The general formula is: programmatic payoff = money in > moneyout compared to the payoff of using manual methods.
Going in-house is a solution to a programmatic problem
Programmatic is one of those game-changing solutions that then creates a new set of problems to solve, mostly around deployment, data readiness, data activation, transparency, transaction cost, know-how, asset selection, etc. So in-house is a solution to a problem caused by the shift to programmatic trading.
The general in-house payoff formula is: In-house programmatic payoff = money in > moneyout, compared to other methods of executing programmatic activity.
Going in-house is not the only way to maximize programmatic payoff
In-house control is just one way to maximize programmatic payoff. Before we talk about alternative strategies, let’s define what the word “in-house” really means.
In-house is ultimately about keeping decision-making inside the brand’s walls. The opposite of in-house decision control is to outsource it to a third party such as a managed service provider (MSP).
MSPs generally break down into two broad groups. On the one hand you have agencies, who operate various flavors of trading desks. On the other there are managed DSPs, who essentially operate like specialized agencies. In either case, both are profit-seeking middlemen between supply and demand and both operate trading desks with varying degrees of tech assets and know-how.
Ever since the beginning of advertising, the status quo has been to use some form of middleman to buy and sell media. The rapid shift to programmatic continued this tradition. Along with programmatic came the art and science of data activation, which fuels trading activity, and created the question of in-house vs. outsourced decisioning. Here are some factors to consider:
Does more in-house decision making get me a higher payoff? Or can I materially increase my payoff by reducing middleman costs -- and/or by increasing the performance I get from middlemen?
Three good strategies for brands to take
The first strategy is continued use of middlemen to get the programmatic job done. The key starting point is to estimate how much waste is occurring in the middleman trade and ask how much better off would the brand be if the waste was turned into more audience impact. Marketers pursuing this strategy should start by running forensic reviews to tabulate the real money in, and detail an exhaustive list of money going out. The result provides a fact-based path to meaningful negotiation and mutually beneficial resolution.
The second strategy is to bring more, or all, programmatic decision making in-house. In this case, the main consideration takes place on the money-out part of the formula. If the gap between middleman cost and the cost of in-sourcing is wide enough, and if relative performance (money-in) is positive, then the brand should make the rational choice to shift more control behind the brand’s walls.
The third strategy is a mix with a twist. In this strategy, in-flows are increased and costs are decreased with relative ease, thus maximizing the brand’s payoff. The twist is a reasonable condition the brand needs to get the MSP to accept as a way to correct some of the inefficiencies introduced by programmatic trading. When we look under the middleman’s sheets, we often find an opaque world of hidden margins, DSP blackbox arbitrage, kickbacks, inventory rebates, and poor incentive alignment when it comes to viewability and impression/user fraud. And that’s just what we can ascertain from public reports -- but where there is smoke, there is usually fire.
So, instead of paying fees based on a percentage of media spend (the root of many problems), the brand can set up a fixed fee arrangement. Fixed fees are transparent and predictable for both sides of the deal. Moreover, strategy three is not only a positive step toward more in-house control, but also creates a nice hedge for brands sitting on the fence on which programmatic path to take.
Every brand has different needs, so keep your eye on the prize and maximize your payoff.