• by Steve Farella , October 1, 2008

It's common knowledge that interactive agencies are generally compensated at a much higher rate than traditional agencies. A traditional media budget includes 2-5% for agency services, while agency fees for a digital campaign can be 15-20% of the media spend, not including creative. Is this huge difference justified?

The answer today, unfortunately, is yes. However, once agencies take action to simplify the digital media execution process this should result in lower fees and savings for the client.

A quick look at the buying process for traditional media can shed light on what needs to be done in the digital world to bring down the cost of implementation.

The network TV process is well defined, starting with budget and strategy and ultimately, a plan. The buy is negotiated, approved and placed. Schedules are analyzed daily. The landscape includes four broadcast networks and a few dozen cable networks, with unit costs ranging from $1,000 up to $2.5 million or more. Because the process is so well defined and the tools to negotiate, buy and evaluate are in place, I'd rank the degree of difficulty as 1.5 on a 1 to 10 scale.

Magazines have a similar process, except there are many more options to evaluate, negotiate and buy. There's not as much current data available for ongoing analysis, and the lag time for actual circulation figures can be anywhere from six to 18 months. The degree of difficulty is a bit higher, say a 3.5.

The digital process is infinitely more complex on every front, putting the degree of difficulty at a frustrating and time-consuming 9.99.

The sheer size of the digital marketplace alone can be daunting, with thousands of potential sites. Right from the start, in planning, there is no streamlined access to audience data or competitive spending for each site. Many sites aren't even measured.

The RFP process is manual, with no automatic comparisons, evaluations or rankings. The media agency is on its own to figure it out as best they can. And while there are individual systems to help the research, planning, buying, tracking, and reporting process, they don't talk to each other.

Since there is no process standardization, each agency needs to re-enter information into its own buying system. Further, unlike other media, the technical quality assurance responsibility for digital lies with the media agency, which often finds itself caught between the vendor and the creative agency as everyone tries to find a way to make the creative's functionality work properly.

Measurement can also be difficult. While digital is wonderful for enabling us to track, practically in real-time, actual impressions and the consumer's follow-up actions, data can vary widely from one measurement service to the next--even when reviewing the same site.

The chaos with digital continues right down to the final transaction--billing. Invoices that may be as low as a few thousand or even a few hundred dollars still must be tracked, reconciled and paid. Compounding the situation is the reputation for inaccuracies in billing that digital publishers have earned. If you believe industry talk, 95% of bills agencies receive from digital publishers are incorrect.

How can the process be fixed? Until uniform systems and procedures are put into place, advertisers will continue to bear the cost burden. As more ad dollars shift into digital media, agency fees will also soar, raising the cost of implementing media.

Agencies, advertisers and digital publishers must work together to find ways to standardize and automate elements of the process: develop electronic RFP systems, ad exchanges that coordinate inventory, make a buy and deliver insertion orders from a single system, and ad serving systems to help execute, measure, traffic and optimize ads.

The AAAA has an initiative designed to create a common language and a set of common practices for all media, beginning with digital. Agencies and advertisers should support this effort.

If we don't work together over the next five years, the cumulative cost increase in media service fees could be 35%, compared to an 8% rate of media inflation that's been forecast for the period. If I were an advertiser, I'd say 35% is totally unacceptable. If we don't take action together to fix the system, advertisers will have no choice but to pay the rising fees if they want to be in digital media.

So if you're paying more for digital, media work with your agencies and the industry to unify the process, create efficiency and help lower costs for us all.