Media Forum: Does digital need leveraging?

Will agencies need to leverage trading volume in digital media, Alasdair Reid asks.

Sometimes it's still just about possible to believe that, for all its growth, digital advertising is always likely to retain something of its cottage-industry feel and structure. Take, for example, COI's announcement a couple of weeks ago, when it revealed that its new digital roster stretches to 115 agencies - 70 more than were on its previous list.

This, you might suspect, is hardly indicative of an industry hell-bent on consolidating at breakneck speed. Maybe the theorists were right - perhaps the internet really is all about the devolution of power in all sorts of ways.

Increasingly, however, we're seeing a contrary view. As in last week's announcement that OPera, the media negotiation joint venture between the Omnicom-owned media specialists OMD and PHD, is extending its operations into the online market with the launch of OPera Digital.

The new unit will negotiate umbrella deals with the major online media owners on behalf of the Omnicom agencies active in the online sphere.

In its start-up phase, Agency Republic will join with OMD and PHD to create an aggregate buying pool of £100 million - and other Omnicom agencies are scheduled to join when they are ready.

Ad revenues have always been concentrated in the hands of a few big players - the likes of MSN, Google and Yahoo! - and power is likely to consolidate further in the coming years. So is it inevitable that we'll see the buyers of online advertising starting to mirror this consolidation?

Absolutely, Martin Brooks, the chief executive of Agency Republic, says, though he also says it's important to recognise and acknowledge the unique attributes of the medium. "Value in the digital space is not just about getting the best rates," he adds.

So there will be an emphasis on systems, shared technologies and best practice. But, those issues aside, he believes clients will increasingly demand that their agencies are achieving the best rates wherever their money is being spent.

Sounds convincing, doesn't it? Not really, Charlie Dobres, the co-founder of the specialist digital agency i-level, responds. "The notion of leverage implies that OPera envisages spending a lot of money with a handful of media owners come what may. That's just not in clients' interests," he argues. And he points out, to leverage aggregate media spend, you have to operate agency deals, where the agency's total spend is rewarded instead of (or on top of) individual client discounts. "We've never had agency deals and we never will - we believe that all clients should be treated equally well and that isn't the case where you operate agency deals," he claims.

And Dobres foresees other potential wrinkles. "For a company of Google's size, it doesn't make all that much difference if you are spending £50 million or £100 million. In fact, it can sometimes make your position worse," he says. "If you are giving them an annual commitment they take the money and then you never see them again. Once you have announced in advance where you are spending your money you can in effect create inflation for yourself. So I'd like to see how OPera proposes to leverage its unified volume."

Miles Lewis, the head of agency sales at AOL, can't see much sense in this either. This is a market where price is determined by delivery, he explains: "You give money to a site and if it works they might get more, if it doesn't, you go elsewhere. Trading points might make more sense when the market becomes more mature. But currently the big advertisers are dabbling rather than seeing the internet as a route to audience in the same way as they do in other media. We're still in a situation where independent specialist digital agencies such as i-level do it better than anyone else."

But surely other big media specialists are looking at this? Not necessarily, Antony Young, the chief executive of ZenithOptimedia, says. "I'm not convinced that OPera has got its joint trading right with press or TV, so I'm puzzled why it feels that force-fitting online into its model will work." he says.

"Our view is that at some point there are diminishing returns from scale.

Clients are telling us they want customisation, flexibility and integrated communication solutions - obviously not at the exclusion of strong pricing, but not at the expense of it either. We have no plans for any group-level trading because it seems to go against what our clients are asking for."

YES - Martin Brooks, chief executive, Agency Republic

"We will see more of this? Yes, definitely. It's not just about price - it will deliver value in other ways. But with online developing the way it is and clients spending more and more money, procurement departments are going to insist that agencies are using their volume clout where possible to get better rates."

NO - Charlie Dobres, co-founder, i-level

"I think it's clear that (OPera's new digital operation) wants to leverage a situation where real volume is going through half a dozen sites. Well the simple fact of the matter is that it shouldn't be. What they are in effect doing is crystalising a media process that is inappropriate in the first place."

NO - Miles Lewis, head of agency sales, AOL

"In ten years' time I might have different views but especially where ROI budgets are concerned there's simply no point in consolidating budgets into a trading point. To me, it is the sort of thing that will only work in a mature market - and online is a long way from be a mature market."

NO - Antony Young, chief executive, ZenithOptimedia

"Online is about delivering marketing accountability and results first. Perhaps that's what happens when you ask traditional media traders to buy online, they get stuck in old media thinking. New media could do with some new ideas. I hope digital media owners push back on them."

- Got a view? E-mail us at campaign@haynet.com.

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Digital marketing executives oversee the online marketing strategy for their organisation. They plan and execute digital (including email) marketing campaigns and design, maintain and supply content for the organisation's website(s).