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.