Countless articles have been written in recent years putting agencies in the hot seat to adapt their business models or die. Why? Never-ending budget cuts and the digitization of the marketing landscape have produced two key trends currently threatening the livelihood of the traditional agency:
- Media has become digital, multi-channel, multi-platform, and decentralized. These elements are forcing media publishers to be more creative in how inventory is packaged and sold (e.g., bundling offers cross channels from print, online, to mobile). Furthermore, media companies are tired of losing revenue to agencies for the production of creative assets and are thus building and buying their own capabilities in house.
- Innovations in technologies, from brand monitoring, audience targeting, and media planning and buying technologies, to social media and mobile content solutions, drive when and how brands connect with consumers. Many of these technologies are being developed outside of the agency ecosystem.
These trends are converging and, in my opinion, this convergence is giving rise to a business megatrend for the ad business that I term the "digital imperative." A business megatrend is an extrapolation of theories contained in John Naisbitt's 1982 book, "Ten New Directions Transforming our Lives," in which he explores the connection between social and economic shifts as unified themes, such as globalization. The digital imperative arises from the emergence of essential advertising technologies that I believe will alter the competitive landscape for agencies, forcing them to fundamentally adapt their business models to better compete and ultimately survive.
In this article, I will explore the concept of the digital imperative and posit a few ways in which agencies can adapt their business models to compete and excel in this new advertising era.
Agencies are, in essence, purveyors of creative ideas designed to cost-effectively attract consumers. Doing this well is the epitome of every brand's problem; when it comes to agencies, this is not always easy to solve. With the digitization of media content, innovative consumer targeting techniques have emerged over the last several years, fueling a bevy of technology solutions to improve all facets of the advertising ecosystem, from campaign creation through to message distribution, management, monitoring, and measurement.
The agency, however, still does not have ownership over distribution of its messages (the "channel to consumers"). As well, while the agency seeks to utilize these technologies to improve the side of the ecosystem it controls (production and deployment), the agency has not been a leader in incubating or owning such technologies. Typically, such technologies are outsourced to vendors.
The resulting impact of these two dynamics is a heavily diluted competitive advantage for the agency. Ideas become the agency's only equity. Management and deployment of such ideas fall out of reach, resulting in a gap of service offering and ultimately revenue leaks. To increase equity in the digital imperative, three basic prescriptions come to mind:
1. Leverage emerging technologies to build and own the audience.
Rather than buy audiences, agencies should focus on ways to build and retain them as part of their competitive protocols. This means investing in strategies and technologies that provide unique and recurring value to their brands' target consumers (e.g., a mortgage calculator tool to advertise a mortgage company) so that they are motivated to interact and engage with the brand as opposed to being simply advertised at.
By owning the audience, the agency becomes a distribution source for its brands -- a competitive barrier for other agencies wanting their business.
2. Abolish siloed tech departments.
Surprisingly, most agencies still separate account management, creative, technology, and media teams. Of course, these groups might meet regularly to discuss client ideas, but they are functionally organized within the agency walls to operate independently. When new technologies emerge there is often an extensive education process with creative, account management, and media to teach them how ideas can be better facilitated or even made possible with that technology (think of something like augmented reality). Rather than treating technology as a separate department, agencies ought to bring in relevant digital thinkers in every department. This way, the ideation process includes digital thinking from the outset.
3. Adopt technology. Don't outsource.
It is always costly to pick up new technologies before they are proven. It requires an investment in hardware, software, and people. Not only that, but it takes a few trials to understand how and when to apply certain technologies to maximize results. For agencies, which generally operate on limited margins, the approach is typically to buy technology only once the client (the brand) is ready for it.
But by that point it is often too late. The agency must then use the brand's campaigns to get up to speed (trial and error) and misses out on the ability to position itself as a leader in the space for its clients.
A recent study conducted by the Mobile Marketing Association found that nearly 60 to 70 percent of agencies would prefer to outsource mobile marketing than do it in-house. This statistic is mind-boggling if you consider that mobile marketing has proven to outperform online norms when related to brand awareness and intent to purchase (see