Tech

Facebook is making unusual demands of ad agencies, and it’s testing relations with some of the biggest ad giants

  • Facebook is making unusual demands of the agencies competing for its $1 billion ad-buying business.
  • Sources said the social network asked for more liability from agencies and wants to pay less than other advertisers.
  • WPP dropped out of the pitch, and agency execs said it’s straining their relationships with Facebook.

Facebook’s search for a new ad agency is testing its relationships with some of the biggest

advertising companies
, said people involved in the pitch. 

In July, ad giant WPP, which has been Facebook’s primary ad-buying agency since 2014, pulled out of an ongoing effort to pick an agency to handle Facebook’s estimated $1 billion-plus annual ad budget.

The Wall Street Journal cited sources saying that Facebook’s “strict contractual terms” played a role in WPP’s decision.

All new business pitches involve contract negotiations as advertisers look to secure the best deals with the agencies they will eventually hire. But Insider spoke to five sources with direct knowledge, two of whom work at ad holding companies still involved in the pitch. They called Facebook’s requirements unusually demanding, saying they’re straining agencies’ relationships with the social network.

All spoke on condition of anonymity because Facebook’s NDAs prohibit current and potential vendors from discussing the company in any context.

One exec at a holding company still in the pitch said the initial contract was stricter than any they had recently encountered and that their company also considered pulling out over Facebook’s requests.

Three of the sources said Facebook wanted its agency to bear an unusually high level of financial liability for buying its ads, which would make the agency at least partly responsible if Facebook’s ad campaigns didn’t deliver the promised results due to factors like ad fraud, viewability issues, or data breaches. Advertisers increasingly are asking agencies to accept some liability, but a second person in the pitch called Facebook’s requirements “onerous.”

Facebook also asked agencies to match the lowest rates among their existing clients, meaning no advertiser would pay less than Facebook for their services, this person said. Another source said Facebook also requested “value pops,” or discounts given to the largest advertisers in certain markets.

Agencies sometimes grant big advertisers below-standard rates or guaranteed lower rates than other current clients based on their value to the agency. But agency execs said Facebook asked for discounts normally granted to advertisers that spend much more than it does.

“Facebook wanted disproportionate savings that their volume didn’t justify,” said one exec. “If [agencies] agree to these terms, every other client will demand them.”

A third source said Facebook has been negotiating with the agencies on these points, saying, “Facebook is trying to figure out the breaking point on agency relationships.”

Some clients request the right to audit agencies, and early in the pitch process, Facebook audited the four competing holding companies’ programmatic ad-buying practices. Three of the sources said Facebook also took the unusual step of floating the possibility of future audits.

A lot of money is at stake. Facebook’s ad spending has increased dramatically due to its rapid growth and the political scrutiny that followed the 2018 Cambridge Analytica scandal. In 2017, the company spent only $50 million on advertising, or around five percent of its estimated budget for 2022, according to Kantar.

WPP had no comment beyond saying it would no longer participate in the pitch. Spokespeople for Publicis, Havas, and Dentsu, the three remaining competitors, declined to comment.

A Facebook spokeswoman previously said the company plans to choose an agency by September, but declined to comment on its evaluation criteria.

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