Losing money hand over fist was fashionable for a while, but most of the dot-com companies have been jolted out of La-La Land by investors who want to see profitability.
Some agencies, however, might still be in a dream world if they think things can continue to go on like they have been. An agency is expected to make a lot of money through its media department. That can spell trouble for the online agency that just paid the proverbial arm and a leg to beef up its media planning team.
The race into the New York market was expensive for some. Some mainstay traditional agencies decided recently that they needed the capability to plan and buy online media in New York. Additionally, new agencies that might have started on the West Coast or elsewhere in the country decided that they needed a New York office. This generated a lot of demand for online planners.
The talent pool in New York doesn’t grow very fast. Many of the “old school” planners who started in the online arena in 1994 and 1995 are now either VPs of Media or upper-level management at new startups. At the same time, online planning is still considered a fairly risky field, and many traditional media planners are hesitant to get into online, fearing that the bottom may drop out.
Anyone who comes into the field right out of college does not stay at an entry-level salary for long. After six months in the business, a recruiter can position a new online planner as an “expert” to another company and double or triple an entry-level salary in the blink of an eye.
Considering that online budgets are still pretty low and that fewer and fewer clients are willing to give an agency a 15 percent commission anymore, one has to ask: Will this business be able to sustain itself for very long?
The billable rates are climbing. I recently heard that one New York agency was billing out its VP, Media at $400 an hour. Four hundred bucks an hour?! I wonder how much F. Lee Bailey bills his clients If it’s more than $400 an hour, it can’t be much more….
In any case, if you’re the head of an online media department, maybe it’s time to take a look at how market conditions are affecting your department’s profitability. Examine your billable rates, salaries, and break-even points and check them against the signed contracts you have from your clients.
Even if everyone stays busy and works efficiently, can your media department be a profit center like the media departments at traditional agencies? Are the media budgets big enough? And if they aren’t, will they get there soon?
I don’t think anyone knows enough about the intricacies of each and every online agency to be able to say that it will be impossible for agencies to make money from online media planning and placement. Those of us who head departments, however, should be taking a long serious look at what we’re spending in order to have an interactive planning capability.
It may be different in other parts of the country, but here in New York, there is still an ever-increasing demand for online planners, coupled with a limited pool of talent. If you are starting a department, you need to ask yourself whether you want to be the next employer to add to the demand.
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