You’ve Gone In-House. Now What?

February 12, 2018

Taking programmatic in-house can make sense for any big-budget marketer that wants to innovate and take control of its programmatic future. However, while the economics might point to in-house as the way to go, marketers will still need to cross a big chasm to make the shift worthwhile.

Getting stuck on the wrong side of the chasm is no place to be for very long. In-housing is about evolving as fast as one can to justify the investment and reap the rewards of competitive advantage.

And The Survey Says

In a recent ANA survey across 149 marketers, 35% of respondents said they reduced outsourced work to agencies as a result of expanding their in-house programmatic capabilities. Expansion could mean owning tech contracts, putting a dedicated programmatic manager in place and, in some cases, hiring hands-on-keyboard (HOK) staff.

What’s more interesting is how the survey implies the formation of two new markets: those who have not yet taken programmatic in-house but might get on the train in the future and those who have already left the station.

The latter group can be further broken out into “avant-gardes” and “conventionals.” In-house avant-gardes are like the crazy ones from Apple’s famous 1997 rebranding campaign. They went in-house to take programmatic to the promised land, while the conventionals may have jumped in as a knee-jerk reaction to the ecosystem’s transparency issues, often with little to no plan.

The Why, What And How

Before diving into more distinguishing factors, we need to answer three really important questions about programmatic in-housing: Why did the new market take off in the first place? What has it become? How do we cross the chasm?

Why did in-housing take off? The short answer is classic moral hazard: Too many profit-hungry partners got caught with their hands in the cookie jar a few too many times. In turn, information biases were shaken and marketers awakened to what programmatic insiders already knew: Marketing budgets were not necessarily buying ads, but instead funding flawed business models.

When marketers realized how much working media was squandered, trust in ad tech crumbled like a cookie and a reported 35% of marketers leaned into an in-house state of mind.

What has in-house become? The avant-gardes know that getting working media right leads to getting the supply chain right. For the conventionals, all they really have is an impenetrable demand-side platform (DSP) contract so every problem ends up looking like percentage of media.

The avant-gardes tap into the good parts of a DSP by dissecting the black-box nonsense. They want to know the real price of everything to properly value tech tools and decide if the partner’s intentions are in alignment.

The avant-gardes approach in-housing as a true alternative where they can innovate their programmatic operating model. The conventionals went in-house to lower costs by substituting in an agency model and mindset. If these internal agency-like teams are simply running a business-as-usual system, then there is a good chance that the desired effectiveness and cost advantages will not prevail as much as planned. In contrast, the avant-gardes are not interested in solving the problem with the same foundational elements that helped create it.

How do we cross the chasm? When in-house investments are approached as a true alternative system, not as an agency substitute, they become a catalyst for disruption and create real change inside the marketing org and all the way down the supply chain.

Real change is about pushing actionable ideas, not merely shifting HOK responsibility to in-house staff, or only taking certain aspects in-house and boxing agencies into an HOK-only role. There are many in-house operating models from which to choose – from standing up an internal team to coordinating various three-legged-stool models with the agency and other partners – but all require an always-on system to manage ideas, people and incentives. Ultimately, it is the system choice that gets a marketer across the chasm, not the operating model choice.

Real change happens quickest with programmatic growth hacking – a system to generate viable campaign ideas at the intersection of human curiosity and machine computing power. It’s about surfacing and structuring ideas as hypotheses, testing each one in an organized concert of measurable impact and having the discipline to manage them up or out.

Programmatic growth hacking requires speed. The conventionals will probably not be able to move any faster than the old model because they are bogged down by a convoluted communication system full of painfully long email chains and no single point of managerial control. The avant-gardes remove all the status quo nonsense to speed up idea execution cycles and ride the momentum that competitive advantage provides.

The avant-gardes generate ideas and avoid judgment until each one is tested, diagnosed and understood. The same goes for any preconceived notions about ad tech tools and their sales pitches. They regularly tear apart processes in the spirit of continuous improvement by replacing the prescriptive media plans of yesteryear with campaign use case design – a consistent structure of actors, data pre-conditions, criteria for success and measures of success. Avant-gardes are laser-focused on fitting programmatic with the precision it requires instead of constantly struggling to fit square pegs into round holes.

Everyone on or associated with avant-garde teams asks many questions, and they always want answers, especially the lead manager. The smart ones will ask: Why does our in-house team exist? What are our core operating values? Who must do what? What does success look like? How much saved money can we prove to the CFO? Can we quantify the benefits of this newfound control? Have we changed the intent of our supply chain? How much did we grow our business? What is most important right now? Evolve.

On the one hand, the advertiser believes that its agency is either transparent about media fees or not. There should be no gray area. If the advertiser is not sure, then the first step is to find out and then make a black or white determination. At this stage of the exercise, it is critical to note that, from a payoff perspective, the agency probably gets a higher payoff by not being transparent. And if the agency changes course toward more transparency, then it will likely lose a benefit that it already has.

Value-Add Is In The Eye Of The Beholder

On the other hand, a client’s agency either adds enough value to the media buying process or not. For any given marketer situation, the definition of value-add will likely be assessed along a spectrum of three points: 1) verified, fact-based value-add; 2) semi-verified with some facts; 3) unverified, perceived value-add. If the agency’s added value leans too much toward the perceived end of the spectrum, then, in all likelihood, the marketer will end up with a suboptimal outcome by leaving money on the table.

It should also be noted that even if there exists some qualitative aspects to assessing agency value-add, which is likely when it comes to client-agency success metrics, then these parameters should be tightly defined and leave no room for contractual ambiguity.

Four Categories

In the first category (I), both client and agency are in balance. No change is necessary unless the client can improve its payoff by working with a different and equally transparent agency that also happens to generate additional value with better capabilities and more useful insights.

In the second category (II), the client and agency are in “tenuous” balance. The client is aware and accepts the nature of the relationship in exchange for real or perceived value-add. Again, no change is necessary unless the client can improve its payoff by working with a more transparent agency that can generate the same or additional value.

The client and agency are out of balance in the third (III) case. This outcome is actually not a transparency problem. It is a value-add problem. Either the client makes changes to the agency’s tools and processes or the client should seek out an equally transparent agency that can provide the appropriate level of expected value-add.

In the last case (IV), the client and agency are severely out of balance. If the client desires total transparency and top value-add, then the client has three primary options. First, it can change the current agency’s tools and processes, with particular regard to programmatic. It may also seek a new, highly transparent agency that acts as a true partner and provides the desired value-add. Or the client can reimagine the entire media-buying operating model with a data-first and programmatic-first strategy, which may require agency services only if the potential for real value creation is self-evident.

The Buck Stops Here

The buck always stops with the marketer. It is the marketer, and only the marketer, that writes the first check in the supply chain. If a brand is not in the right place today with its agency partner, then either it or its agency (or both) will have to change if they want to reap the long-term benefits of modern media buying, programmatic planning and audience management.

At the end of the day, both client and agency have a massive opportunity to achieve bigger, better and more sustainable payoffs, but it is not going to be easy because there are no silver bullets. With rational, well-communicated goals, along with leadership in the control tower pushing for incentives that create mutual gain, both sides will more quickly find their own Nash equilibrium.