• by Paolo Gaudiano , Op-Ed Contributor, June 9, 2016

After a few months of relative quiet, the issue of transparency is once again rearing its ugly head, thanks to a recent report by the Association of National Advertisers (ANA) titled “An Independent Study of Media Transparency in the U.S. Advertising Industry."

Not surprisingly, the report has generated a lot of noise in the industry, and advertisers are once again up in arms about what they perceive to be shady, if not outright illegitimate business practices on the part of agencies.

While I would not condone illegitimate business practices, I find the outrage to be highly hypocritical and, frankly, pretty silly.

Let’s start with the silliness. First, agency-managed advertising is only a procedural step in the marketing process, whose overall success depends heavily on many other factors such as creative, planning, pricing, competitive strategy and so on, areas where advertisers can better focus their energies. Second, giving advertisers full transparency on the operational and financial details of agencies would be about as useful as giving a cancer patient full visibility into the operational and financial details of hospitals.

What bothers me more than the silliness is the hypocrisy. I would like to ask all the advertisers who complain whether their own business lives by the rule of transparency. One of the early stones to be cast in this ugly debate was the Guide to Programmatic Media released in late 2014 by the World Federation of Advertisers (WFA), whose Programmatic Task Force included  Coca-Cola, Boehringer Ingelheim, GlaxoSmithKline, MasterCard, Johnson & Johnson and T-Mobile. I’d love to have transparency into how my credit card makes money, or the cost of my prescription drugs, or why I have to pay exorbitant prices for overseas data service on my phone.

But what really wound my hypocrisy clock was the following statement, which appears in the final bullet point of the executive summary from the recent ANA report: “In general, advertisers expressed a belief that their agencies were duty-bound to act in their best interest. They also believed that this obligation -- essentially, in their view, a fiduciary duty -- extends beyond the stated terms in their agency contracts.”

It’s interesting to compare this statement to statements that have been made about the ménage à trois involving publishers, readers and advertisers. For example, during a recent ANA conference, Tony Pace, ANA’s chairman, was quoted saying that there was a “tacit contract” between advertisers and consumers, an agreement that was broken when readers began using ad blockers.

Apparently whoever it is that runs advertising either never got an MBA, or must have struggled through the most basic courses on business finance, because it seems that advertisers believe that tacit contracts and unstated expectations are the way to do business, both with consumers and with agencies.

Advertisers need to acknowledge that agencies are not in the charity business. Agencies work hard to hire and retain talent to devise better ways to serve the needs of their customers. Everyone was happy to see the demise of the flat-fee agency model, and I think agencies should be applauded for having found creative ways to improve efficiency for the ecosystem while making more money and driving innovation.

The more money agencies make, the more they can invest into improving their services, and that’s good for everyone. With the exception of few companies with vast resources, the cost of designing, implementing and maintaining a programmatic platform, as well as negotiating favorable media prices, would be prohibitive -- and the investment would be senseless. And why shouldn’t agencies benefit from the purchasing power they gain by aggregating business?

Rather than hypocritically attacking agencies, advertisers should work with agencies to resolve the real problems, such as the fact that they are flooding our lives with their garbage and ruining everyone’s experience.

I continue to believe that the current business model linking advertisers, publishers and readers is fundamentally broken. I also think that the crazy and increasingly acerbic debates about transparency, ad blocking, visibility and fraud are the initial spasms that, with any luck, will lead to the collapse of many entities in the space.

It is only through catharsis that new, innovative business models will emerge. I am hopeful that these new business models will respect the spirit of content creation and consumption as different beasts from product creation and consumption.