Irwin Gotlieb, the global chairman of GroupM, the world’s largest media buyer, told a conference this week that agency trading desks — the digital platforms that buy online ads — need not be completely transparent with their clients.
The issue sounds dull but, financially, it isn’t. GroupM (a unit of WPP Group) handles $73 billion in media billings annually, of which $6 billion is digital spending.
The words “agency trading desk” and “transparency” are hot-button issues in the ad world right now: Some clients — and many ad-buying competitors — insist that agency trading desks are run in such a complicated, conflicted, non-transparent way that clients do not know exactly how their money is being spent, and may therefore get ripped off. One accusation is that when a media buying agency allocates part of a client’s budget to an agency trading desk owned by the same company, both the buying agency and its sister trading desk take a fee for doing so — which looks like double-dipping.
For their part, agencies say that sophisticated clients don’t tolerate such maneuvering and that fee schedules are contractually disclosed.
So it’s interesting to hear Gotlieb go anywhere near the issue. Here’s what he said, according to AdExchanger. He was asked how trading desks can be fair to clients:
“Transparency is of the essence. Having said that, it doesn’t say in Genesis that everything we do has to be on a fully disclosed basis to clients. We compete with parties that are equity funded where profitability isn’t an issue. We must develop technology, create structures to exploit it for the benefit of our clients.”
Gotlieb has caused controversy on the “fully disclosed” issue before. In 2008 he gave an interview to BusinessWeek in which he appeared to confirm that he favored taking volume discounts from media suppliers in return for ad buying contracts. Such discounts are controversial because they can be lucrative — 10 percent of a client’s budget is a common rate — and clients sometimes don’t know they exist, even though it’s their money that earns them. If agencies keep such discounts without telling clients, it could create legal liability.
To be fair, he did NOT say GroupM was actually taking such discounts, and he disputed the accuracy of BusinessWeek‘s reporting at the time.
The volume discount issue came up again recently when it emerged they played a role prior to the collapse of Leo Burnett in Greece. Infamously, Interpublic Group in 2008 settled accusations from the SEC that it booked $250 million in clients’ volume discounts as its own revenue.
And last year, Salesforce disclosed that its Buddy Media acquisition (since renamed Salesforce Marketing Cloud) had a “volume-based incentives” scheme with at least one preferred customer. It did not describe the deal or name the customer. WPP was once a $5 million equity investor in Buddy Media, a social media management platform, and has named Buddy Media its “preferred social ad management partner” for GroupM. Buddy Media has lost money on the volume incentive deal, Salesforce disclosed at the time. Both Buddy Media and WPP previously declined to talk about the deal with Business Insider.
So you can see that the background here is complicated, controversial, and involves huge sums of money.
Which is why Matt Seiler, global CEO of IPG’s Mediabrands — a competitor to GroupM — poked Gotlieb as soon as he got the chance, AdExchanger reports:
“I love that when Irwin said ‘transparent,’ he used air quotes,” Seiler said. “You don’t need air quotes. It’s either transparent or it’s not. We are totally transparent, there’s no arbitrage in our business. We often hear clients complain about agencies, ‘They think our money is their money.’ But that’s not what we believe in.”
SEE ALSO: How Google Helps Fuel A Cesspit Of Conflicts Among Web Ad Buyers
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