77. Some Personal News (SPN)

People and Process: when to in-house vs outsource, and how to be an active steward of media $$$

Dec 11, 2023

A very warm welcome to all the new subscribers. I’m thrilled to have you as readers and truly appreciate your feedback and support.

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In Today’s SPN

The ANA’s excellent “Programmatic Media Supply Chain Transparency Study” published this week and highlighted the $22 billion opportunity for efficiency gains - I drop frequent links to the study throughout.
People and skills - are we staffed appropriately to be active stewards of our media investments?
Why is there no correlation between price and ad quality?
How are we incentivizing our people, processes and outcomes?
To in-house or not to in-house: What, When, How (and Why).

Let’s dig in.

For the first time, we have a full end-to-end report on the state of the programmatic ad market, uniquely including the sharp end of where the advertising appeared (or didn’t).

And I’m feeling distinctly short changed!

The ANA split the “Programmatic Media Supply Chain Transparency Study” into 12 sections and each of the sections comes with a “Recommended Playbook” covering what to optimize for.

I was one of those who bought into the promise of a data-led nirvana where technology could identify in milliseconds the right browsing audience for my Org and product with relevant messaging. What could possibly go wrong?

Well, quite a lot it seems!

A Full End-to-End Report, at last

For the last decade or so nonprofit’s have been systematically relieved of large swathes of their budgets for little return day-in, day-out. Largely this happened because we expected our chosen partners - Buyers (agencies), DSPs, Data Providers, SSP’s, AdExchanges, Publishers - to stop it from happening but they didn’t.

There’s been plenty of proof that us advertisers haven’t been getting much bang for our buck. The ISBA/PwC report that I shared in SPN #45 is a great and revealing piece of work. It identified the amount of (reduced) budget that was eventually reaching the publisher after the various agency and adtech providers had taken their cut. What hadn’t been studied or reported on until now is arguably the most important part, the ad exposure itself.

The argument then was that the high transaction and data costs (up to 50% of budget) were justified by the precision and effectiveness of the audience reached.

Rewards don’t justify the costs

Now, crucially, this report answers the question as to whether the high transaction and data costs of programmatic trading are justified by consequently enhanced advertising exposure.

The answer is no.

The study estimated that only 36% of the money spent by nonprofits and advertisers on Open Web inventory bought programmatically is meaningfully seen by someone.

That “someone” may not even be the intended audience, but let’s not get too picky at this stage 😉

The study also showed that on average publishers received 71% of the money spent by advertisers, although this figure doesn’t include agency commissions and fees.

These are terrible numbers

The bottom line is a 64% erosion in our advertising spend through a combination of transaction and data costs, and poor exposure metrics.

An argument that the 29% of transaction and data costs (excluding agency fees) reported in the study are justified by the precision targeting they supposedly enable is well and truly blown apart if the eventual ad exposure simply isn’t there. And this study shows conclusively that 35% of post-publisher money is lost in ineffective impressions.

No doubt there are quirks in respect to the “unmeasured” money and the accuracy or context of some of the reported data will be debated - like in any study - but let’s dwell instead on the solutions to this challenging reality in a sector worth $88B, where the ANA estimates that $22B is being wasted.

No correlation between price and ad quality

The ANA study contains a raft of pragmatic actions that we can and should take to address the loss of effective value.

It highlights that there’s a crazy number of websites and apps that are used to publish programmatic media (44,000). It also contains this bold stat: 86% of all impressions in the study come from just 3,000 websites.

Perhaps most tellingly, it concludes that there’s little or no correlation between price and ad quality, which in a market that is auction-led is something of an indictment!

One of the more unfortunate aspects of this situation is that the solutions to these problems are eminently achievable through the right application of expertise and appropriate business practices. Which begs the question…

Do we have the right people to sort this out?

Helpfully, on page 103, the study lists 15 crucial questions that we should ask of the teams responsible for our programmatic discipline e.g. the number of websites used, inclusion lists, direct contracts with adtech players (including SSPs) and plenty more.

The final question is the most important: Are we staffed appropriately internally (on the nonprofit side) to be active stewards of our media investments?

The honest answer for most nonprofits is another resounding ‘no’.

One of the reasons the study runs to 125 pages is because the subject is a big and complex one, and the solutions require an intricate level of dedication. Any one agency or person charged with executing them needs to have a deep knowledge base in media and specifically programmatic, and they need to use this ANA study as a “bible” to get the right results.

