Recently, there has been a lot of talk about bringing advertising in-house. What started this movement, why are advertisers doing it, and why hasn’t your agency mentioned this?
Note: when we say advertising in this article, we are primarily referring to media buying, and the programmatic advertising operational components. It can most definitely apply to other aspects of advertising as well, which we won’t cover in this article.
To start, let’s remember how most advertising happens. A majority of organizations follow 1 of 3 models in advertising. Either they outsource it completely, they keep all advertising and marketing in-house, or they run a hybrid model where they are involved but still rely on third parties.
In even simpler terms: either you hire an agency, do it yourself, or hire contractors.
A lot of today’s advertising is done by enormous advertising agencies. They’re usually pretty good at what they do, and their fees are usually as high as their confidence. At it’s simplest, it’s a principle of economics at work: specialization. You focus on what you’re good at to let me have more time to focus on what I’m good at. Both sides win, and the economy is boosted as well.
And while that has been a prevailing reason for companies turning to advertising agencies in the past, there was an inflection point where companies began to bring their advertising back under their own control.
You might be wondering why, if the model has been successful for such a long time in the past, why it would suddenly start to shift now? (While unrelated, I think linear TV is suffering from a similar problem with their massive losses of subscribers.)
My hypothesis is that at its heart, it’s a money decision. Most of the advertisers bringing their media buying in house are huge companies that can afford to build out a team of specialists–media buyers–at a lower cost than their advertising agency’s fees. I’m still on the fence about whether this is an actual cost savings or just a perceived cost savings. I mean, there is some inherent value, expertise, networking, etc. that agencies provide that these in-house teams will lose out on. But for most of these publicly-traded companies, shareholders want more and more profits, and thus we see the start of the in-house advertising.
In the business strategy concept of game theory there is a concept of zero-sum games. Basically, this means that no matter where a game starts, the net result is always the same – zero. What does this have to do with advertising?
Fees. High fees. Super high fees that advertisers can’t justify any more. Especially with all the advancements in advertising, including programmatic advertising, that allows trained media buyers to get the same, or better results from agencies for a fraction of the cost.
In my opinion, bringing advertising in-house is the first domino in the zero-sum game. Next, we’ll see advertisers lower prices and compete on price until it becomes commoditized and ends up approaching zero. Obviously this won’t happen tomorrow, but it’s important to note that the shift has started.
Cool stuff, interesting opinions maybe, but how does it affect my business and my advertising? You may be asking yourself now what you can do to save costs, or lower your fees. You might want to bring your media buying in-house, or you might still want to specialize in what you do, leave the media buying to the professionals, and just pay lower fees.
What your ad agency doesn’t want you to know is their fee structure. Non-transparency keeps their businesses alive. Or if you know the exact fees your paying, you’re ad agency wants to convince you that it’s their expertise and results that demand these high fees. They also don’t want you to know that Megagon Ventures is a low-cost, high-results agency that specializes in programmatic advertising. We were founded to help advertisers get the benefits of programmatic without the high fees.
Megagon Ventures can help you with your long-term business goals. We can help determine if it makes financial sense to build out a media buying team. If it does, we are happy to help. When it doesn’t make sense, we’re still happy to help by charging you some of the lowest fees in the industry for real business results.
