Commentary

Simplicity Eats Complexity For Lunch


A recent column by Dave Morgan about the growing complexity of the digital media industry inspired me to weigh in on how it is impacting the relationship between marketers and their agencies due to three big trends: Agencies unbundled and rolled up into big holding companies; marketers putting procurement executives in charge of agency compensation; and the Internet that has matured and profoundly changed consumer behavior. There is no cause and effect here -- despite the co-dependencies, these three things evolved independently.

Before the sea change, agencies were compensated based on a media commission and the mark-up on production. They gave away their premium services for free in order to make money on easily commoditized services but there was an underlying logic to the business model. Agencies were inspired to have the best talent work as hard as necessary to develop brilliant ad campaigns. Great work drove the investment in commercial production and media buying. When the marketer’s business responded, a virtuous cycle fueled more great creative and bigger media budgets.

With this model, the agency and the marketer were aligned around big ideas, common sense and macro-outcomes. Brands grew, agencies profited.

It wasn’t “simple,” there were thousands of media choices and new TV channels were being launched rapidly. The potential for complexity was there, but the emphasis was always on strategic elegance and pragmatic solutions.

Then agencies unbundled media services and marketers turned to their procurement departments to negotiate new compensation deals with their agencies. Simultaneously, the Internet took off and the consumer’s media habits evolved rapidly. Never was the need for holistic campaigns that integrated creative content, media tactics and research stronger. Unfortunately, this was the age of dis-integration. The agencies unbundled and the procurement executives preferred to buy piecemeal.

Today, agencies are compensated based on the scope-of-work. The digital media agencies, in particular, are incentivized to embrace complexity because it protects their role in the middle and it supports the case for a large scope-of-work. The born-digital media companies scattered across the Lumascape need to follow the money, so they pursue the RFP. Most ad tech firms are funded by investors who value technology, not advertising solutions. The investors want to know that the sales forces are out there talking about algorithms, SaaS services and programmatic solutions, because these things get higher “multiples” than advertising.

To be fair, a handful of ad tech firms are working hard to bury the complexity and to serve up solutions that make building and running digital brand campaigns intuitive and strategic. These firms work hard to understand the real needs of brand campaigns but the reward for that is not what you would expect. The investment community doesn’t reward investment in human resources that create a layer of consultative value on top of an ad tech firm’s offering and the agencies have a passive-aggressive response.

Meanwhile, down in the trenches, the ad tech providers and digital agency buyers are focused on incredibly microscopic outcomes for the brand. The attention to detail for the RFP and the ROI for a $200,000 media buy is mind-boggling, because the operational inefficiency overwhelms the media efficiency. A digital buy is already 50 times more efficient than a direct mail campaign, but the agency's labor to make the next digital buy 0.02% more efficient than the last one is remarkable.

The digital agencies and ad tech companies are partnered around the benefits of complexity and it leaves marketers feeling isolated and confused.

The growth of Internet advertising in the past decade was sourced from budgets that used to pay for direct mail, telemarketing, Yellow Pages and classified ads in newspapers. For digital direct-response budgets, the media agencies are the shepherds and complexity does not matter too much. No matter how complicated it gets, success is measured with simple metrics that anybody can understand. And, it's still a helluva lot easier than Yellow Pages in the 1990s.

But, national TV budgets have not migrated online. Despite changes in consumer behavior, TV budgets have grown by $9 billion in the past decade. This is because ad campaigns that invest in brand equity are different than direct response campaigns. When it comes to attracting brand advertising budgets away from TV, complexity is the enemy. This is a form of advertising where the nuances of the creative content and the media sciences of relevance and reach are critical and co-dependent skill sets.

Dis-integrated agency services compensated based on the scope-of-work chasing after the companies in the Lumascape is a brand marketer’s worst nightmare. Marketers don’t stick with TV because they want to. They stick with TV because they have to.


Mark McLaughlin in president of McLaughlin Strategy.

Image courtesy of Shutterstock.

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7 comments about "Simplicity Eats Complexity For Lunch".
  1. Tony Quin from IQ , June 1, 2014 at 7:12 p.m.
    Great post and right on the money. This is a case of the pendulum swinging. The temptation of the bean counters to reduce the work of agencies, digital or otherwise, to mechanistic measurables has been too tempting. Marketing is now treated as a science and while many hide behind the complexity, a great deal of creativity and inspiration is sidelined in the process. In my firm we work hard to reduce the complexity to the client and more importantly to the consumer. But the pendulum swings anyway, while we wait impatiently for its inevitable return. Tony Quin - Board chair Society of Digital Agencies & CEO IQ
  2. George Stewart from Resonate , June 2, 2014 at 8:40 a.m.
    Excellent post Mark. I especially liked your comments about DR and by direct inference, opportunities for more branding online. But marketers struggle to buy in and see Ad Tech and audience targeting as a DR solution only. It's my view that Ad Tech can help move more branding online and simple brand metrics can support/prove success around "the nuances of the creative content and the media sciences of relevance and reach are critical and co-dependent skill sets."
  3. Skip Brand from bbd (branding big data) , June 2, 2014 at 9:18 a.m.
    Mark your three trends make a perfect storm, which adds to the unnecessary complexity. You nailed the issues about unbundled services and the rise of procurement, but your points on internet maturity and branding are very good. I believe you have another post in your great points on TV and digital branding. Tony from IQ and George from Resonate build nicely on your third trend. Thanks for writing this post and see you soon.
  4. Christopher O'Hara from Krux , June 2, 2014 at 9:38 a.m.
    Very nicely done and could not be more correct. I will note that direct mail is not really going anywhere (it grew about 1.5% last year), mostly for the same reasons: it is expensive because it works. Digital companies need to bring the same sensibilities to display advertising when it comes to price and inventory transparency. Marketers love direct channels because they know how much it costs and exactly where their ads will go.
  5. Dave Morgan from Simulmedia , June 2, 2014 at 2:02 p.m.
    Great job Mark. Really important insights about what has driven the complexity that is bearing down on all of us.
  6. Janet Fitzpatrick-Wilks from Honeycomb-co.com , June 3, 2014 at 1:11 p.m.
    Loved this post Mark. You summed up a decade+ of evolution (or devolution) so well. One comment that really resonated: "Dis-integrated agency services compensated based on the scope-of-work chasing after the companies in the Lumascape is a brand marketer’s worst nightmare". So true. I'd like to think we're starting to see some shifts towards a degree of re-consolidation, to squeeze out some of that complexity, or at the least to systemize marketing and adtech in a way that makes sense, but too few agencies or marketers are investing in the kind of ad cloud thinking that leading marketing cloud operators embrace.
  7. Mark Mclaughlin from McLaughlin Strategy , June 5, 2014 at 9:14 p.m.
    Leave it to the creative community in Australia to take everything I just said in this article much better than I ever could. https://www.youtube.com/watch?v=GD3W4x-R6OI#t=269