Brian O’Kelley wrote an interesting article this week in ClickZ affirming the ad networks’ rightful place on the agency media plan. He encouraged ad agencies to worry less about about the ad networks’ business — i.e., those tantalizing 70% gross margins reported in SEC filings — and more about their client’s business. After all, if you are able to do a better job for your client, who cares if it causes someone else to make more profit? This is good rational advice, but its not the way humans ordinarily think.
Take the Ultimatum Game, a psychology experiment that examines decision-making processes. Here’s a quick summary:
The basic rules of the Ultimatum Game are simple. One person is given a stack of cash, and told to divide it between themselves and a second party. That second party is then given the chance to accept or reject the offer; if it’s rejected, neither of them get any money. Clearly, any of this free money should be better than nothing, so under assumptions of strictly rational behavior, you might expect all offers to be accepted.
They’re not. Things in the neighborhood of a 50/50 split are accepted, but as the proportions shift to where the person issuing the ultimatum tries to keep seventy percent of the total, rejections increase. By the time they hit an 80/20 split, nearly 70 percent of the offers are rejected, even though that 20 percent of the total cash would leave the recipient better off than where they started.
If you’re focused on buying marketing inputs (e.g. impressions) as cheaply as possible and you demonstrate value by referencing the savings you’ve generated, then you’re a procurement officer and you create value by hammering away on your suppliers’ margins. If you’re focused on delivering marketing outcomes (e.g. consumer engagements, a few points in brand lift, sales) by properly pricing marketing inputs, then you’re a strategic partner and you create value by building your clients business.
We’re at a transformative moment in the media business. The advertising value chain is playing a game of musical chairs and, for better or worse, you’re going to be sitting in a different chair a few years from now. The question is: what chair do you want to land in?
Brian O’Kelley of AppNexus wrote an interesting article last week in ClickZ affirming the ad networks’ rightful place on the agency media plan. He encouraged ad agencies to worry less about about the ad networks’ business — i.e., those tantalizing 70% margins reported in SEC filings — and more about their client’s business. After all, if you are able to do a better job for your client, who cares if it causes someone else to make more profit? This is good rational advice, but its not the way humans ordinarily think.
Take the Ultimatum Game, a psychology experiment that examines decision-making processes. Here’s a quick summary that I found on Ars Technica:
The basic rules of the Ultimatum Game are simple. One person is given a stack of cash, and told to divide it between themselves and a second party. That second party is then given the chance to accept or reject the offer; if it’s rejected, neither of them get any money. Clearly, any of this free money should be better than nothing, so under assumptions of strictly rational behavior, you might expect all offers to be accepted.
They’re not. Things in the neighborhood of a 50/50 split are accepted, but as the proportions shift to where the person issuing the ultimatum tries to keep seventy percent of the total, rejections increase. By the time they hit an 80/20 split, nearly 70 percent of the offers are rejected, even though that 20 percent of the total cash would leave the recipient better off than where they started.
Some agencies fall into the same trap, leaving 20 cents of client value on the table because they can’t stomach another supplier taking 80 cents.
If you’re focused on buying marketing inputs (e.g. impressions) as cheaply as possible and you demonstrate value by referencing the savings you’ve generated, then you’re a procurement officer and you create value by hammering away on your suppliers’ margins. If you’re focused on delivering marketing outcomes (e.g. consumer engagements, a few points in brand lift, sales) by properly pricing marketing inputs, then you’re a strategic partner and you create value by building your clients business. I know this seems a bit polarizing, but I do believe these are distinct mindsets and people are usually operating in one or the other.
We’re at a transformative moment in the media business. The advertising value chain is playing a game of musical chairs and, for better or worse, you’re going to be sitting in a different chair a few years from now. The question is: what chair do you want to land in? The mindset you take today will decide your role in the future.
“Brand is magic… there is no computer that can figure out magic,” according to Jim Heckman, CEO and founder of 5to1.com, explaining why advertising and marketing will always require a human element — meaning the good services of media planners and buyers.”
“Digital Hollywood: Media Agencies Are Here to Stay — Ad Networks, Not So Much.” MediaPost. May 6, 2010
“Any sufficiently advanced technology is indistinguishable from magic.”
Arthur C. Clarke, Profiles Of the Future, 1961.
Well, do you? Which type of marketing magician do you prefer?