But it’s a slippery slope to simply pass the buck to the vendor as part of a managed-service relationship. In the long run, it can lead to devaluing your service and the potential of being cut out of the picture by another agency, or even the tech vendor itself.
Here are seven reasons why the managed-service tech vendor model is just a bad idea for agencies:
1. You become disintermediated. Outsourcing work to vendors devalues you to brands. If you’re simply an air traffic control center for managed service partners, then what value do you really bring? If you ship everything out, then you open yourself up to your brands going to another agency or even directly to your vendors.
2. You lose expertise. With managed service vendors, your teams become experts at managing vendors, not doing the actual work and building up your agency practice and expertise. It’s the expertise that the brands really want from their agency partners. They want you to leverage all of the insights and best practices from working with dozens of other clients and campaigns to their accounts.
3. You don’t have true accountability for performance. If your team runs a program and it doesn’t work, then you can figure out what went wrong and take steps to make it better. When a vendor’s managed service team misses the mark, you’re stuck. Yes, you can call them up, yell at them, and threaten to cancel the contract, but being further removed from the strategy and execution, you can only have so much actual impact on the next campaign’s results.
4. You’re stuck with them. Once a vendor becomes fully ingrained and integrated with your agency, you may be virtually stuck with them. You won’t have the flexibility to try out new partners and possibly be on the wrong side of the negotiating table when your contract runs out. A fully entrenched vendor could take almost a year to phase out.
5. You waste money for your clients. If a managed service vendor charges 15-25% (or worse, hides those fees as part of media arbitrage) and a self-service platform costs 2-7%, then there’s potentially around 15% of the budget that could be saved. Budget efficiency is what keeps you as the agency of record as much as anything else.
6. You have to raise your fees. This goes hand in hand with point #5 above. Brands care about low agency fees because they want the most money to make it to the media budget. If you only use self-service vendors, you can make the argument that an agency that charges, for example, 3% for their agency but averages 15% in managed service tech fees is taking much more out of the media budget than your 5% fee plus self-service 3% tech fees.
7. You could miss a growth opportunity. While agency teams have already shifted most efforts in-house for search and display, the fastest-growing, most competitive spaces are still up for grabs, such as social and mobile. Savvy brands (and they only get savvier as time goes by) will realize the advantage of using agencies with in-house channel teams versus ones that ship out the work to their tech partners.
It should be fairly easy to argue that agencies who are closer to how their budgets are being spent, who build up deep channel experience, and can offer lower fees without the extra partner up-charges, should be coveted over ones who simply manage vendors on their behalf. As you try to grow your agency, these benefits can be — and should be — your best proof points to win more often during new-business pitches.
Considering all the risks, agencies who have a lot of managed-service relationships might want to reconsider how and when they work with a technology partner that could one day be a competitor taking their business.