It also underlines the importance of not outsourcing everything to measurement or adtech partners. There’s plenty of benefits to having your agencies execute, and some are capable strategic partners. Yet there remains a need for internal expertise too.

The money has been too good in an eco-system that benefits the sell-side through what the study calls “information asymmetry” for anybody to be incentivized to fix it. (Also, how good of a turn of phrase is that - “information asymmetry”?! It has such a steely undercurrent and feels acceptably blunt).

Of course, there are many interconnected commercial interests across the eco-system. Which is even more reason for there to be somebody sitting internally on your digital marketing and fundraising team. That somebody needs to be fully cognizant of adtech and its dynamic tentacles, and they’ll protect your own interests, with appropriate help from independent partners for specialist input.

Pursue quality over quantity

The study reiterated their 2016 recommendation to the effect that “advertisers which outsource their media management without active internal stewardship do so at their risk.”

AMEN!

One of the stand out interview quotes in the study is that “our sources were clear in their belief that it is rare for anyone at the advertiser to truly understand how programmatic buying operates.” Sound familiar?

Extreme complexity demands a forensic approach, and the study provides the basis for such practices; it also calls for a new approach to contractual processes and their associated legal and financial actions. These aren’t covered in detail but they’re an essential part of any long-term solutions.

One of the other findings from the interviews was that we, as advertisers, have minimal oversight into the supply-chain because contracts only go one level deep, so our ability to track money and data downstream is minimal.

(More on people, skills and in-housing in the 2nd post below).

Take some responsibility

As advertisers, we have to take some of the responsibility too. Our push for reach has increased the number of sellers, websites and apps we use. Reduce these and many others who add little or no value will suffer or fail. The same is true for the adtech sector, where a reduction in the number of supply-side platforms (SSP’s) in particular has real-world implications.

Among other recommendations, the ANA proposed the adoption of “TrueCPMs” that accurately reflect the real cost of buying high quality inventory that reaches the right audiences in the right contexts. The nonprofit industry’s obsession with low costs has contributed to the current state-of-affairs, partly encouraged by procurement practices that need also to be revised.

A road toward progress

A more robust approach by nonprofit advertisers and a focus around quality of execution should lead to better advertising at correct pricing and cleaning up a messy and dysfunctional market. If we hit this marker, real progress will have been made.

SPN Reader Org’s Media Exposure

Loved seeing this page in the FT Weekend - many SPN reader Org’s getting great coverage here - image is a clickable link to all items.

My RNLI cap is in the post.

Agency or In-House + Skin in the Game

In-housing in the D2C world was a hot topic a couple of years ago, with many big brands jumping on the bandwagon of building their own internal ad agencies. Since then, Retail Media Networks and AI have stolen the media headlines – but in-housing hasn’t become any more straightforward.

Inspired by the above post, I’ve double clicked into the people - vendor - in-house - skills dynamic, and explored what, how and when to in-house, and even put some skin in the game.

What to in-house?

In SPN edition #7, I sketched out the following schematics on a similar topic across critical areas of every fundraising program:

Diagram

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The main takeaway was to always double-source the strategy component and not let the agency partners define entirely what the Org is doing, but rather make it a collaborative effort. The “Person in Charge” within the Org ultimately holds the keys to the vault and ensures that you never become hostage to your agency relationship, and maintain complete control over the roadmap.

Over a year later, this still feels right – with one caveat. Even with the proper incentive-driven structure, external partners – at no fault of their own – won’t be able to define YOUR Org’s strategy. They will always prioritize THEIR business strategy.

VP-level leaders at every Org need an “Advisory Council” who can be tapped for fresh perspective when building objectives or roadmapping campaigns. Don’t have the time, resources, connections, desire for one? Then leveraging an external partner in this capacity may be a useful second-best option.

Technology

Gone are the days when agencies have some viable secret sauce technology of their own. Some of them still claim to but chances are slim that their technical teams are doing a better job than product-first organizations, whether that’s Google, Facebook, Fundraise Up, or Feathr. Most agency technology, for example, is just another user interface to interact with the underlying “real” tech (wink-wink, “agency trading desks”) and can be disregarded.

Technology ownership is the first area that should be in-housed, especially across platforms holding Donor data – CRM, Web Analytics, or Data Lake / Data Enrichment solutions. Donor data – and understanding of it – is the principal capital of every Org. While having agency partners work within these data environments and even support the build and adoption of it is beneficial, they should never be the ones owning it.

