Commentary

Future Of Agency Business Is With Small And Mid-Sized Regionals

  • by , Featured Contributor, April 25, 2019

Advertising and media agencies will be around for decades to come, but the future is much more likely to be defined by small and mid-sized regional shops than in the large, global, marketing services holding companies.

There’s no question agencies have been under an enormous amount of pressure over the past decade. Digitization, globalization, holding company acquisitions and changing consumer behaviors all conspired to undermine agency operating models that had been built and operated profitably on decades-old historical models.

Net. Net. What was created in the “Mad Men” era kept working well for years and years, until it didn’t.

Many folks today are predicting the demise of the agency. They point to the disruptions I mentioned earlier, the lukewarm support the industry gets on Wall Street, and the aggressive competitive moves being made by management consulting firms like Accenture. 

I don’t believe that agencies are going away. Here are some of my reasons why:

Marketing services outsourcing will always be a part of the business. I believe that marketers and advertisers will continue to outsource many critical functions, like market research, strategy, media planning and buying, ad creation and organizational planning to outside firms for many years to come. Not all will outsource all functions. Some will outsource no functions. However, clients’ needs, the outsourcing practice and the long-term existence of healthy, vibrant agencies will continue for decades in the future.

Many industry problems may stem from decades of global consolidation of agencies. A lot of value (and wealth) was captured by agency founders when they sold their agencies to bigger agencies, and eventually to global holding companies. This didn’t necessarily mean their clients got better service.

It did mean that a lot of agency profits had to be taken out of the agency to pay overhead fees, to pay down debt, and to pay dividends and increasing stock prices to ever-hungry public investors. 

This also made it much harder for the acquired agencies to be nimble, to do the right thing for each and every client and to argue for specialized fees when the trend was to offer “efficient” global fees. For good, and then for bad, what began as a collection of high-value, boutique consultancies became merchant banks.

Small and mid-sized regional independents are reasserting themselves. As the large holding companies show weakness — reducing their levels of service, laying off great talent, entering into opaque deals that undermine their clients’ trust — small and mid-sized, regional independents are stepping up. 

Many are no longer just winning business with regional accounts, but are winning big engagements with big marketers, proving that “scale” as preached for the past decades can now be delivered (and overcome) with superior talent, expertise, software, nimbleness and customer service.

Digital expertise is no longer concentrated in large cities. The most important factor in being a great agency is no longer having a big, global balance sheet and a public listing. It is about having the best talent. 

For years, large agencies have been bleeding a lot of their great talent. Holding company agencies in large cities used to have a monopoly on the best digital talent. No more. Digital expertise is now everywhere, and a lot of younger folks who started their careers at large city agencies are now moving to smaller cities as they start families and look for more control over their careers.

Software is eating the differences between big and small, in small’s favor. From retail to publishing to communications to logistics, we have seen small, smart and nimble companies eat their competition through the application of software. 

The same thing is happening in the agency world. Today, large holding company agencies are akin to mainframe computers in a world that has already shifted to personal computers and is soon to be dominated by smartphones and apps. 

In this world, the power is in the idea, its application and the service that backs it up. Unconstrained, innovation is happening all across the country — and world — at small shops solving big problems with big ideas, big hearts and big brains amplified through software, and it’s just getting started.

What do you think? Are small and mid-sized regional independents, armed with software, ready to take on the global Goliaths of their world?

7 comments about "Future Of Agency Business Is With Small And Mid-Sized Regionals".
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  1. Alex Flores from Empty Space, April 25, 2019 at 8:28 p.m.

    I want you to be right, and maybe the movement is happening like you say, but rarely will a deep-pocketed, company go down without a fight and in the ad industry the global holding companies are already beginning to position some of their smaller holdings as independents within their group (weird, but words matter). I've seen it firsthand, where a big holding company (double you pee pee) positoning one of their more creative small shops as a creative shop living "virtually outside" the network. It won them the account. So yeah, I want you to be right, but it'll be awhile before it's more often the case than not.

  2. Ed Papazian from Media Dynamics Inc, April 26, 2019 at 10:17 a.m.

    Dave, you make some solid mpoints. However, we must remember that one of the factors that lead to the agency consolidations of the 1990s---aside from the media profitability aspect----was the fact that clients were doing the same thing---merging and purging. The resulting oversized marketing conglomerates were matched by their agency counterparts---big begat bigger.

    I doubt that smaller, selectively oriented or regional shops are the future. If they gain momentum, the large shops will buy them out and the lure of a quick financial kill will be too great for most of their principals to ignore.

    I do think that the giant agencies will have to adapt and recent moves by Omnicom suggest that this need is sinking in at last. There are too many management layers and too many separations of responsibility for an individual client brand to get the best service. So we will see digital and traditional media consolidated and abiding by the rame rules while the same will happen to creative and, eventually, to overall account handling. This, in turn, will encourage clients to do the same---like fully integrting sales promotion with branding, as an example. But all of this will take time---and some pain---to develop.

  3. Tracey Scheppach from Matter More Media, April 26, 2019 at 11:29 a.m.

    Dave, You make some great points. I can say first hand the value that my clients are getting in a small agency approach far surpass what they would have gotten in a big agency structure. More value for less cost is a powerful proposition. 

    I also agree with Ed that small agencies that get momentum likely get bought by the bigger agencies who simply can't adapt to all the changes fast enough. 

  4. Dave Morgan from Simulmedia replied, April 26, 2019 at 11:41 a.m.

    Ed, excllent points. Thanks. I do think that going forward it is going to be much harder for the large holding ocmpanies like they used to. Wall Street no longer supports iit, seeing the acqusitoin of service companies as no longer able to drive profit growth. Thus, we are seeing them buy tech and data companies like Axciom and Epsilon, whchi Wall Street values at higher multiples than service organizatoins. So, small and mid-sized might stay indepedent much, much longer.

  5. dorothy higgins from Mediabrands WW, April 26, 2019 at 3:46 p.m.

    The privately owned companies will have an edge also.  They can reinvest profits in research, technology, training and talent rather than consistently shaving those investments to make the shareholders happy.  The solution to big to faill is to be small enough to skate under the radar and be nimble and quick with internal investment.

  6. George Parker from Parker Consultants, April 29, 2019 at 7:13 a.m.

    Dave, excellent piece. I "Homage" it on British site... MoreAboutAdvertising...
    https://www.moreaboutadvertising.com/2019/04/george-parker-think-small-and-think-up-north/
    You can send the tripe by FedEx.
    Cheers/George

  7. Dave Morgan from Simulmedia replied, April 29, 2019 at 8:05 a.m.

    Thanks George! I'm honored. Time, trends and talent are on our side.

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