• by June 24, 2010

Why the one-stop shop may be more relevant than ever

"I shall be both dog and pony." - Roger Sterling, Mad Men

The liquid lunches have long since dried out. The ties are rarely worn, even for the client meetings. At least we have Mad Men, the industry's official nostalgia show. It shows the life of an ad agency at its glamorous rise, at the height of the realization of the power of advertising to shape and alter social reality. It is fascinating to catch the glimpses of a bygone era that foreshadow the way industry would take shape. It is also striking to see how far things have evolved since then - and realize that the changes are only going to accelerate. 

Few archetypical personalities portrayed in the show still roam the agency floors. The advertising agency remains the last resort for artistic individuals not willing to sacrifice a regular paycheck. A larger-than-life creative director can still be observed, from a safe distance, in a glassy office. A more dominant species, however, is a new breed of Renaissance men and women who confidently shuffle media channels and consumer segments, crunch GRPs with TV salespeople in grey suits, do view-throughs with digital planners in denim, and are not mystified by social networking, addressable TV, mobile video or whatever the next novelty the frantically evolving media world throws in their laps. The Madison Avenue poise quietly went out of fashion, as the numbers took precedence over experiences and personalities: The shrewd clients increasingly demand quantitative proof that their budgets are spent in the best ways possible.

The world of the modern-day traditional agency is under siege. Marketing consultancies, research houses and occasional bold digital media companies infringe on strategic planning, the agencies' once lucrative domain. The periodic emergence of new digital channels slams traditional agencies against mobile, search, in-game, and social media pure-plays, which generally have more advanced technologies and practices in their specific areas. The tried-and-true methods that for decades empowered a handful of corporate giants to cut through the clutter of several dozens of channels and mass market their messages to passive media voyeurs cannot possibly work in the world of thousands of channels, where entry barriers for new advertisers are extremely low (thanks to Google), where consumers easily avoid ads, and themselves became content creators and distributors.

Agencies of today have to navigate a highly fragmented media environment of ad networks, exchanges and direct publisher relationships. Some industry pundits predict that the world of media will become so fragmented that it renders the advertising agency business model obsolete: If mass reach cannot be bought anymore, why not just work with publishers directly - or hire specialists from each relevant media segment separately?

Well, there would be just too many specialists to hire individually and make them collaborate with each other. Would not it be more convenient if they all worked together, in, say, an agency? It is exactly the media fragmentation and technology advances that offer greater opportunities for agencies to prosper. The more complexity is in the system, the higher is the demand for media cross-athletes who can weave the disparate brand/consumer connections into a whole that is greater than the sum of its parts. Moreover, the more media channels and other points of consumer contact emerge, the stronger is the appeal for one-stop media buying.

To survive and thrive, however, the agencies need to change the ways they go about their business. The technology already exists for the agencies to connect the dots, apply scale and extract the maximum advantages for their clients. It may as well be, as Don Draper would put it, "the greatest advertising opportunity since the invention of cereal."

By empowering advertisers to serve smart ads that reach only qualified prospects across various media entities, while optimizing the costs, tools will revolutionize the ways media is bought and sold - both online and offline. Creating and placing marketing messages will cease being the main raison d'être of the advertising agencies: It will eventually become a commodity. It is the data accumulated from hundreds of campaigns, along with proven analytic algorithms to optimize a company's interactions with consumers throughout the entire business cycle that would become agency's main value proposition to its clients.

This is going to require a novel set of skills from the people that make the industry. Agencies always had researchers and statisticians on their staff (Remember the stern Dr. Greta Guttman from Mad Men, whose recommendations were largely ignored?). This time, data analysis and predictive modeling should become the agency's core. In the end, everything will come down to the ability to collect relevant data, extract non-trivial insights from it, turn insights into rules and algorithms, and set the machines to exercise these rules while also pursuing the best deal on media. The agencies should aggressively hire more experts in quantitative analysis and database marketing, statisticians and specialists in predictive modeling. They also should look deeper into what some promising digital analytic shops have to offer. So far, outfits like ClearSaleing, [x+1], Visual IQ, etc., are engaged largely on direct-response campaigns, where they specialize on extracting most active audience segments and uncovering key elements in consumers' paths leading to their conversion. Optimization algorithms supporting direct-response targeting are currently the winners, since they are easier to grasp and produce fast results for everyone to see. Similar methods, however, if built into overall planning and exchange-media-buying strategies, hold tremendous potential to boost the impact of traditional brand advertising by orchestrating only relevant and meaningful connections of consumers with the brands.

As quants start moving en masse from Wall Street to Madison Avenue, it will become increasingly hard to understand water cooler chat peppered with betas and chi-squares. One can only hope there is room for an occasional martini in the brave new world.