A few weeks ago, I shared 7 reasons why agencies should bypass the managed-service tech-vendor model in MediaPost. I wanted to expand on that article and point out the dangers of feeding the beast that will eventually bite you.
Earlier in my career, I spent five years as the technology leader at a digital agency and part of that role was to be the architect and chief evaluator or our tech stack. We were a full-service media shop so I ended up speaking to (and buying many) ad servers, bid management platforms, measurement systems, DSPs, DMPs, SSPs, ESPs…the acronyms go on.
As I began the role, I would chat with my CEO on which ad tech I was considering and he would always start with the same question: “Do they sell to brands?” After three or four of these conversations I got the hint and made sure I asked that question to each tech vendor during my evaluation.
My CEO at the time wasn’t purely interested in their business model. The real question he was asking me was: “Do they compete with us?” Are we potentially helping to fund our eventual competition?
If the answer was “yes”, in about 98 out of 100 times, it was an immediate showstopper with that vendor. My CEO realized the threat that managed service vendors posed to agencies like ours and he wasn’t going to feed that beast. Only if the vendor had a unique solution that required them to manage it would we even consider working with them.
Blurred Lines: Why Do Agencies Use Managed Service?
You would think most agencies would feel the way my CEO felt. Well, it’s not that simple.
Agency fees have been squeezed down so much that many have to rely on vendors to provide not only expertise on their products, but also some “hands-on-keyboard” to help supplement their teams that average 10-14 hour days. Back in the day, I certainly would instruct my teams to pull in the vendor reps whenever they could help shave minutes off of their day.
It’s also worth pointing out that advertising technology isn’t always easy and intuitive to operate. It’s software just like any other software. There are subtleties, known issues/bugs, and a practitioner needs some experience on the platform before they feel comfortable enough to run it themselves. It could literally take a year to get fully up to speed – and these agency operations teams may have two to three dozen tools in their stack.
Put yourself in a swamped agency director’s shoes that has a young, inexperienced team who is relied upon to steward million dollar campaigns. If a vendor offers to take on some of the workload as well as apply their in-house experts to help ensure great results – which they’re ultimately on the hook to deliver anyway – of course that offer to help will be accepted 9 out of 10 times. And the vendor is glad to do it as it makes its company more sticky and demonstrates commitment to the agency.
But it’s a slippery slope from offering to help to literally running the campaigns. And that’s what you should be very wary of if you’re an agency relying on managed service for a majority of your vendor relationships.
7 Reasons to Move Your Agency Vendor Strategy from Managed Service to Self-Service
The managed service model is a non-sustainable bubble and just a bad idea. Here’s why:
- 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.
- 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 to their accounts.
- 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.
- 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.
- You waste money for your clients. If a managed service vendor charges 15-25% 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.
- You have to raise your fees. This goes hand in hand with point #4 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.
- 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.
Summary: DIY is Better
Look, having a new vendor help you ramp up by taking on some of the workload until your team is ready to take it over is completely fine. Having vendors provide work on custom reports and analyses is fine too. Ad tech is complex and everyone needs help to crawl-walk-run before they are ready to fully run the software themselves.
I would even argue that very specialized parts of the media plan could be run by managed service providers in certain situations. For example, if you’re still staffing up for a new client, or you need to start with a new technology quickly and no one on the team has experience with the platform, then that makes sense. Or, if you’re performing a one-time task for a client that you won’t ever do again for them, it’s okay to buy a temporary, turn-key solution.
But it’s a slippery slope to simply pass the buck to managed service vendors for things you, the agency, should really be handling. In the short term, maybe you save on staffing and potentially leverage the vendor team’s expertise. However, in the long run, it can lead to devaluing your service and potentially get cut out of the picture by another agency or even your vendor partner.
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.
Agencies reading this post who have a lot of managed service relationships might want to reconsider when and where they feed the beast that could one day take their business.