Time is money as the
saying goes and for some agencies billing by the hour, for decades has been quite lucrative.
But clients and agencies both have been looking for improved returns on marketing and advertising
investments in recent years.
Will AI be the catalyst for an industry-wide rethink on pricing models?
The subject came up during S4 Capital’s first quarter earnings call as
analysts questioned company officials about the efficiencies wrought by AI and how clients and agencies would benefit.
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S4 chief Martin Sorrell commented that AI is reducing the cost of creating
and producing content and that the firm is looking at pricing models “based on outputs” versus time spent on creation and production.
Analysts wondered how agencies and clients would split
the value of improved efficiencies, but it didn’t appear that S4 is far enough along in the process to address the issue specifically. Although Sorrell did note that some clients are looking to
reduce the cost of creating and producing content with the idea of putting the savings in the media spending pot.
“The model has to change,” said Sorrell, noting that the quality
of AI-generated work is improving daily. Quality work, he added “demands a premium.”
But it won’t happen overnight, especially with worrisome macroeconomic issues muddying
the waters.
But in what Sorrell termed a “small-growth world,” there will be increasing pressure on client revenue which translates in part to
fees paid to agencies. The question, he added, is “can we create a model that copes with that in an effective way?”
S4 isn’t the first agency to reconsider agency remuneration and
won’t be the last. Two years ago digital agency Huge repositioned as a creative consultancy, focusing on product development (AI tools in particular) and weaning off project work. Other agencies
have adopted models based on performance.