The advertising market is showing preliminary signs of life, Jordan Rohan told Global OMMA New York attendees during his opening remarks on Tuesday. The founder and managing partner at Clearmeadow Partners, a digital media advisory firm that helps companies raise money, says the request for proposal activity for clients working with major agencies has picked up, but the industry won't know until January if the pick up is seasonal, cyclical, or secular. The market is trying to stabilize from being over-leveraged.
Rohan took the podium with warnings and insights for media agencies on social media and mobile markets. The organizational structure of traditional media agencies remain "ugly" as they struggle to get through a "crappy" economy. He says the good news is that the equity markets have rebounded sharply since the March lows. Credit markets are easing, retail sales are improving, housing appears to have bottomed, and the pace of job losses slowing.
In the first half of the year, U.S. ad media budgets fell $10 billion, Rohan says, citing Nielsen. Agencies with ideas continue to absorb costs. Today, agencies are billing out at about $100 per hour. Overhead is billed at 110%, but falling below 100% in some cases. Rohan says there's still no reward for work efficiencies, economies of scale, or "skin in the game."
Rohan likened Central Park in Manhattan to social media. He says not many people make money in the park. There's a lot of green space with a few vendors selling food and drinks sprinkled throughout, but for the most part, people don't stroll the park to spend money. They spend time in the park to socialize and interact with others or people-watch, and the real estate around Central Park is worth an awful lot. Similar to Central Park, not many businesses make money from campaigns in social media, but they should pay attention to the real estate prices.
Once money gets sunk into social, the funds don't come back. "We will eventually figure out how to harvest all this, but it's difficult to make money in Central Park," Rohan says.
Agencies also need to address the mobile market rather than hide their heads in the sand, hoping the medium goes away. Today, 43% of iPhone and iTouch users access the net via mobile. It's already true in many developing nations. Rohan told agency reps and marketers to think long and hard about adding a mobile strategy if they haven't already. He warned that just because a business like search has done well on the Internet doesn't mean it will do well on mobile, simply because of the form factor of the phone and the increased complexity of the medium.
Communicating sight, sound and motion on a small device, such as a mobile phone, is more difficult and results in less impact. The only marketers that will thrive in the mobile environment are those offering coupons that will drive people into stores, Rohan predicts. Social networking on mobile will be even more challenging, combining both social and mobile distractions from the established digital marketing ecosystem, he says.
A confluence of events created the current state of declining agency profits. Digital, social mobile disaggregation will only help to accelerate the trend because it increases the complexity of reaching consumers. Over time, agencies will need to act less like a steward of the brand and more like an intermediary to all brands.