Taking back control: Deutsche Telekom on its journey to create a hybrid media model
Deutsche Telekom expects more brands to bring aspects of media buying in-house as they look for greater control and flexibility.
Deutsche Telekom’s hybrid media model created shock waves when it launched. In a “progressive” overhaul of its operations, the German mobile operator took media strategy and steering in-house and divvied up the rest of its media model into four ‘lots’: media analytics, campaign planning and buying, programmatic buying, and search advertising and affiliate marketing.
The move means one agency no longer has control over Deutsche Telekom’s media budget. Instead, WPP’s GroupM is responsible for planning and buying, while Neustar and Objective Partners have taken on media analytics and Emetriq is responsible for programmatic. Two companies will work with Deutsche Telekom (DT) across the lots – Adform on the tech stack and Infectious Media as transformation consultants, working through challenges such as its demand-side platform (DSP) strategy.
The structure might seem convoluted but this hybrid model is one that more brands are expected to adopt as media becomes more complex. While few have the resource or skills to take media fully in-house, brands are increasingly bringing aspects of media under their control.
Infectious media estimates that currently just 4% of brands have a hybrid model and 1% have taken media in-house. But in future it expects hybrid models to rise to 40% of the total, and in-house to 10%.
DT’s model is the culmination of almost four years of work. It started in 2014 when DT decided to “take more control of its tech stack” to give it full access to and ownership of its data. The job of rebooting the media model has taken almost 20 months. While it has been a long and complex process, the company’s head of international media management Gerhard Louw says it has been worth it.
“What we said when we started on this journey is that if we don’t have more effectiveness at the end, then it’s going to be a disaster,” he explains. “We did two business cases, one at the beginning to say this is what we think is going to come out of it, and another at the end to see whether we made it. From a business case perspective, is it going to be more effective? But the proof is in the pudding.”
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Rolling out the new model
That proof will come from DT’s individual markets. It runs a decentralised structure with individual markets responsible for their own P&L. They have been involved in the process from the start, but it is now up to them to work out what the model looks like in local markets, how their teams should be structured and what sort of people they might need to hire.
The Netherlands and Germany, its two most developed markets, have implemented the model, with the Netherlands briefing three months ago and Germany currently in the process for the next campaign. Poland, Hungary and Austria are in implementation and expected to be completed by the end of the year; a second wave is planned for next year and a third will follow after that.
While Louw would not be drawn on precise campaign results, he says the early adopters are “very happy with the results” both from a commercial and a brand point of view. One reason for this is that the markets can now see “what goes in and what comes out”, which drives up effectiveness, although there is still room to optimise. “The early indications are that if this is implemented correctly the results will be there.”
Louw admits that getting agencies on board with the model hasn’t been easy. He describes the pitch process as “interesting”, in part because it started with a request for information (RFI) that laid out the model and asked agencies to let DT know if they were interested. At the early stage, a lot of agencies said “thanks, but no thanks”.
The pitch then went on to request for proposal (RFP), with three people from three agencies asked to travel to Berlin and pitch for each lot. The pitch itself involved a lab situation, where agencies were given briefs and the outputs expected in a move that was meant to simulate the model for two days.
“At the beginning we had some comments of, ‘this is kindergarten’, ‘what a joke’, ‘we are not here to play’. At the end everyone was like ‘wow, we can see what you’re trying to do with this model, we believe in this model, and we want to be part of it’. At this point no one jumped out and said this doesn’t work,” he recalls.
The process has thrown up some challenges. The main one, says Louw, is data security and privacy. Where usually a brand would conduct a pitch and then hand out the contract, this process started with the contract but what DT failed to realise was how big a part the data processing agreement would play.
“That contract was a monster. We underestimated the time it would take to close that contract with each of the suppliers,” he says.
Taking control of strategy and data
Nevertheless, Louw says his advice to other marketers would still be to “take control of your technology and data first”.
“Don’t look at the suppliers first think about what you want to take control of. That’s the place to start. Take control of the contracts for example, choose who you want in your tech stack. Make sure you have the contracts in place, the data controls in place,” he advises.
“Once you’ve done that the next step could be who do we want to work with. On our stack that was a crucial prerequisite throughout the process because we had chosen the people we wanted to work with and were not changing them.”
Not only is DT’s model a new way of managing agencies but also of remunerating them. Rather than paying out based on a percentage of media spend, the cost is mostly based on full-time employees working on the account to ensure remuneration is based more on the work and that spend is media neutral.
Media is quite specialised, it is so far from the core business for most advertisers that they don’t really know what they are doing, so they outsource it.
Gerhard Louw, Deutsche Telekom
“One of the transparency issues is the question, ‘is the media strategy and plan that comes from my agency the best plan for me or is it driven by buying incentives?’. It’s very difficult to answer that if you don’t have the analytics to tell you what has worked and what could work,” he explains.
There is also a performance aspect of the remuneration model, which makes up 25% of the total remuneration. Of that, 25% is based on how well agencies collaborate with each other and with DT, a quarter on business outcomes – mostly turnover and revenue – a quarter on services and a quarter on lot-specific KPIs.
Brands rethink the value of media
DT is not the only brand to have rethought how it buys media in recent months as brands begin to realise that a race to the bottom on cost has in many cases been detrimental. Louw admits brands lost control of media as the landscape became more complex and media operations inside brands shrank.
“Media is quite specialised, it is so far from the core business for most advertisers that they don’t really know what they are doing, so they outsource it,” he says. “And media was seen as a cost. That is where [a lot of] the pitches came from, it is just savings. If you look at marketing budgets, media is more than 50% so brands do a pitch every three years, they get a huge amount of cost savings, put it on the chart and bob’s your uncle. That has perpetuated this trust and transparency mess that we have.
“Pitches were run for more than a decade [so they were all about] strategy and the people, then two months later it is who has the best prices. It’s ridiculous. Advertisers need to change that.”
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It has taken the ad industry a long time to wake up to these issues. But work that brands such as Procter & Gamble and Unilever, as well as industry organisations including the WFA, are doing has helped it rise up the agenda.
Louw believes that while trust and transparency are “very bad, we don’t think it will get worse”. And he points to the steps now being taken to address the problem, such as rechecking contracts, running pitches in different ways and doing audits on media, compliance and data.
“Those are best practice for advertisers now. If you aren’t doing that you should be worried,” he says. “If you want to move on [from the trust issues] you need to get more involved, you can’t just hand over the keys.”
As brands increasingly create individual blueprints for media, agencies will also have to change. Infectious Media’s Attila Jakab believes the “dream” of finding a single company globally that is good at everything “doesn’t exist”. But he says there is opportunity, because the hybrid offering allows agencies to really see what clients care about and what they are willing pay for.
“Any company that tells you they can do that, they can’t. And what a particular company is good at also changes. Maybe they were amazing at planning a couple of years ago but then some staff left and their team isn’t as good. It is about how can advertisers create an operating model that allows them to move investment or work with partners without breaking the whole thing,” he explains.
Louw agrees, saying DT’s new model is also about having the flexibility to change if it needs to. “If you have one agency that does everything, to change that agency is so difficult. But agencies will need different models for different clients, that is the future.”