Agencies Find Benefit by Outsourcing Ad Ops

When Darren Herman joined The Media Kitchen as head of digital media two years ago, the integrated agency handled digital ad ops in-house. However this arrangement had become a burden to the MDC Partners-owned firm’s internal media teams, as rising spending from clients like Armani Exchange, Vespa, and Mohegan Sun saddled its account staff with painstaking trafficking and reporting chores.

The Media Kitchen faced a choice: build an in-house ad ops unit to manage ad trafficking and reporting, or outsource those functions to a partner. Outsourcing won out, and the company struck up a partnership with Operative, a yield management and ad operations company based in New York and with offices in L.A., London, and India.

Herman is not alone. A growing number of agencies have lately decided to hand off display ad trafficking, reporting, and other operations duties to outside specialists. The main reason, they say, is to better scale their investment in ad ops to client spending.

“Let’s say we hire two people to do ad ops,” said Herman. “If I’ve got Starz, PBS, and Windstream launching the same week, those two people are going to be inundated. Whereas two weeks later, when we have no launches, those two people are twiddling their thumbs.”

Ad ops firms can ramp up the number of ad ops people working for an agency client quickly. In the case of The Media Kitchen’s relationship with Operative, the outsourcing cost is passed onto the client without a markup, according to Herman. “They nicely scale, and I don’t have that overhead,” he said.

Last month, Operative handled 84,000 ad placements for 220 agency and publisher clients, according to CEO Mike Leo. Leo said the past six months have brought a big increase in interest from mid- to large-sized agencies. He said the firm brought in millions in revenue from agency clients last year, but declined to be more specific.

He agreed with Herman that the scale issue and its related costs is a big problem “agencies have that the rest of the industry doesn’t.”

“An agency will have one massive campaign — tons and tons of work for two weeks, and then they’ll go to almost zero activity for two or three weeks,” he said. “They’re either understaffed or they’re overstaffed. Once the campaigns are up, there’s less work to do.”

Another ad ops company, Theorem, employs 470 people globally. CEO Jay Kulkarni said the company’s offshore centers allow it to support agency clients around the clock. According to Kulkarni, Theorem has seen a considerable uptick in agency business in the last six to 12 months — a phenomenon he chalks up to its more aggressive recruitment of tech-savvy senior executives.

“The agencies definitely are increasing the high-end technologists on staff and also data analysts,” he said. “What outsourced ad operations companies do…is the actualization of the process.”

Comprehensive outsourcing is not the only way to go. Geoffrey Katz, Razorfish’s director of advertising services, said his agency works with Theorem on one particular aspect of ad ops.

“The only thing we are using Theorem for, and it’s quite successful, is to do reporting,” he said. “We have one report that takes three days to produce. A massive report with all different data sources that we have to bring in at different times.”

He added, “If you have account people who want to grow, have a career path, you can’t saddle them with that kind of thing forever.”

But Katz is not a believer in outsourcing trafficking work offshore. “It can be just as much effort to [articulate] the trafficking instructions…as to upload it into the ad server.”

For larger agencies, or agencies that are part of a holding company, another option is to centralize ad ops within a separate entity. Havas Digital took such an approach, creating a subsidiary to handle ad ops, production, and other technology outsourcing services for all its agencies. Called Ecselis, the unit provides “in-sourced” ad trafficking and other services to Havas-owned companies.

Adam Kasper, SVP and director of digital media at Havas-owned Media Contacts US, relies on the firm for a wide range of services, not all of them strictly within the definition of ad ops. “We mainly use them for trafficking, analytics, and search works. It keeps money within the family,” said Kasper, adding working with an internal company creates more transparency. “We have a better sense of what the real costs are.”

There are several reasons agencies are taking more interest in partnering on ad ops right now. One is the increased hiring of technologists to senior agency roles. Another is the sheer number of horror stories about flubbed ad tags and insertion orders gone wrong. (See “Ad Operation Failures Dog Agencies, Crippling Client Campaigns.“) Anecdotally, ad networks and publishers have described rampant ad ops errors committed by harried agency staffers. ComScore has estimated that waste generated by such mistakes is in some cases as high as 80 percent.

“There’s just a lot of waste, especially for an environment where our value proposition is the ability to have less waste,” said Operative’s Leo. “Lots of mistakes happen that fly right in the face of that.”

Leo believes the economic crisis has also contributed to the renewed attention to ad ops, as advertisers scrutinize all aspects of their advertising.

“The great thing about a recession is it drives attention to areas that are ineffective,” he said. “For the industry on all sides, this is a black box. Now all of a sudden, when it’s not easy keeping advertisers happy, you start looking at all sides.”