It wasn’t long ago that pundits from Turk Street to Trafalgar Square were predicting the imminent demise of the advertising agency. Those stalwarts of a simpler time would simply fall victim to the digitalization of life and the shifting habits of a nimbler consumer. And as the audience seized control of their own “buying journey,” agencies would be pummeled on another front: their profitable media-buying business would be destroyed by machine-driven ad exchanges open to all at the touch of a mouse.
How surprising, then, to tap open Advertising Age’s latest Agency Issue and find the following fun facts:
- Agency employment is at its highest level in 13 years
- Ad spending is growing faster than it has in a decade
- Agency revenue was up 3.7% to $39.1 billion in 2013
- Share prices for global ad holding companies are at all-time highs
So far from destroying the agency model, the shift to digital has actually benefitted it. Ad Age reported that Publicis — which is merging with Omnicom to form the largest ad holding company — saw digital revenue grow 13.1% last year, offsetting a 3.1% decline in non-digital business.
What happened? Well, the doomsters leaned on two arguments:
- Creative Failure — The assumption here is that agencies are too large, too retro, to create compelling work for the modern world. They are wedded to a creative model inherited from David Ogilvy (think Mad Men: copywriter + art director), that simply doesn’t fit the always-on, multi-platform, attention-starved era of now. Strangely enough, ad agencies themselves make this argument during pitches (implying their competitors don’t “get it,” while they — of course — do). For instance, RG/A’s George Prest took to the pages of the Guardian to say “advertising is dying” because “you can’t get away with bull#$t anymore.” Rather than go back to law school, however, he claimed the agency biz is “exciting” and “energizing.”
- Media Mortification — A common argument for global consolidation among ad agencies is that scale reduces media costs, allowing clients access to better inventory at better rates. Digitalization seems to threaten this model. A growing volume of impressions are sold on exchanges using auctions, a method that (theoretically, at least) doesn’t give bigger players a better price. A Digiday headline summed up this anxiety: “Will Machine-Based Ad Buying Kill Media Agencies?”
Maybe not. What the doomsters forget is that agencies are more aware of the threats to their business than anyone else — after all, it’s their business. Far from going down with the analog ship, they’re adapting and changing with the winds. They’re staffing up with youngsters, flipping creative processes around, hiring new kinds of analytical talent. Working on Gartner’s Magic Quadrant for Digital Marketing Agencies last year, we noted that leading agencies such as SapientNitro, AKQA and Razorfish are aggressively reshaping themselves into strategic consultants, technology partners and product development shops. Anything but traditional advertising agencies.
Another point in the agencys’ favor is that they remain very attractive places for very talented people to work. Even a hard-core technologist — say, an app developer — will generally find the work they do at an agency to have more variety, complexity and depth than what they’d get in-house. Agencies spread skills over multiple clients (variety), tend to have bigger problems to solve (complexity) and provide a career path and workplace mojo that most companies can’t match.
Meanwhile, the media buying game is still in upheaval. Nobody knows where it’s going. The race to the bottom on exchanges is being challenged by both publishers (through premium inventory, private exchanges, and new types of ad units) and advertisers, who are still willing to pay a premium for better experiences and results. After all, most of us thought the banner was dying — then retargeting came along.
However it shakes out, we can be safely assume ad agencies will be where the action is before most of their clients. After all, isn’t that why clients use them in the first place?