How to make the Math Men squirm: ask about the ‘T’ word

Trading desks have escaped the laser-like scrutiny of both the client procurement departments and the media auditors, says Dominic Mills – but he can’t see this lasting, and sooner or later they’ll have to come clean…

We’ve all heard about how the Math Men, in Sir Martin Sorrell’s phrase, are taking over the world.

These are the guys (funny, seems to be a uniquely male zone), armed with algorithms for every occasion and audience demographic, behind the trading desks that are transforming the media landscape and, I am sure, eventually the creative one too.

Some like to think of this trend as ‘Moneyball meets Mad Men’, which captures the sense in which data and science become as essential a part of the creative process as, well, creativity.

You’ll know the names: Publicis’s Vivaki; Omnicom’s Annalect; WPP’s Xasis; and Aegis’s Amnet. It’s a nomenclature of neologism that cunningly suggests both mystery and authority, the combination of black-box science and art.

Some of these individuals may even think of themselves as Masters of the Universe – a status helped by the cult of mystery they create around their activities – much as the hedgies did before the crash.

Find out more by reading the reports from last week’s MediaTel conference on programmatic trading here and here.

The arguments for programmatic trading are certainly powerful. If done well, it can offer advertisers access to a Holy Trinity of benefits: more cost-efficient buying; better results; and return-path data that can be used to accelerate the virtuous circle.

And there’s no doubt this is the way the world is going: media buys via trading desks are growing by some 20% a year compound, and more media owners are looking to interact with them, and not necessarily only for their digital inventory.

So far, so good. But there’s a fly in the ointment. It’s the T word – as in T for Transparency.

It seems to me that, if you want to have some fun, just ask the trading desks about transparency.

The standard reply is that the desks are totally transparent. Which they have to be and are – operationally.

But transparency also applies to their financial dealings. Start to probe them in this area and it’s like watching worms wriggle on a hook.

What this means is that clients have no idea how much money the desks are making. On one level, this may not matter – after all, if the results are great, who cares? But then the arguments about the hedgies were the same when they were coining it, and were proved to be unsustainable.

To give you an example, let me quote directly from the head of one desk (not one speaking last week), explaining why financial transparency wasn’t possible.

“It’s very difficult for us to disclose exactly what costs went into any campaign,” he said “…because of the way we buy media, the way we deploy technology…proprietary technology…the partnerships, the people, the data costs…it is very difficult for us to say that these are proportions [of costs] that were allocated.”

Effectively, these are the global billion-dollar holding companies, built on immensely sophisticated internal financial management systems, that have invested millions (possibly hundreds of millions) in expensive software and people.

These are the holding companies that pour over the spreadsheets and beat up heads of individual units because their staff costs/income ratios may be 0.2% out of line with the mandated figure in, say, the Czech Republic.

They have now deployed these systems yet, they protest, they cannot allocate the costs in any meaningful way.

I don’t think so…

He then concluded – almost triumphantly: “We are totally transparent about this [i.e. how they can’t be financially transparent].”

It’s a magnificent example of Orwellian double-speak, and if it wasn’t so ridiculous, it would be funny.

So far, the trading desks have escaped the laser-like scrutiny of both the client procurement departments and the media auditors. But I can’t see this lasting, and sooner or later they’ll have to come clean.

In the meantime, however, the smell of suspicion lingers and, as we have already seen, big clients like Ford, Unilever and Kimberly-Clark are pulling money from trading desks – and some may even set up their own.

Proof positive why Walker is worth £36 million to Zenith

I promise to leave the mechanics of the Zenith Optimedia/Walker deal alone for the time being – at least until some clarity emerges.

As luck would have it, however, the confirmation of the deal came in the same week that leading marketing services accountants Kingston Smith W1 published its annual study of the financial performance of leading media, creative and digital agencies.

As an exercise in benchmarking agency performance there is none better. Naturally, the temptation to compare Walker with Zenith is irresistible.

Even if you exclude the strategic logic behind the deal, it’s easy to see why Publicis paid so much: in every key financial aspect, Walker knocks Zenith out of the ring.

Walker may pay its staff more (£55,933 average employment costs, versus £42,000 for Zenith), but it generates more than twice as much operating profit per head (£50,000 versus £21,433).

That translates into a significantly lower ratio of employment costs to gross income (38.75% versus 44.04%), and thus a much higher ratio of operating profit to gross income (34.7% to 22.45%).

That is not to say Zenith is necessarily badly run – it is by no means bottom of the league – but Walker is clearly a well-oiled media money machine.

And all this, by the way, covers the financial year ending in December 2012. So who knows what the score is now?

Walker Media’s highest-paid director (hmm, now who could that be?) earns significantly more than his counterpart at Zenith (£791,000 versus £535,000) but then, to borrow a line from Zenith’s former client, that’s because he’s worth it.