Digital Agency 2015: Predictions for a Changing Industry

Wednesday, February 10th, 2010 by Al DiGuido

There is little doubt that we are in the midst of one of the most profound paradigm changes within the world of human communications. The incredible and unrelenting shift of consumers and business to the internet platform continues to have a profound impact on an expansive array of related strategies, businesses and individuals. Everywhere we turn these days, there are examples of those who, having been faced with this change in the fundamentals of human connection, have failed to adjust their overall strategies to compensate for the new world order. The road is littered with organizations which have been caught up in a state of denial and have been penalized severely for their lack of innovation and creative thinking. While there may be bailouts for some industries, our own—the marketing and communications arena—is feeling the full force of this change and the casualties are mounting up. The only answer here is a radical transformation of current agency thinking and business model.

The root cause of this turmoil has been the fundamental shift in terms of consumer media consumption patterns away from legacy vehicles –the likes of direct mail, magazines, television, newpapers etc. –to a suite of interactive platforms. The agency model business and profitability model has been built on a foundation of several fee structures. Both inexorably tied to the media outlets that have been the focus of this work. Agencies have always received placement fees as a percentage of media for schedules run in costly platforms like television, newspapers, radio and magazines. Supplementing these media placement fees has been the core creative capabilities that have served to define and differentiate agencies from each other. Whether Ogilvy or Della Femina, creative directors have always been the rock stars of traditional agencies. Individuals who understood more than the unique selling propositions of their customers value offering; they had the unique ability to craft marketing execution in a format and manner that engaged prospective customers in a deep way creating brand awareness , preference and loyalty. Marketers were willing to plunk down major creative, consulting and production fees commensurate with the respective media platforms to execute the creative vision of these agencies and directors.

With an economy that for decades seemed to be on autopilot, marketers paid little attention to the cost value relationship between campaign cost and execution fees. Sales and profits seemed to be growing as a step function to overall media spending. Budgets burgeoned. Agencies increased the size of their human capital to attend to their ever supportive customer demand for new plans and strategies. Agency research departments were sure to provide clients with a steady diet of industry statistics to bolster the overall philosophy that spending aggressively and broadly to boost overall brand awareness and preference was the right thing to do. I remember those days clearly. There was very little attention paid to concepts like channel relationships, merchandising and any sense of return on investment. Few realized that the foundation was being laid for our current crisis back then. I remember being ridiculed for even questioning the relationship between dollar spend and actual unit sales generated. Not important… I was scolded.

Of course in the early 90’s the world began to change with the rise of a small and inconsequential media platform called the internet. Surely this would be the playground for the technological elite and nerd population. A small segment of the consumer population would embrace the new platform… there was no need for alarm. Some traditional agencies added interactive wings to their organizations to address the need for website and banner builds. Always being careful to relegate this discipline to secondary status within the overall agency P&L. If a customer wanted “interactive” the agency would provide the capability. In that way the legacy agency could still insulate the core legacy media P&L from any thought of dollars shifting from their clients legacy media schedule to this new platform. Surely there would be incremental budget dollars available to support this new initiative. No customer would be foolish enough to fund this distraction with dollars putting the core strategy “at risk.” The age of denial gripped the agency and marketing community at that moment. No one would accept that a day would come when that “nerdy” platform would become the pivot point for all media and communications. Even today…many believe that legacy media is going thru a “cycle,” and that someday…the pundits who are evangelizing about a return to legacy media will be “proven right.” The media landscape continues to be littered with the remains of those whose denial of reality caused not only their own demise…but that of their customers.

The Perfect Storm Comes to Pass
The stage had been set for the perfect storm. An economic recession, shift in media consumption patterns and an omnipresent era of denial collided and threw the entire industry into chaos. In every paradigm shift, the market provides for those who embrace new thinking to profit. Who would have thought that a couple of “egghead nerd types” would redefine the advertising marketplace? And yet that is exactly what Google has done to the marketing and advertising community.

