 billion of trade advertising money meets the digitization and melds with the $600 billion media world.
The main question marketers should press upon these new agile players is reliance on Easy Button Tech and how they’ll bring new tools to bear and speed up process innovation because provable productivity gains play a big role in in-housing.
As the programmatic market grows and evolves and the world economy jumps out of recession, we expect to see legacy media agencies buy their way into the future. Buying sprees happened with early digital ad days c1995-2005 and again after the 2007/8 recession when major investments were made in programmatic tech and trading desks. Here we are again.
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