The Death of the “Traditional” Advertising Agency Model
The advertising industry is in upheaval driven by innovation and new market entrants.
Holding on to the past is something we all do. Let’s start with — “Do you remember when [Insert statement here]?” Unfortunately, that old, outdated perspective, just isn’t relevant any longer.
So, what credentials do I have that validates this perspective? With 25+ years of agency experience, most of it in executive leadership roles, with tenures in global holding companies such as WPP and Omnicom, smaller boutique agencies and CEO roles, I’ve experienced the industry from a significant number of perspectives.
Adding to my experience — I co-founded a management advisory for CMO’s that was acquired by a global management consulting firm.
As a Founding Partner, I served on the due diligence team for a holding company acquisition by a global management consultancy and had the privilege of being part of multiple agency strategic planning and visioning initiatives as a management consultant. So, with that said, if you wonder where the perspectives come from, now you know.
Here are the key themes:
a. Most agencies are essentially nothing more than a financial institution that has organized brains for rent at a significant mark-up. Note, I didn’t say profit. Yes, I just went on the record with that statement.
b. Most agencies are plagued by ineffective leadership driven primarily by a culture that resembles the Lord of the Flies, substituting ruling w/ revenue. Again, I went on the record with that statement.
c. Most agencies are highly averse to risk. The industry is built on utilization and realization targets, which run counter to profit goals, despite the fact that innovation serves as the basis for new capabilities and offerings.
d. The model for services is built on a legacy paid media container model, while audiences migrate to a subscription model (e.g. Netflix, Hulu, etc.
e. Most agencies suffer from talent drain. Read the Glassdoor reviews of traditional agencies and you will see a consistent set of themes:
- Lack of a larger vision by leadership
- Poor communication by leadership
- Managed by personality, not qualifications / experience
- Commodity approach — Under-appreciated and over-worked colleagues
- Value what is the “Focus” — new business pitches merit the talent and the investment versus focus on existing clients who expect their teams to be comprised of exceptional talent
- Inconsistent methodology and processes — most agencies are an amalgamation of acquisitions, rinse and repeat hiring from across the industry and ultimately, a hybrid of methodologies and processes from wherever their talent comes from as opposed to uniquely developed and “owned” methodology by an agency
- “Financial first” mentality
- The fight for supremacy — who controls? Creative, Finance, Project Management, Account Management, Operations, etc.
- Interruptive vs. Additive for the end customer / consumer“Financial first” mentality
It’s these themes that permeate the industry. So, are these issues solvable? The answer is No and Yes. Let’s start with the “No.”
These issues can’t be solved within most agencies because they’re embedded within the foundational DNA and unfortunately, many of the leaders in these agencies have never experienced any other model, so they’re destined to repeat the failures of the past.
Let’s be clear on one thing. The model did work — decades ago, pre-access to low cost production tools, pre PE involvement, Pre-fascination with large scale roll-ups, pre SEO — ”hang your shingle out on the Internet” days for awareness and visibility, etc., pre-Sourcing control, etc. Times have changed and the market has evolved.
Today, with Sir. Martin Sorrell’s S4 Capital, the view to a different model is evident with data driven (AI and ML focused) automation of traditional advertising capabilities — essentially, more efficient and less opaque ad tech.
Having said this, it’s still an ode to the past with a nod to the future. As for companies such as IBM iX, Deloitte Digital or Accenture Interactive, they represent a more comprehensive and, in some instances, better integrated, capabilities-based, methodology driven, model. If we assess Ogilvy, Grey, BBDO, McCann, TBWA, etc. each represents a model, plagued by their reliance on legacy constructs.
The value of the traditional agency model is decreasing at a quickening pace as market demands continue to evolve. There is a bit of irony in the fact that all of the large global advertising agency holding companies and a number of the traditional management consultancies acquired SoDA, (The Society of Digital Agencies) companies.
The results, in most instances, reflected the general issues and trends impacting the holding companies in the broadest sense — talent drain, lack of proper integration, focus on financials, lack of product / service innovation, lack of understanding of what was acquired and, ultimately, a missed opportunity to benefit from deep category / industry expertise coupled with marketing and advertising creativity and analytics.
It’s this demand change, the evolution of the market, that has led P&G,Bloomberg, and AT&T, among many highly recognizable companies, to build in-house agencies (IHA’s).
These “agencies” for all intent and purpose are closer to the demand side of the business (e.g. sales, operations, supply chain, finance, etc.), so their ability to operate in a lower cost, higher output — flexible model creates a potentially valuable exchange for external agencies where the margin and the supporting model are misaligned as it relates to mutual value exchange.