With no loyalty to the old world…the folks at Google realized a fundamental requirement for consumers was their need to find products, services and information quickly and efficiently. The pre-Google internet spoke about surfing the web…an aimless journey from one website to another. Google saw the futility and frustration of a consumer who knew that the internet provided “all of the answers”…but was disorganized. Google moved past the Yahoo’s and Microsoft’s, creating a new way to find information that delighted its users. The team also figured out a dynamic way to monetize all of this searching by offering advertisers positioning at the key intersection between need and solution. The rest is the history of the systematic draining of billions of advertising dollars away from legacy media of all kinds into the search world. Dollars once within the control of traditional agencies. Funds that were once commissionable to a wide array of agencies…now suddenly gone…never to return.

Audience movement away from legacy media platforms…meant declining circulation and viewership. Advertisers have been very democratic with their media spending. Where the consumer goes…the dollars must follow. The challenge in all of this, of course, for traditional agencies has been the relative cost of interactive media and production. Placement fees for interactive media pale in comparison to that of legacy media. The major production costs around building and executing campaigns in this new world are a fraction of their broadcast grandparents. Coupled with the financial dynamic has been a dearth of agency personnel who truly “get“ the interactive pallet of offerings. Traditional agencies continue to hear the sucking sounds of budgets leaving the legacy media world to the new suite of offerings with no solution in sight.

In light of the market conditions…we are seeing two strategies deployed. The first is that many agencies are racing to add “interactive” to their names. The hope here is that if we call our agency “DiGuido Interactive,” we will be perceived to be in the center of this phenomena. The second strategy being deployed by mega-agency holding companies is a consolidation move. Here the thought is that if we build a bigger boat…we won’t feel the pain as much. The flaw in that thinking reminds me of those who were arranging deck chairs on the Titanic. My prediction is that without dramatic change in the next 24 months…we will be witness to the a era of demise and devastation within the agency business and profitability model. In the next five years…many will not survive. When we ring in the year of 2015 only few from today will be leaders.

Change is Gonna Come
The fundamental changes in the agency model that must happen in order for your company to survive may seem radical today. Like it or not…we must deal in the real world and realize that the consumer has embraced a new communications channel and will not return to the legacy world. With each passing year, those consumers that were the stalwart of the purchasing population are dying off leaving behind them a new consumer that doesn’t look at legacy print, radio, broadcast in the same way as their ancestors. To believe that your agency will continue to pivot its strategy and business model supporting the old world is a road to ruin and death. Interactive, which was always a stepchild to your legacy media practice, must now become center stage in the DNA of your company. You must start with planning strategy, media and messaging in and around the interactive platform. Legacy media can still play a role in your overall plan…but must be relegated to a supplemental role in the overall plan.

Data to Reign Supreme
One of the benefits of the economic recession has been the rise of a new level of tracking, analytics and accountability in the media and marketing world. To think that your agency can continue to command significant fees for consulting , creative and media placement without the proof that this strategy and dollars are generating the return on investment that the client demands are foolhardy. All that you recommend must be tied directly to the proof that dollars spent are moving the needle in the desired direction for your client. Take all of those creative accolades and awards down from the shelves in your lobby. The client today and much more so in 2015 really doesn’t care about all of them. Ring the cash register. Grow sales and profits for your customer in a cost-efficient and effective manner and you will be a survivor mid decade.

Never before will there be greater demand on the need for your agency to build a robust analytics and research discipline. As we have said in the past; your customer will demand a new level of accountability. As such, your research dept must work with internal planning and creative teams to insure that all of the work being done by your company for your customer is being monitored against performance and accountability standards. Planners cannot plan without an understanding of measurability and metrics of success performance standards. Creative and messaging teams cannot create without an obsession on monitoring in terms of the relationship between creative execution and customer engagement metrics. The age of prima donna and or ego driven production will be long gone replaced by a new breed of creative type that is thrilled when his or her work generates the desired result. Just think about how many folks are standing in line to plunk down billions of dollars within search engines because it makes the cash register ring.

Small is the New Big
With smaller media placement and production fees in the new world, the agency of 2015 will have a much smaller human capital component. The challenge for the HR department of your company will be to create an organization of subject matter experts in all areas of the new media world. Clients are going to demand efficiency, optimization and accountability in their programs in the years ahead. They will no longer tolerate “junior” staff of any kind within your agency. Gone is any concept that you and your team will “learn on the customer’s dime.” Clients will demand excellence from all staff members.
The new account and media team will be asked to be experts of their subject area and more importantly students of the customer’s competitive arena. Clients will rely much more on your agency to craft new and innovative strategies based on a comprehensive understand of market dynamics. All of this means that a new commitment to being students of the marketplace is in order.

