• by Tobi Elkin  @tobielkin, January 30, 2017

Agency trading desks continue to be the dominant model for programmatic ad buying, used by nearly 40% of the world’s biggest brands, according to new research by the World Federation of Advertisers (WFA). However, programmatic relationships continue to evolve as advertisers demand much greater control and transparency from their relationships with media partners and ad tech vendors.

The research found that nearly 90% of marketers are reviewing contracts and business models to deliver on these objectives.

The results are based on a survey of 59 WFA member companies representing 18 industry sectors with a total global ad spend in excess of $70 billion. All are spending increasing amounts of money on the programmatic channel, with an average of 16% of digital ad spend now dedicated to programmatic, compared to 10% in 2014.

Other findings:

--Programmatic is most developed in North America, where it represents 23% of respondents’ digital spend, followed by Europe at 17%. Investment in China is lower, with programmatic responsible for just 12% of digital spend, although this is expected to grow, principally via private exchanges.

--Combining shares of respondents that use agency trading desks (ATDs) as their principal model with those who use them in select markets, adds up to a total of more than 70%. But the report reveals that these approaches are not mutually exclusive and independent trading desks (ITDs) represent an equivalent total of almost half of respondents (46%).

--Alternatives to ATDs are growing. The use of ITDs has increased by 12% compared to WFA’s previous programmatic research. In-house or "hybrid" models, while less likely to be the principal global model, are used by more than a fifth of respondents, while these models were used at the fringes of WFA’s membership two years ago.

--The evolution of ad trading models has been driven by the need for transparency. The report found that second-generation programmatic models have seen some improvement in transparency, with 29% of respondents now satisfied with the level of transparency provided by their ATD, up from 21% in 2014. Transparency at ITDs now satisfies nearly half of users, up from 36% in 2014.

--The last two years have seen the ATDs pushed down from the holding company level with 42% of respondents now working with agency level trading desks, although 51% still work with legacy holding company operations such as Xaxis, Accuen, and Cadreon. The shift has been driven by client demand to ensure closer working relationships between their day-to-day agency team and the programmatic buying team.

--The report found that advertisers reject the idea that agencies and holding companies should act as principals in the media buy—able to mark up inventory they’ve acquired in direct deals with media owners before selling it on to brands. For example, 62% of respondents disagree with the statement “we have ‘opted-in’ to principal trading and are comfortable with the potential conflicts of interest,” while 9% agreed.

--While 53% of respondents claimed to have a “disclosed or transparent” programmatic relationship, 33% admitted their trading desk model was “non-disclosed/non-transparent” .A similar number -- 34% -- also agreed that there was nothing in current contracts that precluded arbitrage or principal trading. Many are seeking to clarify their positions in these contracts.

Among other key trends identified in the report:

--Display formats take the largest share of programmatic budgets. Desktop display takes an average of 38% of programmatic investment, although 45% of respondents planned to decrease this area of spend in the next 12 months.

--Mobile formats, both display and video, currently at 25%, were expected to increase for 98% of respondents, with 61% saying this will increase significantly.

--Private marketplaces (PMPs) are on the rise. The market is evolving toward closed environments where inventory quality can be better guaranteed. A quarter of respondents are pulling money out of open auctions and exchanges, while 67% said they were putting more money into private exchanges and holding invite-only auctions. The report found 52% of respondents said they were increasing spend on private exchanges with fixed pricing options.

--So-called “premium” inventory is in demand, but more than half of respondents said that currently 50% or less of the inventory they bought could be defined as “premium.” Just 9% of respondents said all inventory was premium.