Commentary

8 Steps to Making The Model Work

Top media managers of major media agency independents contend they “don’t know how to make money on Interactive.” This means that these companies, which spend 80-90% of all “traditional” media dollars, can’t find a way to have the spread between the fees they charge and the work they do reach a reasonable margin (if any) vs. other media. So, the people controlling the media allocations are not convinced that they should invest any money into the infrastructure.

What this means for the industry is massive. If these media management folks thought they could “efficiently” double or triple their Interactive spending (we know that many clients spend much less than 5% of their overall media budget on Interactive when usage and targeting suggest 10-20%), the industry would be bolstered overnight.

But the barriers are many. If the buyers haven’t figured out an infrastructure, the sellers are more limited in their sales opportunities. What needs to be done? Here is a partial list.

  • Push for standards: agencies are the single force that can make standards happen. Groups ranging from the AAAA’s to the Aspen Group have wrought change on the industry and there is more to come. With each step, the process gets more efficient. Standards that have been adopted include impression definitions, V 1.0 of Terms & Conditions and new creative unit standards. Agencies need to enforce these and adopt the next wave of standards - Reach/Frequency, V 2.0 of Terms & Conditions, etc. - as they are released. If we’re all on the same page, conducting business will be easier.
  • The next area involves a push for consolidation. It is simply impossible to deal with so many different vendors (over 5,000 at last count). Yes, a lot of networks went out of business in the last couple of years. But this does not make the network or independent rep firm a bad idea. Many of the failures were effective ad sales operations that overexpanded with the “dot-com” boom and could not contract rapidly enough. In addition to consolidation through networks, there will continue to be a natural consolidation through bigger sites consuming smaller ones. We need targeting but it cannot happen fast enough from an agency efficiency standpoint. In addition to the difficulty in dealing with so many sites at the sales/buyer level, the creative, billing and other standards issues created by the great number of sites is incredible.
  • I have written before that media agencies need to separate planning and buying functions in Interactive. It is that way in all other media and, once you get to any size at all, it’s just plain more efficient to have one planner for all media and a buying group set up like the network TV buying model. Some agencies contend that they have already implemented this but the reality is that their planners know so little about Interactive that the buyers dictate the planning.
  • The media agencies must invest in automation and other technology. Things that need to be automated include, but are not limited to, the RFP process, orders, POP, billing reconciliation and media payment. The fact that there is no complete system out there is appalling. Part of the problem is that agencies have been waiting for companies like Donavan and DoubleClick to create these systems when they are not the best candidates for the job.
  • There must be an ongoing investment in tracking (for DR) and market research, including DAR and AA&U testing for branding. The faster the client sees success, the higher the billings multiplier will go.
  • The agencies need to establish a separate operations group adjacent to finance that processes interactive billing and prepares them for payment. Like spot TV in the early days of Donavan, too many invoices are discrepant. It is inefficient to have a situation where either finance or media are bogged down by these discrepancies. Until they become less of an issue, a group of specialists should be handling them.
  • The agencies need to be willing to charge more. I hear from many media agency heads that it is too difficult to go back to a ‘flat percentage for all media’ client and charge him double or triple for Interactive. Well, I’ve got news for you. Your clients are hiring Interactive agencies that are charging 2-3 times what you will. You must stand up for your margins and charge what the marketplace will bear in line with the workload and value of the work done within the industry.
  • The agencies must take over business development deals from their clients. This almost went away after the dot-coms died off. But major sites still recognize that it is more efficient to do a long-term deal with a client than an agency. And they can probably charge more. One way to start this process is taking over the deals that the client already has in-house. Offer to traffic and track the deals made by the client at a much lower percentage than you would normally work for. I guarantee that the client will see the benefit and ask you to do some optimization, which you should charge more for. Over time, these deals can be upgraded to the point where the agency is doing the renegotiation, capturing these dollars back into the agency coffers. If you do this right, the client will see that the agency can do deals taking client priorities into account, just as a business development person on the client side can do, but more efficiently.

    As I mentioned above, this is only a partial list. See the Spin Board for more.

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