Right now, more than half of media dollars are digital, with 80% bought programmatically. And yet, agencies are still leading media investments using a model built before digital. At a time when the media agency business is at a visible tipping point and growth and margins continue to decline, we must explore ways to reinvent the media agency business model. Either we decide now, or the way forward gets decided for us by new market leaders.
One of the biggest barriers to evolution is that most agencies are trying to survive as a managed service. Managed service focus entails thesame standardized products and service model across all clients, which allows no flexibility to build bespoke services that adapt around client needs.
But what qualities might allow for a little bit more agility as we attempt to steer such a large business in a new direction? Here are some considerations.
Identifying The Right Model
Tech-enabled models create data-led solutions offering more transparency to the media ecosystem – which is a key demand from major advertisers. Similarly, modular models also offer direct, adaptive value, as they create opportunities to generate revenue from multiple scopes, as a marked transition away from an all-or-nothing commercial model. The way forward is also shaped like a platform model, which will generate new revenue streams outside of the traditional, full-service agency model.
By contrast, staffing-based models are no longer sustainable. Turnover, instability, performance issues, low margin and high overheads continually makes for an uphill climb.
Given that inspiration and direction, media agencies need to evolve from a managed service provider to a technology-enabled modular platform.
If you look at the external forces pushing us to the brink of change, it becomes clear how a modular platform model provides relief and answers...
Understanding Demand Forces
Linear spend is declining at 4% year-on-year. 2021 programmatic spend is set to reach $100 billion. We’re seeing 24% growth year-on-year in programmatic media buys. DSPs are the fastest growing media companies, and advertisers are outsourcing media directly to tech companies. If the old model can’t bend to manage these new forces, it’ll snap.
A tech-enabled modular platform not heavily reliant on manual processes moves towards efficient client business solutions. A platform would allow an agency to establish a data spine that powers client solutions across a broader range of services, from audience targeting to bill pay, and move away from a commoditized offering driven by media cost. These new demand forces would drive a platform to open/generate new revenue streams while supporting client needs outside of traditional agency scope. This means minimized staff turnover and increased service quality with precision and speed.
The first thing you should ask is whether your current ad tech and systems can meet the demands of the new media ecosystem. Depending on your answer, determine a solution for an integrated system that connects seamlessly across these tech-enabled services.
Analyzing Competitive Forces
Agencies are losing market share to in-housing, consultants, and tech companies. In fact, the top four global digital agencies are now consultancies not media agencies, with a higher value proposition enabled by technology platforms. This competitive dynamic commands higher margins.
What a new model allows is a flexible, integrated offering that puts the advertiser in control. As a differentiated offering within the media ecosystem, a platform will offer a solution to clients where they can opt in for self-service or managed serviced models around their needs. And a modular quality simply allows clients to select services around their needs only. This opportunity to reinvent the staffing-based-only approach to commercials also promotes long-term client contracts by minimizing service inconsistencies.
First step towards action: Adjust mindset and assess market position to embrace a modular approach to servicing clients. Then, tactically, ask how the commercial approach needs to evolve to enable this service model so you’re a player in the game.
What About Efficiency Forces?
Simply put, efficiency forces are stretching old models thin. Incremental value generation in a data-enabled ecosystem is becoming more difficult, and automation is eliminating the need for managed service models. And so, advertisers are seeking low cost, high yield media models. Luckily, there are solutions that work.
Modular technology platforms enable low-cost high efficiency service models, with interoperability across the media ecosystem unlocking a highly efficient, automated service model that reduces overheads and increased margins. Willfully automating key agency functions and processes would remove inefficiencies, enabling resources to focus on upstream services that command higher fees.
To mobilize: Map what parts of the media service model can be automated to drive efficiencies – and then decide which ones should.
We’re in position to reinvent ourselves if we’re willing to let go of the traditional model archetypes ill-equipped to handle changing winds. We can recreate media agencies to effectively compete against consultancies and tech providers, by offering the flexibility that advertisers are demanding.
After all, a little flexibility can deal with a lot of force.