Labor

This is another thing that can be in-housed instead of arbitraged – junior-level daily tasks that follow a process. This could apply to creative production, website code implementation, or even paid media management within a specific channel if the extra capacity is of secondary priority and cost savings are considerable.

In-housing or outsourcing becomes a management task – who will better train these more junior individuals on their jobs, an external partner or an internal team? I touched on this in the SPN #45 – bringing some techniques from for-profit thinking is necessary to help your junior-level talent become world-class. Hiring directly from an agency world is also a good idea – especially if the business you’re hiring from has processes like the ones you’re building.

Process Setting

The actual process-setting tasks – often done by “senior-level specialists” and above - usually benefit from outsourcing, especially early into any new fundraising play. That applies to Analytics, Paid Media, Conversion Rate Optimization, Email, Direct Mail, and every other area comprising your fundraising program.

These process setters are the ultimate gatekeepers to ensure your Org does better than putting 36-cents-on-the-dollar in front of potential donors (quoting the ANA study from my post above). Whether in-house or outsourced, you need to put the right incentives in place for people to do so – and these incentives must be connected to your Org’s growth.

Recap:

Form a council in support of strategy at the VP level across the Org (which could include agency partners) with expertise in functional domains.
Outsourcing or double-sourcing (likely more realistic in larger Org’s) Director- and Manager-level work that sets the process for daily tasks within functional domains.
Either outsourcing or in-housing Specialist-level tasks, given that the in-house team can operate at comparable speed and lack of capacity isn’t a blocker.
In-housing the technology holding the Donor data.

When to in-house?

It depends. Don’t build the team in-house from the get-go – instead, start the fundraising program with a roster of external partners and move certain aspects of the program in-house over time. But what are the triggers for doing so?

Increased volume of initiatives. External partners are usually the right choice to get into the new initiative quickly – a new channel on the market, a new platform implementation, or a new way of doing things (e.g. putting your fundraising program on the Donor Lifecycle rails).
I’ve brought in vendors to help me think differently about a strategy or approach, build a roadmap, implement the processes to maximize the impact of a technology platform, and run it to prove the results. At this point, hiring in-house to train on, maintain, and improve the existing process – while refocusing external partners on the next incremental thing – is a good choice.
Considerable cost savings on labor. Another trigger to bring some of the work in-house is if specialist-level tasks start taking a significant part of your invoices with the external partner. Work with your external partners as strategy and process operators, not as staffing agencies doing labor arbitrage for you.

Since in-housing or outsourcing is almost always about the people, I’d be very wary about in-housing if it reduces the capacity of any internal teams.

How to in-house?

There’s no universal answer to this one but doing it gradually and in parallel – replicating the work done by the external partner - has worked best for me.

Assuming that your Org decided to take certain functions in-house and is hiring no more than one person per month to do so, let each of those new team members have at least a month of overlap with the external partner currently performing the function, mirroring their work.

If the cost savings of bringing those tasks in-house are considerable, that one month will be quickly recouped – while avoiding the risk of dropping any balls. And, of course, monitor the results – cost savings rarely justify the dip in performance.

Bonus thought – Put skin in the game

Vendors, of course - and rightfully - are motivated to grow their profits. The ones that will work best for you are willing to take risks, or at least mirror your appetite to take them. They might even inspire you to think differently.

Linked to that is how they are incentivized to deliver results e.g. drawing up a reward structure that connects their profit to your Org’s results. Just like other forms of true partnership, when you get it right it’s truly win-win.

True business partnership has at its core shared financial risk. In this scenario specifically, your incentives need to be aligned with compensation rising and falling with the results they help to produce.

For growth-oriented nonprofit Org’s and leaders, this set-up could provide a vehicle to build a true partnership with a vendor who is as vested in the growth of your program as you are. The critical part is not to abuse it by only putting their compensation at risk if they miss the targets. Allow them to increase their earnings if they overdeliver.

To get an approach like this over the finish line requires creative collaboration with the CFO and execs at the agency to iron out target setting and attribution. Get that squared away and you get an agency that is laser-focused on outcomes. Not every vendor or relationship is built for this approach. Sometimes it just needs to be transactional. But when true partnership is found and enabled, it’s delivered results beyond my expectations every time.

That’s all for this week

Hopefully you found this a thought-provoking and interesting SPN. Don’t hesitate to email me with any questions or clarifications. Thank you to those that do!

And, don’t forget to check out our sponsor Feathr’s platform.

I’ll see you next Sunday!

Now onto the fun stuff.