The Consumer as Creative Director
The challenge to the Creative Director and team in this new world is life changing. Gone are the print and broadcast landscapes. There are a new generation of producers and script writers everywhere encouraged by the YouTube venue. The internet generation is being bombarded by creativity from all angles. The competition for consumer attention has never been more intense. All of the past credentials are now called into question. Your agency must recruit a new breed of creative and copywriting talent. Hiring evangelicals who understand how to tap into the new platform and engage fellow consumers in meaningful and directional dialogues. This may be to some of you a group of rambunctious “kids” who didn’t go to the journalism schools and/or haven’t been schooled in any of the legacy rules about what can and/or can’t be done. This the age of “no rules.” Our own research shows that consumers are less patient about campaigns. Campaigns seem not to have the same staying power that they once did….”Where’s the beef ?” Today’s consumer grows tired quickly and bored even more so. Creative folks inside your agency need to be in a constant state of innovating and creating.

Technology Takes Center Stage
Technology has always played a tangential role in the overall mix of your agency model. While I have debated many on this topic; my passion remains strident in the belief that the real winners in 2015 will be agencies that have altered their model to not only host technology solutions of their own making. I will go further that the two worlds must collide to form an agency model that builds scalable technology platforms that provide their customers the ability to centralize all of their interactive needs within one shop. Does this mean that your agency will need to have a commitment to building and maintaining an email, search engine marketing bid management, social media monitoring digital publishing, mobile messaging deployment and analytics engines. The answer is YES. Many will scoff at such a suggestion, reasoning that there will always be others who are subject matter expert based companies in these disciplines that can be contracted when the need for the solution arises. Two basic fundamental flaws in that strategy; control and margin.

Agency 2015 needs to answer the demand of the customer for optimization and accountability in the overall marketing and media plan. Without a collection of technology platforms that can share data in real time and measure collective performance…there is no way to answer the customer effectively. Have you ever tried to get disparate technologies …much less different companies talk to each other and share collective insights for the betterment of a customer ? Virtually and literally impossible. You must own up to your technology responsibility in order to succeed.

Somewhere in the last decade we lost our way in terms of the goal of our agencies. Methinks that there have been times when we forgot that we are running a “for profit” business. Our investors and employees should demand greater revenues and profits from our company. Partnering with third party vendors for solutions dilutes our margins from step one. Surely we are not blind to the fact that the new model will demand technology investment which may be sizeable. Owning versus leasing will insure revenue and profitability stability so necessary for our company in the years ahead.

The Model Goes Global
While we are on profitability….while many have read Friedman’s tome on the World is Flat…so few have truly explored and/or leveraged the global workforce to provide greater efficiency and effectiveness in providing economical solutions for our customers. Don’t believe those who continue to throw stones at offshore strategies and employees. It will take work to build the right structure and model for certain. The alternative is reduced profits and marginalization.

Charting a New Course
Very few who occupy the leadership chair at agencies today will make the cut in 2015. The new agency CEO will be a renegade and tireless cheerleader for his company and his people. He will push his people to the limits of their creativity and innovative thinking. He or she will bring new levels to performance standards in all areas of his company. The leader will look past the Fooz ball tables and funky décor of the agency to its DNA as an agent of transformation to the agency’s client. Flair will not be lost…but there will be a heck of a lot more substance. Employees drawn to Agency 2015 will have a new sense of commitment and dedication to their customer responsibility. Will the fun atmosphere and collegial atmosphere of the agency disappear? I doubt it. A new definition of fun will be a hallmark of Agency 2015. A confidence and pride in knowing that what has been delivered truly provided the customer with the solution needed to achieve their goals.

The market has provided us chaos and turmoil. It rests on all of us to move out of our comfort zones and begin anew. Tear down the old and pursue will dramatic zeal and courage this brave new world; knowing that the doubters will be everywhere spewing the FUD that characterizes those who are the laggards in our industry.

There is no white knight coming to “save” our industry. I plan on being an exciting force in the agency world in 2015. I hope that some of you will join me.

Until then.

Al D

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