RE: Adv20 Nov 2019 21:17
Part 2
desks had declined 15 per cent over the past year. Meanwhile, use of independent trading desks not owned by agency groups had surged. The largest trading desks are WPP’s Xaxis, Omnicom’s Accuen and Publicis’s Audience on Demand. Xaxis is the biggest and has attracted the most criticism as the pioneer of a controversial practice known as “arbitrage”. It buys ad space in bulk on its own account, then sells it on to a client at a higher price, without revealing the size of the mark-up. This model turns Xaxis into a vendor, rather than merely acting as an agent and is thought to be highly lucrative for the advertising group. It also builds technology to target the advertising at specific audiences, using a vast trove of its proprietary data. “It’s like an agency on steroids,” says a rival. This lack of transparency about the margin it makes when it resells that ad space has irked many advertisers. Historically, standard practice within agencies was to provide clients with a clear breakdown of how much they paid for ad space and the fees they charged for providing the service. But Bob Wootton of Isba, a trade body that represents UK advertisers, said that his members are increasingly concerned that WPP and its peers are moving away from a transparent agency model. “In this new world, the intermediaries have become de facto media owners,” he said. Such doubts could become a big problem for agency groups, which have all invested heavily in building their own centralised trading desks. WPP this year estimated that Xaxis was worth $4.5bn based on the market valuation of similar companies. In July, Omnicom revealed that Accuen was also trading as a principal, rather than an agent. It added that the division has become one of the best-performing units of the group. Publicis, the third largest ad group, is marketing its trading desk as being more transparent than those of its rivals. Audience On Demand said it does not engage in media arbitrage. However, Publicis’s rivals believe that it benefits financially from its relationships with media owners and technology companies in ways that are not always fully understood by clients. All the agencies said they are clear with clients about how their trading desks work. WPP, for instance, said that before clients spend any money through Xaxis, they need to “opt in” to the platform and sign a contract that explains its business model. Brian Lesser, chief executive of Xaxis, argued that there is nothing wrong with the company acting as a principal, rather than an agent – as long as it delivers good value for clients. Xaxis “is not an agency and has never claimed to be one, so you wouldn’t expect it to have an agency business model”, he said. “We take risk on our ad inventory and we invest heavily in technology and data,” he explained. “Because of that business model, we don’t disclose our raw material costs.” But many marketers believe that the real problem is that trading desks sit alongside traditiona
Sign In
Follow the stocks