These IHA’s have limitations; and yet, it’s this specific aspect of the model that reduces risk and enhances the focus. By not attempting to deliver internally against every revenue opportunity, IHA’s can select discreet partners that are best of breed for specific solutions.
For those of us that have worked in ad land for decades, we’re all too familiar with the agency “land grab” that fails when it becomes mired in a lack of experience, skills and ultimately an underwhelming delivery, under the guise of building a new capability on the back of a client’s need.
Let’s take this perspective that the traditional advertising agency model is dead or at least “destined to failure,” as some would say, and envision a new model. At a time when the basic premise of a media “impression” has fundamentally changed — what does it actually mean? It’s time to rethink the premise on which the advertising industry is built.
With nearly every touch point becoming an opportunity to mine information, everything becomes information. Think for a moment — we’re moving to a cashless society. Money — ApplePay, AliPay, PayPal, Venmo is information. When we transact, where we transact, what we transact, the value of the transaction; these are all items that, in the past, took a significant effort to align across systems and disjointed processes.
Today, this alignment happens in near real-time to real-time. With this in mind, 1.) Content becomes critical — but not long form, lengthy lead time, expensive to produce content; rather dynamic creative — supported by AI and ML (e.g. https://www.adweek.com/digital/ibm-watson-introduces-new-self-service-conversational-ad-builder/ 2.) Creative becomes the response, not the impetus. 3.) Experience becomes brand — each touch point either deposits or withdraws from a brand’s perception.
So, let’s get to the conclusion. With an incredibly fractured industry — large holding companies (essentially financial institutions), global management consultancies, mid-size regional agencies, specialist agencies, small agencies and an enormous and growing cottage industry of “alumni” from these agencies who recognize their personal value and their craft can be better utilized outside of the four walls of the traditional advertising agency, we have the foundation for the evolution.
The discussions at the 4A’s Accelerate Conference in April of ’18 still missed the mark, although Kathleen Brookbanks, who at the time was Chief Operating Officer at Hearts and Science, defined the answer best in the Adweek article — https://www.adweek.com/agencies/4as-attendees-predict-how-the-ad-industry-will-evolve-over-the-next-5-years/, by stating “Ad agencies won’t have dedicated teams for a client. The way we service clients will be radically different.
You’ll have to explain ‘we had account people, accounting planning people and so on, and these people were full-time people and these people were part time.’ [Future generations] will have no idea what you’re talking about. There will be specialization, but it will depend on what a client needs in a moment of time.”
If we agree that Kathleen’s perspective is correct, the overhead model can’t be sustained, so the requirement to break up the legacy agency management model still exists.
Structurally, the model is simple. It’s federated. By that, the industry will bifurcate. The relevance of having all of the skills in-house under a single business no longer suffices.
They’re on the forefront of data, insights and technologies. Agencies see these companies, not as partners / collaborators, but rather as systems integrators and platforms disconnected from the “creative” process. If anyone wants to challenge this statement, look at the state of partnerships and alliances within the advertising industry.
The time of engaging large global holding companies is past its prime. Although the model still remains entrenched in corporate America, it’s slowly being eroded at the edges by specialists.
Generalist agencies that claim specialist skills are challenged to foster / develop those skills. Typically, agency holding companies acquire a skillset when they see a large enough pipeline of revenue or enough “leakage” to make the acquisition.
Most large agencies don’t organically develop capabilities; rather, they acquire them and rarely focus on those skills once integrated, leaving little value in the acquisition after 3-4 years. This is where the write-off of the “loss” on the acquisition comes in, but I’ll save that for another day.
In the end, advertising is a function — one that’s bemoaned by the consumer / customer, rarely believable based on the transparency of the brand experience across digital channels and it’s interruptive in its format.
The future will be built on specialists companies — best in class focused on behavioral analytics, content, XD, CX, etc. So, what does this mean? Yes, there will be specialists in aggregating skills such as program management.
Yes, there will still be advertising agencies — but not in the sense of today’s structure. As someone that has built a company that was acquired, experienced many acquisitions and spent time in 3 global holding companies — it’s clear the advantage of scale is no longer of value — if anything, it’s now the equivalent of the Albatross.
I’d enjoy hearing your thoughts. Clearly, this is just a perspective, but hopefully, if anything, it sparks thoughts on your part regarding what you believe to be the “call to change.” Feel free to share your thoughts with me — Bob Morris, email@example.com, Twitter — @digitalquotient or LinkedIn — https://www.linkedin.com/in/bobmorris/
Partner, CEO Bravery Group; Co-Founder, Trade (Exit to ICF Next). 25+ year digital practice lead w/ global agencies (Razorfish, Critical Mass, Blast Radius and Ogilvy).