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March 23, 2015 Scottsdale, AZ The Economics of In-Sourcing Programmatic Ad Buying

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Page 1: Craig macdonald

March 23, 2015

Scottsdale, AZ

The Economics of In-Sourcing

Programmatic Ad Buying

Page 2: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 2

Programmatic Big Picture…

Programmatic Ad Buying Expense is High

• Agencies provide service, however expenses remain high

• In-sourcing becoming a viable option

• Particularly common for the largest global marketers

The business case is there, but…

• There are unknowns

• Executional risk

• Organizational know-how

• Technical implementation

• Analytical discipline

In-housing CAN be successful with focus on basic principles

• Staffing: Know who you have and who you need

• Technology: Picking the right partners from the crowd

• Focus: Business objectives over technology objectives

Page 3: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 3

Marketers are moving programmatic buying in-house, enabling a seamless

connection between their data, owned and paid media.

Advertiser

Agency

Trading

Desk

Demand-

Side

Platform

(DSP)

Sell-Side

Platform

(SSP)

Publisher

Broadcaster

Ad Networks

Ad Exchanges

Demand Aggregation / Intermediate Supply

Media Sales

House

Advertiser

Demand-

Side

Platform

(DSP)

Ad Networks

Ad Exchanges

Sell-Side

Platform

(SSP)

Publisher

Broadcaster

Media Sales

House

What’s Changing in the Advertising Ecosystem?

Who’s doing it?

Page 4: Craig macdonald

Copyright © 2012 Accenture. All rights reserved. 4

Value Levers

Page 5: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 5

Apart From Pure Cost Savings, Data, Process & Quality

Control Matter

In-sourcing means media decisions are

objective and based on what’s best for

the marketer

In-sourcing brings assurance that

marketer’s first-party data remains the

marketer’s exclusive property

In-sourcing means internal teams can be

accountable to standards and policies

Page 6: Craig macdonald

Copyright © 2012 Accenture. All rights reserved. 6

The Business Case

Page 7: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 7

Cost of the Status Quo For a Major Advertiser

(hypothetical)

As Programmatic spending increases and moves into offline media, agency/desk

fees escalate

$54,450,000

in

agency/desk

fees over

five years for

a major

advertiser

Agency/Desk

Fees

$3,000,000

(30%)

6,300,000

(30%)

$9,900,000

(30%)

$17,250,000

(30%)

$18,000,000

(30%)

Media

Budget

$200,000,000

$210,000,000

$220,000,000

$230,000,000

$240,000,000

Programmatic

Budget

$10,000,000

(5%)

$21,000,000

(10%)

$33,000,000

(15%)

$57,500,000

(25%)

$60,000,000

(25%)

2015

2016

2018

2017

2018

Page 8: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 8

So What Does the Alternative Cost?

18-month start-up investment requires ~$3-5M, while 5-year requirements total

~$12M of operating expense and ~$10M in capital expense.

Start-Up Investments

Year 1-2 (18 months)

• Total: $3-5M

• CapEx: $2-3M

• OpEx: $1-2M

Investment Focus

• Strategy Development

• Set-Up and Deployment

• Initial Operationalization

• DMP, DSP and Integrations

Ongoing Investments

Year 3-5

• Total: $15-17M

• CapEx: $6-7M

• OpEx: $9-10M

Investment Focus

• Ramp Up of Operationalization,

including analytics, trading and

optimization, ad operations,

finance and publisher relations

• Continued Expansion of Platform

& Data

Page 9: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 9

Savings Potential From In-Housing

An in-sourced trading desk can deliver ~$55 million in fees avoided over five

years, which delivers incremental free cash flow ~$31 million.

$0 $3 $4$11 $12

$0 $3 $7

$19

$31

$0

$100

2015 2016 2017 2018 2019

YearlySavings

Cumulative

Savings over time (in millions)

Page 10: Craig macdonald

Copyright © 2012 Accenture. All rights reserved. 10

Making It Happen

Page 11: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 11

AD

OPERATIONS

TRADING &

OPTIMIZATION

ANALYTICSPARTNER DEV

& FINANCE

• Creation and

maintenance of

inventory, platform

and tech

partnerships

• Financial and

billing capabilities

to compensate

partners

• Trafficking ad

creative across

media channels

• Campaign setup

• Campaign

maintenance

• Campaign

execution team

• Day-to-day

optimization

• Responsible for

delivery and

performance

metrics

• Standard

performance

reporting

• Detailed audience

analytics

• Performance

modeling

In-sourcing Requires New Skills & Knowledge

New Capabilities Required

Page 12: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 12

In-sourcing Means Partnership Evaluation, Strategic

Building and Operations

Considerations Vary Based on Definition of

“In-Sourcing”

Vision and Build

• For marketers looking to set up their own Programmatic platform and operate it with internal staff:

• Need to define strategy and operating model the set up the technology, the organization and rules.

Operate and Optimize

• For marketers looking to bring efficiency, scale, faster time to market and optimization to an existing platform:

• Need operating services for analytics, process management and ad operations as well as financial and campaign management.

End-to-End Support

• For a marketer seeking the efficiency of a single partner:

• Both of the above

Elements of In-sourcing

Bidding

Strategy

Strategy and Build

Operating

Organization

Design

Partner

Selection &

Platform

BuildData

organization

and

actionability

Desk OperationsAnalytics &

Optimization

Process

Management

Campaign

Management

Ad

Operations

Financial

Management

Industrializing

Results &

Findings

Page 13: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 13

Basic Programmatic Buying

Infrastructure

Advertiser

Page 14: Craig macdonald

Copyright © 2012 Accenture. All rights reserved. 14

Next?

Page 15: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 15

The Future

Expect operational costs to come down

Expect consolidation of technology

Expect stasis in in-source/agency

conversation

Expect staffing issues to improve

Page 16: Craig macdonald

Copyright © 2015 Accenture. All rights reserved. 16

Contact

Craig Macdonald

Accenture Interactive

Los Angeles, CA

+1.858.735.6225

[email protected]

Kevin Rettig

Accenture Interactive

New York, NY

+1.917.452.3527

[email protected]