Big ad agencies are slashing the number of ad-tech companies they work with — and tech firms are racing to stay a step ahead
- Big ad agencies are cutting the number of ad-tech companies they work with as regulation and pressure on business models sweep through the industry.
- WPP's GroupM and Havas Group have slashed their ad-tech roster, while Publicis Groupe said it's also planning to make cuts.
- The moves have ad-tech firms like OwnerIQ scrambling to stay relevant.
- However, some agencies worry that too much ad-tech consolidation will only strengthen the walled gardens of Facebook, Google, and media companies.
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Advertising agencies are getting hit on all sides. They're under pressure to cut costs, meet clients' demands for transparency, and deal with new privacy concerns and regulation like the forthcoming California Consumer Privacy Act that could dramatically change how advertisers collect data and target ads.
As a result, the world's biggest ad agencies are slashing the number of ad-tech companies they work with and scrutinizing how they use data more closely. To minimize regulation headaches, holding companies Interpublic Group and Publicis have even acquired companies that help marketers collect first-party data.
Agencies also said the number of ad-tech firms pitching the same technology has ballooned over the past few years, and it's expensive and cumbersome for agencies to maintain a multitude of suppliers.
Executives from four major agency networks told Business Insider they'd pare the number of ad-tech companies that they work with, particularly those that provide third-party data.
Arthur Sadoun, CEO of Publicis, said the company would cut third parties as a result of its Epsilon acquisition, which closed on July 2. "What we are bringing is amazing scale with incredible talent and expertise," he said. "Most of what we need is within Epsilon."
WPP's GroupM has cut more than half of its ad-tech partners over the past few years and is examining all the ad-tech companies it uses to see if there is any overlap between them.
"We've done a lot of testing and learning and we understand where there is duplication and where there isn't within the ad-tech and data provider ecosystem," said Evan Hanlon, chief strategy officer of GroupM US. "Right now we're at a point where it feels like the deck of cards is going to be thrown into the air again."
Havas Group for its part has cut down the number of suppliers to roughly 15 from around 60.
Bret Leece, global chief data and innovation officer at Havas Group, said the agency tries to work with groups of three ad-tech companies that provide similar offerings to give clients choices while making the agency's work manageable.
"If we added up all the ROIs from these things, our clients' business should be doing a lot better than it is," Leece said about how ad-tech companies' pitches don't directly translate to clients' goals. "It takes a long time to get on the media plan — you really have to prove yourself."
A fourth agency network, which wouldn't speak for attribution, also said it was working to reign in its ad-tech vendors.
Agencies' slimmer rosters are reflected in recent ad-tech deals
Recent ad-tech deals also show how marketers are increasingly moving to working with less companies.
- Foursquare acquired like-minded location data firm Placed to create a scaled platform for advertisers.
- Zeta Global bought part of Sizmek's assets to mesh its marketing cloud product with Sizmek's demand-side platform for ad targeting. Zeta Global is also taking over ad sales for location firm PlaceIQ.
- Ad giant Publicis bought Epsilon for $4.4 billion.
Agencies are asking ad-tech firms to come clean about their practices
Along with cutting back on ad-tech companies, agencies also are scrutinizing ad-tech companies' data collection practices.
Arun Kumar, IPG Mediabrands' chief data and technology officer, said while the agency isn't actively cutting the number of ad-tech companies it works with, its $2.3 billion acquisition of Acxiom will help it see if a tech firm's practices are legitimate and fair for consumers.
"Sometimes we've found data providers who, if you go right to the source of collection, they do not have the required basis to collect that data," he said. "We have over the last couple of years become a lot more stringent."
GroupM's Hanlon said the agency has a couple red flags that they watch out for, like ad-tech companies that promise marketers access to data that's behind a firewall, such as browsing or transaction patterns on Amazon; or companies that won't reveal their raw data.
"If there's 100 data points that go into creating an audience profile, I want to know which 10 are most valuable," he said.
Ad-tech companies are scrambling to re-invent themselves
As for ad-tech companies, they're scrambling to stay relevant. Boston-based OwnerIQ is adapting its services for agencies by moving to a software as a service model, and laid off 10% of its workforce in the process in April. OwnerIQ has a demand-side platform and a data-management platform that help retailers and brands organize data and target ads.
"We had to adjust our product and go-to market strategy," said Steve Ustaris, CMO of OwnerIQ. "You're not only updating product; you're also re-looking at staff to make sure that you can support that new reality."
According to one agency executive, one of the major challenges for OwnerIQ and other ad-tech companies is that they make most of their revenue from selling ads that bundle in their data.
But agencies are increasingly moving out of the media buying business and in turn, becoming more interested in data that can be used to understand consumers more broadly. At the same time, Facebook, Google, and Amazon already pump out troves of that kind of data for marketers, said Jay MacDonald, CEO and cofounder of Digital Capital Advisors.
"It's very difficult for a lot of these guys to scale because the larger platforms do that plus a whole bunch more and [ad-tech companies] get marginalized from a revenue perspective," he said.
Agencies are worried that too much consolidation will hurt the industry
Still, the recent uptick in ad-tech acquisitions is a double-edged sword for agencies.
Even as they look to work with fewer suppliers, some said they're concerned that more consolidation will only strengthen the walled gardens of Facebook, Google and others, leaving them with fewer options for their clients.
"There's a huge data pool behind Facebook, Google, Amazon and behind the broadcasters' walls if you take a look at Xandr, NCC, Viacom and Comcast," GroupM's Hanlon said. "They're all looking to make their data more usable but not necessarily more available outside of their walls."
Hanlon said he's especially worried about independent ad-tech companies The Trade Desk and LiveRamp being acquired. The Trade Desk lets buyers buy digital ads programmatically, and LiveRamp helps advertisers match offline, anonymous data for ad targeting.
"The roster of big, scaled independent partners that are not attached to a larger data, technology or media environment is getting smaller," Hanlon said. "If someone is willing to pay the multiples to take [The Trade Desk and LiveRamp] off the board, that has profound impacts on the open internet."
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