Ad Agency's Disruptive Future? Can the Old Dogs Survive It?

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by: Idris Mootee

“Password to Marketers’ Meeting: Digital”
as reported in a headline today by Suznee Vranica of WSJ. Wonder how
many marketers have those secret passwords? In this crazy business
environment, marketing is ready to be reinvented. No one is sure to who
is taking the lead to drive this change. I have some ideas. I am sure
you do too.

all big players gather for an annual conference in Arizona yesterday
and today, the topic that dominated in the seminars and dinner parties
is easily predictable to be “How marketers adapt to survive/prosper in
the new digital world?” and “What are the new tricks required to play
this game?”

to the study by BAH with American Marketers Association which was
released during the conference yesterday, “digital marketing still lags
the shift in consumer behavior” prompted by the Internet. The findings
indicate that while “8 in 10 Americans are now online” and spend as
much time on the Web as on TV, most marketers allocate only 5%-10% of
their ad budgets to digital media. Its conclusions reinforced
perceptions that many marketers are struggling to figure out digital
media. Many are looking for help and are not getting them.

Less than 24% of those polled considered their companies “digitally savvy,” citing several issues, including “lack of experience in new media” and “dearth of digital talent,”
the report said. Some industries are further behind than others: Nearly
half of the consumer-goods companies that participated in the study
spend less than 5% of their marketing budgets on digital, whereas
technology, travel and financial services allocated more of their ad
dollars to digital media.

Microsoft CEO Steve Ballmer is vocal about his desire to give Microsoft a bigger presence in advertising.
“As I look out 4, 5, 6, 10 years from now, advertising will become 15,
20, 25% of Microsoft’s business,” he said recently during a speech in
Paris. Ballmer was speaking today in Arizona and predicted that in 10
years everything you read you will read on a screen. “My parents will
never get there” Ballmer asks, rhetorically. “You’re right. But your
kids will get there in four years.” It’s very important that as soon as
you assume that everything will be delivered digitally; all media, all
advertising will have to take that into account. As for what Ballmer
calls “personal authoring,” none
of it will be separate from the consumption of produced media. All
media will have interactivity, community. There will be so many new
sources of media. The blogger of today, he predicts, will be, in a
sense, just a footnote 5 to 10 years from now.

Other than threats from Microsoft, Google and Facebook, there are good reasons for big agencies to panic. In
the list of ad agencies top 20 agencies in 1980, of those top 20
agencies, 17 are now part of the four major holding companies. The four
largest holding companies represent close to 85% of the advertising in
the US. and 50% of the advertising in the world. The agencies that they
owned benefited from a good financial discipline, low cost of capital
and market power as a result of scale. Sir Martin Sorrell did a
fantastic job creating a global advertising powerhouse. But the nature
of the business is changing so much that everyone needs to take a fresh
look at what’s going to happen next 5-10 years. As a result of the
disruptive change brought about by Web 2.0 and Media 2.0, agencies
failed to step up and provide true strategic value to the mix, other
than low-cost advertising and media buying factories. There is a lot of
truth when Bruce Nassbaum of Business Week wrote in July headlined “Are Big Ad Agencies So Clueless That Corporations Should Avoid Them?”

The next question is how are clients going to fill that vacuum?
If they’re not getting strategy and they’re not getting innovation from
their ad agencies or the holding companies, where do they go for help?
I’ve heard from senior agency executives “We should be doing it,” but
they’re generally not doing it, but many are honest to admit they don’t
understand it. Ad agencies, direct marketing firms, CRM agencies are
all doing a little here and there, but the structural problem is still
-if you go to an ad agency, you’re going an ad and a slogan. You’re not
going to get a full picture of what is going on with all these Web 2.0
or a strategy (marketing) to drive all marketing activities. Or you’re
not going to get an Enterprise Level Digital Roadmap that fully aligns with your brand and marketing goals.

there are 4 ways that the strategy is going to be developed for a
client. One is that ad agencies quickly step up to the role and start
delivering this for their clients (impossible). Two, and what’s
probably most prominent right now, is the clients are doing these
themselves with some consulting boutiques or smart individuals. The
third way is outside management consultants are now coming into the
business and help picked other agencies to execute the advertising and
other tactical activities (happening). The challenge is many
traditional strategy firms do not understand the digital space as well
as the “experiential” elements of the strategy. There is also a lack of
contextual understand of brands due to their strong emphasis in
analytical thinking. The fourth way is to use interactive agencies
which deeply understand the web culture and how technology works (some
success). They lack the rigor of strategy firm and most of them carry
too much website legacies. Most of these firms are 10-12 years old and
they have created their own legacies.

