Commentary

Whether Or Not Software 'Eats Agencies' Is Up To Agencies

  • by , Featured Contributor, August 17, 2017
Venture capitalist and creator of the web browser as we know it Marc Andreessen famously wrote an opinion piece in The Wall Street Journal in 2011 titled “Why Software Is Eating the World.”

He argued that the disruption of business by the internet and software was only just beginning, and that all industries around the world would eventually find themselves hollowed out -- or “eaten” -- by digital-first, software-based competitors.

Certainly, we’ve already seen Andreessen’s thesis play out in different arenas. Most of the print advertising industry, from newspapers to magazines to yellow-page directories, has already been eaten by internet-born software with names like Google and Facebook. The future of television is now playing out before our eyes, as TV networks confront explosive competition from software-born, on-demand video viewing alternatives like Netflix and Amazon.

Who in the ad industry is likely to be served up next to ravenous software competitors?

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Many would say the agencies. They’ve been under a lot of pressure as clients increase their demands while simultaneously reducing the fees they pay. Plus, top digital ad companies like Google and Facebook are now driving a majority of their revenues through direct client relationships.

Are agencies next to be eaten by software? I don’t think so — certainly not if they embrace software-based disruption and re-embrace client-centric agency models. Here’s why:

Marketers need help. Managing advertising has never been more difficult. Globalization means marketing companies face more and more competition. Fluid capital markets mean that the importance of ROI to investors is getting more and more intense.  The digitization of media, marketing and sales channels means that deciphering data to get to the truth is getting more and more difficult.

Agencies have massive expertise and scale advantages when it comes to creating, planning, buying and evaluating advertising. Yes, marketing companies are likely to hire more in-house talent to support advertising activities. However, there is no way that 95% of even the largest marketers will be able to fully “in-house” all of their advertising activities in an efficient way, and certainly not nearly as efficiently as agency specialists can. Plus, there’s no question there is strength in numbers when it comes to negotiating with advertising suppliers.

Software is an enabler, not just a destroyer. Software didn’t destroy newspapers. It enabled competitive companies to deliver more news and advertising to more people much more efficiently than those who stayed committed to printing ink on dead trees. There's no question that software can, and already is, enabling the delivery of far superior advertising services for marketers than they have been able to receive historically. Those who choose to be enabled by this will do well. Those who don’t, won’t.

Complex software requires users. There’s no question that software will soon change the way many legacy agency functions can be performed, even in non-digital media like TV.

Software-based TV platforms will soon collapse planning and buying functions, make TV campaign delivery and performance predictable, perform tasks in minutes that used to take weeks — and enable client to manage and optimize TV campaigns much more as they do with banners, search and social today.

Change will come, but someone has to run that software. It requires users. Personal computers didn’t bring us the promised “paperless office.” The emerging software systems won’t bring us advertising campaigns without people — advertising specialists — to drive it.

Agencies must become expert at using tech. Agencies need to become better at using technology to drive better advertising than clients can themselves, or other professional services and technology consultants. That’s where they will differentiate themselves and win their future.

Many agencies are trying to build their own tech. However, building truly market-leading proprietary software systems requires many hundreds of millions or billions of dollars, takes years and doesn’t always work. Agencies and their holding companies are not capitalized to operate that way.  

And integrating different systems together isn’t enough to win at tech — but creating expertise in tech usage is, particularly if your business is in the provisioning of professional services.

Agencies control whether or not they’re going to be eaten by software. If they become expert at using software to create and deliver great strategies, campaigns and insights to their clients — and truly align themselves with their clients’ interests — they will not go away like so many of the others Andreessen wrote about.

Decades ago, great creative agencies embraced they computer-generated graphics and desktop layout systems that Apple brought them. They survived and thrived. They need to respond the same way now as systems threaten their core profit streams from media planning and buying.

What do you think?

5 comments about "Whether Or Not Software 'Eats Agencies' Is Up To Agencies".
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  1. Steve Climons from Crossover Creative, August 17, 2017 at 3:42 p.m.

    I like it. It's adopt and adapt based on what matters to people and cannot be denied in the equation.

  2. Henry Blaufox from Dragon360, August 17, 2017 at 3:43 p.m.

    "Software is an enabler, noit a destroyer." BINGO. SPOT ON. I've been doing this for over forty years. In every affected business vertical, the initial fear of users is they'll be replaced. Not so, and it won't be so for agencies this time around. The staff wind up doing different things, often work they didn't dream was possible - in fact, didn't exist. The newspaper example offered by Dave is most pertinent. Software systems have enabled news to be gathered, checked for accuracy (we hope) and disseminated ever faster since news reporting, production and ad management systems came on the scene beginning in the mid 1970s (one of my career paths, I should note.) It enabled news to be put out later, and ads to be placed later in the production cycle. So everything was more current. It also created a slew of newsroom and ad production jobs. Side benefit, reduced exposure to molten lead as linotypes became obsolete.

    Likewise the ad agency side. Is there anyone who rmembers paste ups, glue pots and scissors? Remember Donovan Data Systems becoming nearly indispensible within a few years of its inception? The list of examples is lengthy, to say the least. Automation wasn't invented in the past few years.

  3. Alvin Silk from Harvard Business School, August 17, 2017 at 4:57 p.m.

    Re: "Agencies mus become expert at using tech." You notet that "Decades ago, great creative agencies embraced computer-generated graphics" and suggest that experience bodes well for agency's of the future beoming "expet at using software to create and deliver great strategies, campaigns, and insights to their clients."  Doesn't that prediction runs contrary to agency's longstanding resistance to decision support systems (e.g., marketing mix models)? What kinds of changes in agency mangement, culture, and organization do you foresee beign necessary to facitate and/or accomoadate  such "user expertise?  

  4. Dave Morgan from Simulmedia replied, August 19, 2017 at 2:17 p.m.

    Alvin, you make a very good point. Agencies as a group haven't been the fastest movers when it's come to decision support or mix models, in many cases I think because they have resisted systems that might conflict with their human "judgment." At this point, with so many of their best TV people - the ones with historical judgment - aging out, the time is right for them to bring in new approaches. If, for no other reason, than they have to fill the voids from the loss of that exeprtise with something. Plus, their leadership is now becoming digital and is more used to relying on data, science and software for decisioning.

  5. PJ Lehrer from NYU, August 23, 2017 at 1:26 p.m.

    Clients need agencies to make sure they are reaching targets effectively and not offending them.  It's really that simple.  More here...http://pjlehrer.blogspot.com/2017/04/garbage-in-garbage-out.html

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