• by Gord Hotchkiss , Featured Contributor, June 18, 2019

I’ve started this column at least three times before. This would be my fourth time. I go forward with trepidation.

A little over a month ago, Fellow Insider Dave Morgan wrote a column entitled “Software May Destroy Some Agencies -- But Won't Destroy Need For Them.” In it, he stated, “As the world of advertising and media becomes more  automated and real-time, the need for agencies will only increase.”

Do I agree?  Well, yes -- and no. You see my dilemma. I agree with Dave that there's a need. But I have quibbles with the nature of the need. Let me explain.

Like everything else in this world, we’re rotating on an axis from the vertical to the horizontal. This is part of the decoupling phenomenon I was talking about in an earlier column, based on the new book by Thales Teixeira, "Unlocking the Customer Value Chain." It’s this pivot that’s the source of the destruction of said advertising agencies.

The advertising agency's revenue model depends on verticality. Agencies filled a gap between media and advertisers, supplying many of the links in a chain required to get an advertising message in front of an audience. An agency dove deep in a tightly constrained pool that was a long, long way to the bottom.

But thanks to decoupling, we now have multiple pools, very broad in scope, that must all be managed at the same time. In each of these pools, we have the software and platforms that Dave Morgan speaks of. These platforms and software promise to manage much of the detail. It’s here where they’re eating the lunch of the traditional agency.

But it’s not really software that’s disrupting the agencies. It’s the decoupling of the advertising supply chain and the flip of an advertiser’s need from the vertical to the horizontal. Advertising used to be complicated. Now it’s complex. We need help, but it’s help of a different sort.

The first kind of help we need is specialized assistance in each of these pools: the emerging markets that make up the advertising universe. Every time we turn around there are new things we have to be thinking about.

Let’s take the example I’m most familiar with: search. I started my career in advertising in 1982. Back then, search wasn’t even a thing. Our view of the customer journey was captured by the acronym AIDA: Awareness, Interest, Desire and Action. This was the vertical chain the agency model was built on.

Then came the internet. I built my first website in 1995. The intention was to jam that website somewhere between Interest and Desire. As we got more sophisticated, we introduced ecommerce and stretched to include Action as well.

But the first question my clients asked was about the first A: Awareness. “Where will our visitors come from?” That’s when I discovered search -- and the uncoupling process had begun.  I saw the opportunity and swung my whole business over to it.

From those beginnings, that uncoupled link has grown massively. Today, search is a big thing -- a $100 billion big thing. That’s just one example of a decoupled link that became a huge industry in and of itself. Sure, there are software and tools to help. But there is a need by almost any advertiser for specialized help in search. The same is true for any online channel you care to mention.

So we have this need for a certain kind of help: highly specialized and very tactical. And while advertising agencies would love to supply this help, they don’t have a great track record of doing so. As I’ve said before, it’s not in their DNA. This is more in the wheelhouse of the boutique shop, which can survive on the thin profit margins typical in the tactical digital space. Practically, this is often handled best by a hybrid of software and service: a skilled craftsperson using the right tool.

But then there’s the other type of help that’s required: management of the cross-channel complexity. Again, this is a decoupled link, albeit one at the very top of the previous chain. Advertisers are struggling to coordinate their stories across all the emerging channels. Agencies should theoretically be proficient at supplying this type of help at the highest strategic levels. But it’s not the whole pie. It’s just a tiny --  although critically important -- piece of that pie. And for the past two decades, agencies have been struggling to keep their hands on the entire pie.

In the end, we have to accept that -- just like the industry itself -- the types of help that advertisers need have become uncoupled. The need has pivoted from the vertical to the horizontal. And those that survive the disruption will have done the same with the services they provide. Their business models will be honed to deliver the best service possible within a horizontal slice of the market and to remain profitable with only a small slice of the overall pie.