We are globally climbing out of a recession and now budgets are returning. This growth is in stark contrast to a lot of other industries, which we should all be thankful for, but this growth creates opportunities and is theme one. According to MAGNAGLOBAL, paid search leads global online advertising, representing "49% of total revenues," a trend that could continue for the next five years. Beyond search, MAGNAGLOBAL claims "online advertising [overall] will rise by 12.4% in constant currency terms during 2010, to $61.0 billion dollars globally."
To take advantage of this growth Google has been busy with Google TV (about time someone put search functionality into digital TV), ACE for more efficient iterative testing, algorithm and indexing updates, and even local improvements within the rebranding of Google Places. Yahoo and Bing are together as "the alliance" (not sure if I should queue up Darth Vader or Pee Wee Herman music here) and independently are making a lot of enhancements to consumer-focused and advertiser-related products. Bing even just launched an entertainment-specific search experience. All these efforts are being made to capture more search share, more billings, scale revenue, and add value to these companies' core constituencies.
Although somewhat conflicting, the second agent of change is downward pricing pressure. Even though paid search and digital advertising are huge focal points, there is still pressure to offer them for less. This has changed the dynamics of advertiser-agency-publisher relationships. Marc Fleishhacker of MRM says "the agency relationship is broken" because of an excessive focus on procurement. You can read more about that in "When to fire your agency -- and not hire a new one. "
I find it interesting to ponder what these two colliding themes of change mean for our business. I think it means that how we add value, up and down the food chain, must evolve. As C.K. Prahalad and Gary Hamel write in the book "Competing For The Future," "What is needed is a strategic architecture that provides a blueprint for building the competencies needed to dominate future markets."
Here's my blueprint:
Agencies - the old model of backing into a commission based on charging mark-up on bodies against time to hit a certain cost + revenue target needs to change, too. Buying is commoditizing and there is less bulk buying power based on transparency and liquidity. Many traditional agencies are focused on billings and buying, which is valueless growth and the root of downward pricing pressure. Agencies have to add value in new ways. With change comes opportunity to drive differentiation and value through technology, attribution, cross-channel planning, emerging media and analytics.
Publishers - there is an opportunity to form stronger relationships with agencies and advertisers because content owners are in the position to best connect consumers with brands. This connection is a critical to understand and match with the right advertising messages. Publishers can add a lot of value here and put a premium on this level of connection, versus simply arbitraging their own media real estate.
Advertisers - clients need to be in the driver's seat. Regardless of the brands represented, changes in consumer behavior and media require them to think about their businesses differently. The most successful brands currently are advertisers that drive cross-functional ownership internally and across their agency/publisher partners. Emerging opportunities like mobile and social touch everyone from IT and creative to media, customer service, and marketing, and no one can coordinate this better than clients themselves. No one can help if you can't (or don't want to) help yourself.
I don't necessarily think the agency relationship is broken per se, but it does need to evolve, as it was built and refined over years based on a certain set of dynamics between consumers and media. To be successful in an uncertain future, we must rethink our past, because much of the evolution in our industry largely undermines how we have traditionally made money. If we can drive change and alter what Hamel and Prahalad call the "genetic coding" of our organizations, we will be successful. One starting point is to focus on real business metrics -- not isolated and arbitrary GRP, CPM, CPA, or any sort of random engagement metrics.
We may not know exactly what the future model will be or exactly what the landscape of our industry will look like, but we know it is changing. Helping to find tomorrow's opportunities is where an agency can add the most value. Agencies that can facilitate change through consumer knowledge, integrated research and analytics, technology driven scale and efficiency, and cross-channel insights will be profitable and have strong publishing partners and successful clients with industry-leading brands.