The largest agency trading desks thrived because so many programmatic advertisers were blinded by their pursuit of competitive prices on media, rather than asking the tough questions about how they were gamed. At least, that’s the view of a former trading desk executive.
In our latest edition of Confessions, where we exchange anonymity for candor, this exec said the same advertisers didn’t know enough about programmatic to know whether they were being exploited by shady business practices.
Excerpts lightly edited for clarity.
How did your agency trading desk make money?
There was no secret to it. We bought media from our account and then sold it on to the client at a marked-up price. The mark-up came from the fact that we were adding value to it with our buying power to command better rates. We would often liken the pitch internally to when someone buys a designer suit. You’re not going to ask the tailor how much they paid for the fabric that made that suit. Clients signed a contract in which they accepted there was no right to audit the results. We were transparent about not being transparent.
How was it sold to advertisers?
We talked internally about whether we should actively pursue new business from the launch of the trading desk, but in the end, the media agencies within the network would pitch it to their clients. Some of those agencies weren’t very enthusiastic about the trading desk because it was pitched as this new, exciting way of buying media that could impact their own P&L accounts. Other agency CEOs accepted the situation given we were increasingly competing with the likes of Google and Facebook and had found a way to make a lot of money from programmatic. Initially, the pitch to advertisers was competitive prices for media, which was then followed by getting them outcomes for an upfront fee.
Were advertisers concerned that they had no way of knowing how much the trading desk was making from their money?
Two years ago, there weren’t many marketers who knew much about agency trading desks or the wider programmatic ecosystem. In fact, it was often executives who worked on the online businesses or within commerce departments at our clients who would try and ask technical questions about how the trading desk worked or would query how they could evaluate the media we bought. When we were questioned about the margins made on programmatic budgets, we’d say a percentage margin was made to show where we’d added value. We would never, however, tell them how much that amount equated to in terms of cash. Google never disclosed that information, so we decided not to.
I don’t think there’s anything wrong with making a 25% margin on media if you’ve been able to show a client where the value comes from, whether that’s price, or something like viewability or fraud.
Weren’t you exploiting the ignorance of your clients?
No. While they couldn’t audit the data from the trading desk, if clients knew what inventory had been bought, they could try and find out those prices from the media owner as a way to benchmark the prices.
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Were advertisers only worried about the margin made?
Some clients would ask if they were paying for both their agency and trading desk given one was selling the other. It wasn’t a common question because there weren’t many clients who were prepared to dive deep into the mechanics of the trading desk model. That may have changed now the transparency debate has become so transformative to the industry.
There was only ever a handful of clients who had a conviction that they should not buy the trading desk product from the agency. We accepted those decisions because we felt that if a client didn’t trust an agency to begin with, then they probably shouldn’t be working with us.
What happened when advertisers asked about disclosed deals from the trading desk?
Clients could get a disclosed deal, just not from our trading desk.
Was the arbitrage model ever abused?
This was a topic we’d discuss internally often. People would look at the ties we’d have to certain ad tech vendors and would question whether money was being made on the side because we were incentivized to buy from those companies. We were always clear to clients about the preferred partners we worked with. Truth is, during the time I worked at the agency trading desk most of the clients we worked with had no idea who our preferred ad tech vendors were, and so we would have to explain to them why we needed those businesses to deliver the product.