The Rise of Private Exchanges and the Future of Agency Trading Desks

Written on
Apr 9, 2014 
Richard L. Tso  |

ADOTAS – As old-school marketing tactics are quickly replaced by more nimble automated methods to deliver ads to audiences across the web, agencies are adopting in-house platforms to help them effectively manage and buy media at scale for the portfolio of brands they represent.

If you’re considering partnering with a trading desk, you’re certainly not alone. According to recent research released by OpenX, 71% of publishers and buyers trade ads programmatically and many predict double-digit revenue growth this coming year.

Trading desk Varick Media Management (VMM) believes private exchanges are increasing in popularity, and more than 30 premium publishers have implemented VMM’s “First Class” private marketplace product, which VMM enables through programmatic direct deals. The company has negotiated upfront deals via multiple technology platforms to automatically activate deals with selected publishers and provide advertisers transparency and efficiency.

“The private exchange model automates the direct relationships between clients and publishers,” said Jim Caruso, VP of Product Strategy at Varick. “Technology platforms such as DSPs and SSPs introduce efficiencies on both sides, so now instead of having manual paperwork and revisions, buyers can quickly access publishers’ inventory at any level pricing tier by setting up deals for pre-approved access.”

Through trading desks like VMM, publishers can grant buyers access to inventory that they may have otherwise had to monetize at a lower rate by offering it to exchanges. They can then turn around and leverage data for higher CPMs, without the overhead costs needed for a direct sales team handling this additional inventory. Advertisers get access to that inventory at a much faster rate.

“Most private exchanges offer three different tiers of buying power,” said Caruso. “There are direct buys, negotiated up front with the publisher, which offer full transparency. The next tier is a real-time time auction, but with set price controls in place, including minimum price floors. The final, lowest floor is open RTB, which is a real-time auction with hundreds of buyers, most of whom are buying somewhat blind.”

Addressing Concerns About the Trading Desk Model

While trading desks allow for better targeting, helping brands reach people more effectively based on criteria like BT and demographics rather than the traditional approach of packaged impressions, some have voiced concern about the potential conflict of interest surrounding agency trading desks that act simultaneously as both agent and vendor for clients, leading to a lack of transparency and potential pricing arbitrage.

As reported by Digiday, Joanna O’Connell, a senior analyst at Forrester who helped build Publicis’ AOD trading desk technology during her time working at Razorfish,commented: “A lot of the clients I speak with are becoming more and more concerned about the mandates and conflicts of interest.”

“Some of the clients are starting to wake up to the fact their trust is being sold down the river for agency margin,” added Zach Coelius, CEO of demand-side platform Triggit, which essentially competes with trading desks for agency-controlled budget. “Agencies created the problem themselves, and they’re going to have clients starting to get very unhappy about it.”

But not all trading desks are treading in these murky waters.

When asked about how the negative press trading desks have received in recent months Caruso added, “The coverage of trading desks thus far has been very broad and indicative of how a few specific desks operate. As [the] Digiday piece points out, sometimes the term ‘trading desk’ is misused simply to extract more money from a client, and it certainly shouldn’t be that way.

“There’s this idea that trading desk equals RTB, which equals a black box. Transparency is the future of advertising and trading desks, and private marketplaces are designed to complement those objectives. Where some trade desks are mandated to work with their holding companies, at Varick, we’re not,” he said. “While we technically exist underneath MDC, we operate as an independent vendor, which means we still have to go out and win business just like any other DSP or data provider.”

Richard L. Tso is a reporter for Adotas and an avid writer covering the intersection of technology and advertising, fashion and music. With over 12 years of experience in the Advertising, Marketing and Public Relations industries, Richard has held executive positions at global agencies and technology companies and is founder of the interactive communications firm Pseudosound Consulting LLC. A classical cellist and painter, he believes that sometimes sound carries more weight than words. He is a graduate of Stanford University.

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