For years,there’s been a steady murmur that the agency business has some issues to overcome — but reading the news lately, it’s pretty clear agencies have started to listen and are making changes.
Over the last few months we’ve seen issues of balance and diversity begin to be addressed, with some high-profile executives being ousted from their companies. We’ve also seen a ton of consolidation, as many of the holding companies are beginning to recognize that having a splinter strategy of rolling out smaller agencies with niche service lines is no longer tenable. These smaller shops are being folded back into larger agencies with better brand names that can attract larger clients with more diverse budgets, whom they can adequately service in these times where margins are becoming razor-thin.
The fact is, agencies still charge too much for undifferentiated services, are not competitive with in-sourcing and contractor resources, and are not expanding to offer more defensible service lines that could provide them with better growth in the future.
Agencies were built on the bread and butter of media and creative. These days, anyone can buy media and reach a targeted audience. This is especially true when you look at the lion’s share of the dollars being spent on two platforms (Google, Facebook), with a third (Amazon) coming up quickly.
If you add on native ad platforms and a demand-side platform or two, agencies don’t offer a unique service in media anymore. That leaves them with creative, but we operate in a world where creative resources are almost infinite, and it comes down to price because quality can be achieved from a lot of sources. Contractors and skilled workers are plentiful, their prices are right, and their timelines are better than most agencies.
Smaller boutique groups can create amazing illustrations, video and graphical work for a much lower cost than in the past. That leaves agencies in a bind: How do you compete in the areas where you used to dominate? Hint: You can’t.
That leaves agencies looking for ways they can survive, and this is a daunting task. Removing overhead is a cost-cutting exercise — and, as someone who used to run agencies, I can tell you it’s no small feat. If you reduce overhead through consolidation, it can be a massive help.
That being said, this is not the end game, which is to find services that are defensible. Agencies are starting to compete with large consulting companies, and this is where their future lies. Large consulting companies focus on strategy and technology. So too should agencies.
The ad business is now dominated by technology, and most brands cannot staff people who are expert in how to leverage these technologies. The agencies have an opportunity to become more like systems integrator shops or large consulting groups, but with media and creative layered on top.
They can become a resource with areas of focus on implementation of the massive tech stacks that most marketers have now put in place, and be experts in the systems offered by Google, Facebook, Amazon and more. If you factor in the AT&T, Verizon, and other players, this becomes a viable strategy.
DMP’s, CDPs, and all the rest of the acronyms that clutter up the ad business are an opportunity for agencies. Brands don’t want to be in these systems day in and day out. They want to trust someone to implement these on their behalf and report back with recommendations on how to improve.
The question is twofold for agencies: Will they recognize all these changes as an opportunity? And, can they price in such a way that brands are interested in using these services?
This is another area where they can emulate the large consulting companies and mirror how they charge for these kinds of services. This is not a new wheel to be created. This is a proven model that can work with a little tweaking.
I think 2019 could be the start of a good path for the agencies if they can start to move in this direction. What do you think?