• by Dave Morgan , Featured Contributor, July 22, 2010

Creating an "unfair competitive advantage" seems to be a persistent goal in the tech start-up world. It is a pretty standard question that venture capitalists ask entrepreneurs seeking funding (with a lot of stress on the word unfair). It's frequently used as an internal mantra in tech companies to keep pushing for more innovations in their products, infrastructure or strategy. I find that it can be a great way to focus critical analysis of a business's true differentiation and realistic competitive advantages.

Earlier this week, in a conversation with an industry analyst trying to divine the ideal characteristics for ad agencies of the future, I found myself pondering this question in the context of ad agencies.  It occurred to me that I hadn't heard many ad agencies ask themselves that question when they talk about their market position and strategies for future growth. I find this strange. The ad agency world is a vast global industry undergoing enormous market disruption --- increasing competition, commoditization and confusion as well as declining loyalties, margins and talent pools -- as many try to become broader marketing services companies.

So, I ask you, if you were creating an advertising agency today, what would be your unfair competitive advantage?

Will it be Talent? The foundation of professional services firms is their people. In the finance world, Goldman Sachs has long had the first pick of talent. So has McKinsey in management consulting, and Google had that aura a few years ago in tech. However, for most of these companies, the talent advantage was really a means to an end that gave them true market advantage. Goldman turned talent into proprietary trading advantages. McKinsey turned it into a virtuous cycle of producing CEOs that led clients that hired consulting firms. Google turned it into market-beating technology built on hyper-fast development cycles. What will you build with that talent that will drive more than linear-scaling profits and margins?

Will it be Superior Marketing Methodology? Doing something better than others can buy you efficiency and mindshare, but those tactics  tend to be copied by others and are hard to sustain.

Will it be your Brand? David Ogilvy certainly built a great brand around his agency, but it probably didn't reach its fullest profit potential until he'd sold it. It seems to me that, like talent, a great brand can help you build a great company -- and is probably a prerequisite to it -- but it is an icon of the true value of the business, not the source of it.

Will it be Proprietary Technology? aQuantive showed us the complementary power that proprietary technology can bring to an advertising services company, and we've certainly seen some of the agency holding companies make similar moves, with WPP's acquisition of 24/7 Real Media and Publicis' development of Vivaki. However, only time will tell how integrated they can become across a suite of relatively un-integrated, fiercely independent subsidiary companies.

Will it be Scale? Google has certainly proved the power of scale in the search market, and Amazon similarly in e-tailing. However, hasn't history shown us that scale and talent become mutually exclusive over time?

What about a Differentiated Business Model? Most ad agencies operate under very similar business models. Advertising.com and GoTo.com created the online performance marketing and paid search markets respectively through business model innovations. How might that play out in broader advertising and marketing services?

I think it's a Jack Welch-ism that if you don't have a competitive advantage, you shouldn't compete. I believe that there's an enormous future for marketing services companies in the world, and the most successful ones will find an "unfair competitive advantage." What do you think?