The Big Squeeze

-By Nancy Marzouk

As the "big four" Web-content providers -- Google, Yahoo, AOL and Microsoft -- continue to push the media envelope by providing free creative tools for advertisers, the wall grows thinner between agencies and publishers.

With the big four acquiring technology to support their core revenue channels -- display, search and affiliate marketing -- and weaving their assets together for integrated online advertising solutions, marketers have had to rethink how they buy and plan media. This means agencies need to demonstrate added value beyond buying clients online space, or risk clients cutting them out of the equation.

Agencies have been using the same basic levers to optimize performance, like creative and placement response rates. But the heavy lifting of ad optimization is usually handled by publishers or ad networks and their propriety systems. For instance, most agencies' operational infrastructure is built on Dart (Google) or Atlas (Microsoft). And when agencies use these tools and buy space from the major players, they are providing them with resources to seek still greater online ad hegemony. So how do agencies set themselves apart? Here, two options:

1. Invest in ad-serving technology. The big four are able to channel reach effectively using proprietary optimization and yield-management technologies. If agencies can achieve reach on their own, they can invest in technology and become more competitive. Aegis Group, for instance, has developed a whole technology unit -- including ad-serving technology acquired from Blue streak -- giving it a greater value proposition for clients. Similarly, WPP bought 24/7 Real Media because of its Open Stream ad-serving platform.

This is an area where agencies can clearly show differentiation. To date, at least at the top tier, agencies are pursuing the technology course more readily. This should allow them to eventually say "sayonara" to the tech services of the big four.

Even if an agency can acquire an ad-serving platform, it will still need help: There's no all-in-one ad-tech solution. Here, the old build-versus-buy dilemma crops up. To shorten time to market, it's better to find a vendor that can help with optimization, targeting or yield management, areas outside the typical ad-serving arena.

2. Become a specialist. Smaller shops that can't invest millions in ad-serving technology need to become specialists, and media integration is a natural opportunity area. While Yahoo is trying to get into interactive TV, it doesn't have radio or print, so it can't address integrated media on its own. AOL does have print (Time Warner), but there's a huge distinction between selling print and selling interactive -- which is where agencies can shine. Eventually, marketers will want to develop an integrated online/offline media plan, but the way people look at the two data sets has not yet been married. There needs to be greater standardization before they can be fully integrated. Agencies should take the lead here -- especially if they're already integrating their clients' buying, creative, planning, analytics and strategy. The American Association of Advertising Agencies could help in this effort.

Another area of specialization is search. While Google and Yahoo are the big dogs, no one entity controls search advertising. Agencies can differentiate themselves by either buying or partnering to acquire tools for purchasing and optimizing keywords across the Web, managing reach and efficiency better than any one provider.

Agencies can also provide marketers with strategic advice on how to properly handle cross-channel attribution. All marketers want to implement correct attributions, but no one wants to be the first to change how they evaluate online advertising, fearing a resulting drop in market share. If they do make the bold move, they want to make sure their competitors are following suit. Increasingly, clients are asking agencies and vendors to solve the attribution issue. Agencies rarely represent competitors in the same market, but in some cases this can actually benefit the client, allowing the agency to provide insight into how they are handling cross-channel attribution relative to the competition.

The natural market progression of online advertising, especially the massive dollars involved, has led the major content players to try to lock up the whole waterfront. Agencies, therefore, find themselves at a crossroads: Do they take the tech path or the specialization path? Either way, to keep the big four from continuing to tread on their turf, they need to find fresh ways to show that their services and expertise are valuable commodities refined over years of experience.