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The disfunctional dynamics of digital marketing in the UK

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By Ronan Shields | Digital Editor

October 15, 2015 | 5 min read

The UK is the leading digital advertising market in the world, but resulting empahsis on cost, and performance means the dynamics of the industry are fundamentally flawed as constituent players view each other with distrust, according to AppNexus vice president Nigel Gilbert, speaking at today's IAB Engage conference.

Gilbert, who leads the ad tech outfit's strategic development in Europe, took to the stage earlier today (15 October) to share with attendees his opinion on how the emphasis on driving efficiencies has lead to a "race to the bottom" during a presentation dubbed "Breaking Ad".

Speaking with The Drum on the conference sidelines he said: "Digital is 54 per cent of the market here, making it the leading digital market in the world, hence there's a lot of DR [direct response], and that means there's a performance element to the market."

He further went on to explain how the emphasis on performance meant a media agencies are under a lot of pressure to demonstrate value to a client in return for their media budget (while also making a profit for their holding companies internally).

"Agencies are pushed and incentivised on price and performance (not necessarily creativity), and in a market that is so agency-led, that's a lot of emphasis on cost," he said.

The ripple-effect of this emphasis, is that UK publishers, which already operate in a crowded marketplace, also feel the pressure, as the media buyers have to bargian hard on price.

"Renumeration of agencies in the UK is among some of the lowest in the world, in the low single digits [hence the need to push performance," he said. "So the publisher finds themselves suffering from this disrruption."

To do this, media agencies have to employ ad tech, sometimes even constructing their own digital media trading desks, which has led to growing elements of suspicion from some brands in many cases. Take for instance the formation of a WFA-led 'taskforce' including brands such as Coca-Cola, and MasterCard, to help combat transparency and arbitrage issues last year.

Many brands respond in turn by forming direct relationships with ad tech firms. Some have gone as far as to take all their digital media buying in-house, while others have elected to build their own trading desk, and then forcing their media agency to work with them. This is not always an easy relationship.

Gilbert also points out that many of these ad tech firms operate on a model that is not necessarily transparent. This means advertisers are moving from a relationship that they understand, but don’t trust to one they trust, but don’t understand.

The result is that just about every tier of the industry faces immense pressure, and only scaled players, such as Facebook and Google, are equipped to thrive in such an environment.

This has led to the re-emergence of 'walled gardens' - media ecosystems that restrict advertisers from working with third parties to provide assurances over verification, etc., according to Gilbert.

He also pointed out how this dynamic has often led to massively over-inflated valuation of many ad tech firms, which are often VC-backed and under pressure to provide huge ROI to investors, even if their technology is not differentiated in the market.

However, while the situation may appear bleak on this assessment, those with a long-term perspective will know the current dynamics of the indsutry aren't necessarily the status quo; rather it's just a point in a cyclical dynamic, according to Gilbert.

Referencing the rise of walled gardens, Gilbert pointed out how walled garrdens dominated online media in the early days of the industry, and that things eventually changed.

The walled garden players currently dominating the industry will not be able to maintain their dominance, as advertisers are likely to demand yet more efficiency, and performance.

Those parties looking to form a relevant part of this evolution will have to take a long-term view of their strategy, as opposed to making knee-jerk reactions to short-term goals such as a quarterly target, and decide which party they want want to partner with, according to Gilbert.

"You need to think of the quality of inventory and the quality of relationships," he said. "You don't want to partner with people that could end up disintermediating your own business model."

The role of media agencies in this evolution is to help is to restore trust by bringing greater transparency into the industry-wide dynamics.

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