A recent IAB Europe report sparked interest by stating that 86% of programmatic active brands have an in-house capability, with 39% of them having completely in-housed. Similarly, high numbers were shown in the U.S. through a report by the ANA.
Clearly, brands are taking ownership of media buying in some form or another, although there is no strict definition of in-house capabilities, meaning that each respondent answered based on their experience.
Whatever your definition, this is not an overnight phenomenon, as there has been a journey since the early 2000s that is merely accelerating today. But how did brands start out in a world where buying power was king and skills were largely only within traditional advertising agencies?
Phase 1: Digital native advertisers
As soon as it became possible around 2001 to buy ads through an online platform, with Google’s AdWords and AdSense products leading the way, brands with a digital-first culture started buying media in-house. Driven by the ease of setting up a Google account and buying media, companies such as Kelkoo, the main European price comparison site of the era, ran all of their marketing in-house with a heavy focus on search and affiliate programs.
Around 2008, Google ended its best practice funding (its version of rewarding spend), meaning agencies could make less money from search and that they had to start charging for their services. Given that many of these new brands already thought they understood the platform better than their agency, it only drove the prevalence of in-house teams. Ecommerce businesses and OTAs that launched and grew around this time favored running search and the new social platforms in-house. They would also do display either themselves directly via a DSP or by using a platform such as Criteo or Ad Roll.
How brands treat the emerging programmatic platforms in OOH and TV will be the next battle ground with established agencies.
Today the numbers of these companies are only growing with the rise of DTC, and indeed, the scale of these companies is ever-increasing. Firms such as Harry’s (now acquired by Edgewell) see digital acquisition marketing as a core competency and retain strategic control. They will likely execute directly or with a vendor that allows them to maintain control via an interface. As TV and OOH platforms develop, these brands will likely move any spends in this space in-house as well.
Phase 2: Early adopting established brands
Driven by the success of the digital natives, which had taken significant market share, established brands started to run large elements of their digital marketing in-house three to four years ago. Unlike the forerunners, they do all digital channels (search, social and display), but they also own the relationship and contract for their various ad-tech partners. Brands such as Disney, P&G, Unilever, Vodafone, Intel and many more have at least started the journey.
They have been attracted by several factors, from the potential cost-savings to concerns over agency transparency. However, arguably the largest benefit is the increased agility, reaction times and marketing speed that in-housing can bring, which ultimately yields marketing performance.
Phase 3: Traditional brands
The third type of companies are the more conservative brands now looking at in-housing. This is by far the largest group in terms of ad spend, as it contains the majority of the Fortune 100 outside of the Big Tech companies. On the one hand, they are nervous about taking on additional staffing costs and media performance responsibilities. On the other, though, they are attracted by the success stories they are hearing and fear being left behind.
For such companies, I think we are now seeing a hybrid in-housing approach emerge where such brands take more ownership of strategy, measurement and budget assignment but outsource buying to agencies and other suppliers.
Phase 4: The new frontier
TV and OOH
Agencies biggest exposure is around their buying of TV and OOH. These channels have traditionally been dominated by the group agencies buying teams. How brands treat the emerging programmatic platforms in OOH and TV will be the next battle ground with established agencies. Agencies will need to ensure they keep an advantage in this space, or advertisers that are comfortable buying their own media will move these valuable budgets in-house or to specialist vendors.
Return to outsourcing and the new agency model
As the market matures, advertisers may look to a new type of vendor to take on some of the heavy lifting in buying and to provide resource efficiencies once they are comfortable that it’s under control. Suppliers may get even more of a bonus when the next economic downturn occurs and pressure on keeping costs and headcount low grows again. We are already seeing the first signs of this with a new breed of agency/supplier emerging.
Looking to the future, there are a huge number of brands that will never in-house. However, there is still the potential for huge disruption as they will choose smaller, more specialized and technically savvy suppliers over the network agency groups. It is with these brands that the big agencies need to change and build their value proposition, which used to be based on buying power but now must be focused on marketing transformation and quality execution. How the agency groups do in this space against smaller players and consultancies will be fascinating to see. I expect the best of the big groups to continue to do well, but not have the same dominance as of old. It is interesting to note that Martin Sorrel’s biggest acquisition with S4 capital is MightyHive, a firm very comfortable with in-housing and assisting brands in this new way.
A shakeup is underway in how advertisers execute media and work with their agencies. In-housing will continue to grow, and media strategy, measurement and budget assignment will be led by clients rather than agencies in this new era. The agency mix will also change with a lot of pressure on the large holding groups. Expect the best parts of those businesses to continue to thrive, but we will see a shift to smaller agencies and a new breed of supplier. Ultimately, these changes are all for the good and will create a more exciting and dynamic industry.