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FBI Ad Practices Probe Yet Another Reason to Take Advertising In-house

FBI investigation of ad agencies

The FBI dealt a major blow to the advertising industry’s image this fall when it began probing media-buying practices of agencies. Like the ANA’s investigation two years ago, the FBI’s involvement is another sign of the lack of transparency between advertisers and their media-buying “partners”.

The FBI is reportedly looking into whether ad agencies received rebates from media outlets. A Wall Street Journal story claimed that the FBI had subpoenaed ad holding company Havas SA. In October the ANA announced that it will “share information about potential next steps member companies can take with the FBI if they believe they have been victimized.” It also predicted the investigation will be ongoing for the next six months to a year.

The FBI probe demonstrates that, although the industry has known about these deceptive business practices for some time, they’re still pervasive. A former media-agency executive was quoted in an April McKinsey & Co. report saying, “Most media-agency profitability is driven by non-client revenue. We would not have a business if we didn’t have rebates.”

Related post: Why More Brands Are Managing Advertising Themselves

Marketers deserve better than partners collecting behind-the-back rebates and committing other non-transparent practices. Frankly, I’m surprised advertisers aren’t more outraged about the FBI probe. These practices impact advertisers’ profits. The repercussions are lost customers due to underperforming campaigns. Yet many advertisers have yet to take action. Imagine if your investment banking firm was under investigation for fraud by the SEC. Wouldn’t you consider moving your money? Or at least start asking tough questions?

If the marketers aren’t going to start doing it, then the boards of brands should be demanding greater accountability for such a critical part of their company’s growth. However, to be fair, marketers’ frustration with ad agencies has been mounting for years, motivating some of the largest and most sophisticated to bring their ad buying in house.

Fed-up marketers have new options

The overwhelmingly lack of transparency in the digital advertising supply chain allows agencies to get away with rebates. In a recent “Confessions” article in Digiday, a former brand global media chief noted that clients often get ripped off by digital agencies because there are “zero skills at the client end to deal with it.” This trend will continue and the agencies want it that way. Keeping you in the dark prevents you from challenging them with hard questions and from potentially uncovering fraud.

“Marketers’ frustration with ad agencies has been mounting for years, motivating some of the largest and most sophisticated to bring their ad buying in house.”

But marketers have more options now. Years ago, a marketing team couldn’t be expected to buy its own digital media in-house as efficiently as a media agency. But the technology has evolved and the latest data from eMarketer puts the number at 32% of brands buying programmatic media in-house. This change is leading marketers to question their age-old reliance on ad agencies.

While Netflix and Target were early pioneers, A-list brands including Sprint and L’Oreal have recently brought a portion of their advertising in-house. Consumer goods giant Unilever claims it cut agency fees by 30% by bringing more of its ad work in-house. Booking.com, which took its programmatic in-house last year, has been able to execute campaigns much faster, cut back on time-wasting meetings with agencies and get performance metrics in real-time instead of quarterly. You can be sure that a programmatic campaign manager working internally at these brands isn’t accepting rebates or kickbacks, and if they were they’d be fired on the spot.

The FBI probe will accelerate the in-house movement

Inertia and lack of available talent are some of the reasons preventing more brands from taking the leap to in-house programmatic. Others are taking a halfway approach, bringing in certain aspects of programmatic buying in-house but relying on agencies for others.

Whether a brand builds or buys its own internal programmatic ad platform, there will be a learning curve and upfront costs. However, an in-house programmatic team will have full access to their customer data as well as how and where their ad dollars are spent, allowing them to troubleshoot campaigns with poor ROI and build on campaigns that succeed. Ultimately, the costs of bringing programmatic in-house are worth it because in-house teams will create consistent prospecting and retargeting engines that increase incremental revenue for their companies.

At the very least, the FBI investigation is proof that brands need to keep asking their agencies questions, and then take control of their own digital advertising if they don’t like the answers.

For more on the benefits and drawbacks of the in-housing strategy — as well as an analysis of other remarketing strategies — click below to download our new free report, “The CMO’s Guide to Remarketing”.

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