problem with the clients doing it is that the clients are as siloed as
the agencies are. Within many of these larger organizations, there’s a
problem of strategy ownership and coordination. It’s an orchestra of a
lot of instruments all playing their own tune without having a
conductor who knows what each instrument can add to a symphony and then
develop a strategic plan to create a very successful outcome.

What about the future hold
for advertising agencies? Well, let me share with you a few slides from
my power point on the future of ad agencies (sorry cannot share the
whole deck due to business confidentiality reasons). Here is some of
the thinking and what I think will be the key trends that further push
marketing to the edge (I wrote and posted this in June):

Clients are questioning the current and future relevance of traditional
media & ad agencies. Will large ad agencies ever are able to evolve
“fast” enough to meet the needs of this fast changing technology-driven
and network-enabled world of marketing? (A study by Sapient, “52% of
CMO’s believe that traditional, large advertising agencies are
ill-suited to meet online marketing needs.)

The first generation of interactive shops will step up to help but have
a vacuum on the upstream strategy. They are generally more nimble when
it comes to experimentation but need to rebuild a strong strategy
practice which is another challenge on its own.

companies will gradually apply pressure for agencies to downsize and
re-invest their profits to buy interactive shops. The challenge is
there is nothing left to buy. They would not attempt to retrain their
agencies people as it costs too much and takes too long.

Rather than waste money re-training traditional human capital and
resources, one might predict lay-offs and downsizing. While holding
companies “trim the fat” from decreasingly relevant non-digital media
and account management groups, expect to see more digital specialty
shop acquisitions. The common thinking is “you can’t teach an old dog
new tricks” when it comes to ad agencies adapting to new media and

are the new tricks (I first presented this in Jan this year)? Tell me
if you think ad agencies can do this in the near future.

Virtual Corporate Personality – For years, large corporations have been
trying to act as big corporations and becoming more and more
“faceless”. The need for organization to have a “humanized” face (or
interface) and touch is becoming important. This is not just about
executives’ blogging, it is about putting a face and brings this face
into the virtual world. I have been thinking a lot of about this and I
have some interesting ideas.

Private Search Network – The personal media revolution results in
exponential increase in the amount of consumer generated content. This
leads users to search beyond the algorithm for new ways of searching
what they need beyond just text and images. A method for this is
collaborated social search, where people are sorting content on the
web, creating their own groupings and sharing that with others. As a
result of that you get Private Search Network which you need to be a
member or be invited to get access. Marketers may have to pay to get
access to these groups.

Widget Everywhere Marketing – Widgets will becoming a new marketing
tool as it is an effective way to add value and be able to link it to
some marketing messages or simply create a service. As more and more
new technologies will allow open participation for anyone who wants to
create a widget. (Facebook is taking that approach and many will do the

Automated Tagging – One day almost everything will be tagged and
tagging will become more sophisticated. It will extend into products
and services and even customer testimonials. Or even product origins or
usage etc. The task of tagging will be automated and that will create a
new level of challenge and opportunities for any search engine.

– Social Media Optimization – SMO is slowly evolving into a movement in the online world.  Primarily
being driven initially by those search marketing folks, I think SMO
will continue to get broader use from marketers interested in building
traffic as well as buzz. Optimization and measurement will come

Levy, managing director of General Atlantic LLC’s media and consumer
practice, believes that digital marketing is still a “high-growth
category” compared with marketing on traditional media, “I think a
couple of things. One is the secular trends in the overall
marketing-services marketplace are particularly attractive for growth
investors like ourselves…You have got this massive shift that you are
seeing where all consumable media is trending towards digital
environments and the huge ad dollars that are going to follow that
audience. That large secular trend is creating a lot of different
things. It’s creating new business models, current companies are trying
to adjust their existing business models and a massive amount of people
and talent are being attracted to the space. That’s why his firm
invested (rumored to be) $200mm in buying AKQA (2X revenue). They put
the money into where the mouth is.

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