By Christian Polman
At the end of 2017, Adobe published a report showing that almost two-thirds (62 percent) of marketers planned to take all their programmatic media buying in-house by 2022, with the remaining 38 percent planning to take some elements of programmatic under direct control in the same period. A 2018 ANA report showed a similar effect from in-housing. The ANA's "The Continued Rise of the In-house Agency" report, which replicated and updated similar studies from 2013 and 2008, found that the number of advertisers with in-house agencies has grown substantially, standing today at 78 percent of brands, compared to 58 percent five years ago and just 42 percent a decade back. Sixty-five percent of advertisers said that the in-house agency workload had grown "substantially" in the past year.
In-housing is showing no signs of slowing down. A separate study from the Interactive Advertising Bureau (IAB) shows that even the GDPR has had little impact on in-housing. In the IAB study, 86 percent of brands in the major European markets — U.K., Germany, France, Spain, and Italy — said they had in-housed programmatic media buying completely. (One caveat to these findings: the IAB's research was sponsored by Accenture Interactive, whose Programmatic Media Services Unit has skin in this game. As does Adobe, the firm behind the first survey noted above.)
Many marketers actively in-housing some or all of their brands' advertising and media technology and services are driven by a diverse set of factors, including transparency, control, efficiency, and return on investment. Considerations on what to build and what to buy dominate the debate in trade media and on conference stages — this is particularly true of programmatic media buying and planning.
But before deciding to bring any technology and services under direct control, marketers should consider carefully which elements they might bring in-house, why they want to do so, and what consequences this decision might have. They also need to understand that the decision to in-house or outsource is not black and white, and that there are many shades of gray in between.
Brands thinking about in-housing should consider the following factors and examples:
Factor 1: The Spectrum of In-Housing
Many commentators talk about in-housing as if it were a binary, black and white decision. In fact, the model that advertisers can choose to operate in sits on a spectrum between 100 percent outsourcing and 100 percent in-housing.
At the extreme end of the spectrum there's the established model of media agencies of record and media trading desks run out-of-house, usually administered by agencies on behalf of advertisers. Further along the spectrum, providing some degree of control, brands work with specialist digital agencies for media trading or with a combination of agencies-of-record and specialists. Further still, and with increasing control, advertisers in-house one or more digital media channels. At the other end of the spectrum sits in-housing the entire media function.
Factor 2: In-House What?
The industry is all but obsessed with in-housing programmatic and digital media, but brands are in-housing other services, from data management to creative. The ANA survey lists a range of services handled by the growing array of in-house agencies. In order of popularity: creative, brand, marketing, media, sales/channel, then programmatic. (See figure 1 below). What's more, 90 percent of respondents say they still work with external agencies, though for 70 percent work has moved from external to in-house agencies.
Here are three examples of brands that brought different services in-house, and why:
According to Campaign, Vodafone manages two-thirds of its $200 million digital ad spend in-house. It makes all biddable buys itself; this includes programmatic, search, and social. The brand's move to in-house was driven by cost/efficiency savings. Per the article, Vodafone's experience has been "overwhelmingly good;" that in-sourcing biddable media should be 10 to 15 percent "more effective" in year one, with 70 percent of the improvement coming from media efficiencies and 30 percent from savings. Sara Martins de Oliveira, global director of brand and media at Vodafone, says there have been no huge challenges to overcome with in-housing. "In-sourcing doesn't become this monster everybody thinks it is," she told Campaign.
Having reviewed and restructured all its agency responsibilities last year, Ford added 100 new in-house marketing roles, according to Marketing Interactive. Those new roles cover a number of disciplines, including digital, media, brand design, and partnerships. The same article reports that Ford's projected annual savings from this in-housing investment is in the order of $150 million.
Honda U.K. created the Engine Room, an internal content hub, as reported in Marketing Week in October 2018. The company can now make content and copy changes in an hour, a process that could have taken a month when going through its external agencies.
Factor 3: Motivations
Humans like to build simple, cause-and-effect models that identify single reasons for others' behaviors. But complex decisions like in-housing are often caused by an interconnected nexus of factors that are not easily teased apart. Motivations for in-housing can be driven by considerations of structure, finances, and governance.
Consider these three motivations:
Following the 2016 ANA report "An Independent Study of Media Transparency in the U.S. Advertising Industry," which revealed for the first time evidence of nontransparent trading practices in the U.S., many brands around the world used in-housing as a way to address real and perceived lack of transparency in the media ecosystem.
