Fees, Lies and Advertising

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I had an epiphany a couple of days ago when leaving the Denver airport. In the last 6 months the airport parking management has replaced pay booth attendants with self-serve technology that allows drivers to speed up their exit from the parking garage by not having to deal with anyone. The result has been not only faster service for the customers but also has given the airport management the ability to cut their expenses through a reduction in staffing.

Then, reading Thomas Friedman’s latest op-ed piece in the NY Times really drove the point home. The latest economic turmoil has highlighted the fact that other businesses are doing the same thing. We are in the midst of an economic paradigm shift where technology is replacing jobs making companies more efficient but producing long-term unemployment issues. It’s happened before. First, with the agricultural revolution then with the industrial revolution and now with the collaboration revolution.

What’s this mean to the advertising business? We’ve certainly seen the effects of the collaboration revolution in other creative businesses including music and photography. Digital technology has allowed more people to participate in the creation of creative output driving down prices in a radical way.

I’ve been on the road for the last month talking to a dozen CMOs of Fortune 500 companies. There’s a lot of frustration out there. The biggest is the cost of creating advertising both in terms of time and money.

I’ve come to the conclusion that it’s not the people. There are fantastic people both on the client side and the agency side. It’s in fact a broken system.

Businesses act based on the way they are compensated. And, the majority of agencies are compensated by selling their people’s time. Compensation is based on the number of FTE’s or full-time employees working on a piece of business. In the age of collaboration the FTE model is broken. The fact is that many agencies make more money when they put more people, or say they do, onto a piece of business. Likewise, it’s more profitable to take more time to do something. If a project should take a month there’s no disincentive for most agencies to drag it out longer.

One of our clients called a couple of weeks ago saying, “You’ll be excited because we can move the deadline back one month on a project.” Our reaction was, “No thanks.” You see, we believe in fixed cost pricing. Just like the Denver parking lot we’ve used technology to become a lot more efficient. Each project, from conception to production is a fixed price. We feel that this aligns our interests with our clients. In order to make money we need to be more efficient through the use of technology. We make money when we deliver great work faster, using fewer resources. That’s what clients want.

If advertising industry is to thrive in the age of collaboration we must address the root of the problem, the way we are compensated for our work. If we don’t many companies won’t survive the current economic transformation that’s underway.

Let’s come together, all of the great people from great clients and great agencies and fix this. Sure our businesses will be transformed and probably be a lot smaller. But, if we don’t collectively grab the bull by the horns and proactively transform our businesses then they will be transformed without our input.

Original Post: http://www.johnwinsor.com/my_weblog/2011/08/fees-lies-and-advertising.html