Commentary
The Agency Of The Future Is Here (Almost)
- by Jon Bond , September 3, 2013
The agency of the past was based on the now ancient 15% commission model. That worked very well for both sides for decades.
The agency of the present is based on the Full-Time Equivalent model. I think everybody agrees that this model doesn't work for either side. But the agency of the future will be based on a 100% performance model, and that will usher in a Golden Age for agencies and clients that could be even better than the halcyon days of 15%. The big catch however, is that you have to be very proficient at the performance/accountability game, or get left behind. And that is the biggest threat to today's agencies.
The people who are winning the ROI game are the programmatic buyers, and secondly the data companies. Some of the RTB companies are already starting to function as agencies by now offering creative. Forget the agency, they can offer clients the whole package. The proposition is simple: give me $1, here's $3 back. There's a name for that, it’s called 'client nirvana'.
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But it gets worse for agencies. As more and more media are purchased programmatically, the ad tech people will slowly expand their scope, until one day, they will in effect usurp the role that agencies play as the go-to source for clients. What's more, these performance-based companies enjoy high margins unfettered by the 'salary cap' the FTE model places on agency talent. This means they will have the ammunition to recruit and pay top talent who deliver ROI to clients...a win/win/win domino effect versus the lose/lose/lose dynamic afflicting the traditional client/agency/agency staff eco-system.
One day, a client will be able to buy all of their advertising directly (360 programmatic) from a source that delivers real ROI. By the way, that's also (not coincidentally) the day that CMO tenure expands from 22 months back to 4-5 years. Oh, and one more thing. 360 programmatic also means a lot less people. Media planning will be the first to go because a) it costs money, and b) it represses performance. Media plans will write themselves based on a feedback loop.
So, how can agencies transition to this model? It’s not so easy.
Today's agencies have several obstacles that will impede their transition. First, they don't own the technology, and therefore have to use one of these data/tech companies as their executional arm, which means adding another layer of cost (and hassle) to the clients' business.
If agencies do create their own proprietary technology, what happens if it’s not as good, or if something better comes along? They are forced to keep selling the old stuff that they own, which puts them at greater risk than just marking up someone else's technology and data.
But what about the brand you say? Won't that save agencies? Surely programmatic buyers, even ones with creative capabilities are never going to have the big idea. Probably true, but alas, the big money in advertising has always been in the execution, not the ideas. Ceding all that day-to-day work would convert today's huge agencies into nothing more than small boutique shops. That's the catch-22 agencies will have to resolve in order to remain in the driver's seat. Let's watch carefully to see how Sir Martin, Maurice and John fix that one. If they do, they will have more than earned those enormous compensation deals they respectively enjoy.
I would have put this "forecast" far into the future...until I read the June 20 NYT Magazine article on the Obama campaign and Ms Amy Gershkoff's work on linking behavioral metrics to TV viewing/buying. (The traditional agency she was working with did not appreciate her work.) She's now at WPP. And even though only in it's infancy, some of the alliances recently announced between some of the largest media buyers and some of the smaller media sellers makes me a believer. It won't be tomorrow, or next year but the tipping point for what Jon is talking about could take place within the next 2 yrs. Interesting commentary.
This is 100% true. That's why most agencies started building solid analytics departments to better predict ROI and optimize media. I do not think that all media buying will be automated, but 70-80% will in the next 5 years. Thanks, Jon for a solid article.
It will be a sad day. As an enthusiastic practitioner of highly measured performance based advertising, 20 years experience has taught me to respect Einstein's maxim: "much that matters cannot be measured and much that can be measured does not matter". Those clients who move to "100% performance" models doom themselves to smaller markets and smaller profits. Yes, we can measure big impact that is clear. And we can measure much more. Yet we cannot measure a total picture of ad impact in ways that make for effective performance based compensation models.
I agree that this trend is happening and will continue towards data centric advertising, however it will never be 100% programmatic and here are three reasons why:
1) We will never have perfect information. Moving to a 100% programmatic buying/feedback loop system requires perfect attribution information that is virtually impossible across multiple media channels. It gets even worse when you have multiple sales channels.
2) It takes people and relationships to make the media research and buys work. The rate of change on new media opportunities is staggering in the mobile space and continually changing in other channels. Search is the most programmable media and tools have been there for over a decade now, but it still takes someone to do strategy, ad copy and insight.
3) We need the continuous stream of big ideas or else everything looks the same.
Very bold and insightful article but agencies are not likely to disappear soon.
I wish I had a dollar for every time I have heard about "The Agency of the Future." All that stuff about knocking down walls and blowing up silos. Remember the merger of Draft and FCB with all those videos of management (all since gone) going on and on about how they had created "The Agency of the Future?" Which I now refer to on "AdScam" as "The Agency of the Past." And don't start me off on "Enfatico."
Cheers/George "AdScam" Parker
Jon,
Great article. I agree 100% with you that more and more clients will be moving to agencies that are more ROI focused and can track and report on campaign's performance. However, this is how Direct Response agencies function and have been functioning for many years. All data is tracked and clients are won and kept based on performance, sales, ROI, etc.