By taking control of services previously outsourced, some brands look to eliminate ad fraud, wastage, targeting, and brand safety issues that have come to characterize the digital media marketplace. After the 2016 ANA report, the world's leading advertisers, including P&G and Unilever, made the case powerfully and repeatedly for taking back control. Direct control often leads to both increased agility and simplicity, with faster decision-making and action-taking and fewer third-party opinions to consider.
Many marketers look to increase efficiency of their total marketing investment by choosing to in-house some or all of their advertising infrastructure. By cutting out unnecessary links in the supply chain that often add little more than cost, and by exerting more direct control over spend, advertisers can invest a larger proportion of their budgets in working media and less in nonworking media. In this way they can drive efficiencies and enhance ROI. The IAB survey gives the three principle reasons for in-housing as: cost efficiency (42 percent), better audience targeting (39 percent), and campaign effectiveness (39 percent).
In the ANA's 2018 in-housing report, 38 percent of respondents also put cost efficiencies at the top of the list of reasons for choosing to in-house, though a full 69 percent of respondents cite cost efficiencies as the key KPI to assess in-house agencies. There seems to be a long way to go before the objective and the reality align.
Following the first year of P&G's efforts to put its own house in order following the 2016 ANA transparency study, Chief Brand Officer Marc Pritchard announced the company had gained efficiencies from taking greater control of its digital marketing. In March 2018, he announced $200 million reduced spend while still increasing reach by 10 percent, according to Adweek.
Factor 4: Cost and Payback
With marketing, finance, and procurement working in partnership at many brands nowadays, one of the common drivers behind in-housing — beyond cost efficiencies — is actual cost savings. But investing in the full tech stack required to run programmatic media buying, for instance, will not lead to short-term cost savings. Advertisers need to commit to in-housing for the long term.
Like installing solar panels on the roof of a domestic house to generate electricity for personal use and to supply the excess back to energy companies, payback can take years. With CMO tenure the lowest in the C-suite and falling — at 3.5 years, it lags behind the tenure of CFOs (5.7 years) and CEOs (7.2 years), the Wall Street Journal reports — such a move would be unlikely to yield actual cost savings until a second or third CMO's watch. In-housing is no short-term panacea.
Factor 5: The Law of Unintended Consequences
In-housing can also have unintended consequences that advertisers should consider.
By in-housing some or all aspects of marketing, advertisers lose the expertise, impartiality, and third-party perspective of agency and tech partners who provide products, platforms, and services to many clients, not just one.
The talent crunch
It is challenging for brands to recruit and manage the teams required to run services in-house. Advertisers need to consider, honestly, if they are prepared to evaluate their own people as rigorously as they would review agency partners who are not also colleagues. The skills required to monitor and review commercial terms and contracts with thousands of platforms and publishers do not come cheap or easily. Brands — even powerful, global brands — often lack the same skills and clout that agency holding companies use to deliver bulk media deals from the major platforms.
If some elements of a campaign (say all biddable online inventory bought programmatically) are controlled in-house, while others (say TV and press) are run by agency partners, it's more challenging to coordinate the in-housed with the outsourced elements. It's not impossible, but splitting campaign delivery can make it harder to deliver aligned and integrated messaging.
In-housing is almost certainly never as straightforward as marketers believe it will be. They need to consider the following three criteria:
- Media supply. How many supply points are there in the market? The fewer the number of media supply points required to reach a target audience, the easier it will be for a brand to in-house.
- Technology. How many pieces of tech are required to in-house the function? The fewer technology elements required, the easier it will be for a brand to in-house.
- Market conditions. How stable or volatile is the sector? The more stable a market is in terms of mergers, acquisitions, and capability development, the easier it is for a brand in that sector to in-house.
The process of in-housing is relatively straightforward for search and social, where the media supply chain involves only a few supply points, but things grow drastically more complex for programmatic media, which consists of hundreds, if not thousands, of supply points.
Considering All the Factors
In-housing should not be entered into lightly. Advertisers should always start by asking themselves why they want to do it, what they aim to achieve in terms of marketing and business objectives, and whether there are alternatives. They should also consider the motivations of the consultants who are offering in-housing services, many of whom have skin in the game. What's more, they should remember that in-housing versus outsourcing is not binary, and start by experimenting.
For many brands, the future will be a hybrid model that blends both internal and external agencies — and, for some brands, that future already exists.
As marketers contemplate the factors that go into choosing an option that most benefits their brands, and to ensure a thorough consideration of in-housing's pros and cons, they should hold to one discerning adage: look before you leap.
Christian Polman (@cpolman) is the chief strategy officer at Ebiquity, a partner in the ANA Thought Leadership Program.