With all the new technology and access to data, you'd think running a digital agency in 2011 would be tempting. After speaking with a few hundred digital agency principals over the last several years, I would rather work at a car wash. At least you are outdoors doing low-value repetitive tasks. Let me explain.
Most digital agencies were started by really smart people who saw the opportunity to provide their clients with the "magic" of media. Interactive ads, true measurement, real user engagement, return on investment, and cross-platform messaging that reached consumers where brands wanted to be found. That is still true. The early ones nurtured their accounts from direct mail to e-mail, and then from broadcast into the Web, a little budget at a time. When digital media truly arrived, digital agencies were at the vanguard of a new era: technology-driven creative shops and data-driven media agencies that crammed brand messages into the 728 x 90 mini billboards we love to hate, but occasionally produced some real Internet marketing magic.
After a while, the magic was gone.
Digital campaigns have a tendency to suck every penny of margin out of an agency. The client wants to serve rich media, but doesn't want to pay for it. He has $50,000 to spend but wants 10 A-tier sites on a plan, all of which have a $25,000 minimum. He wants to run five creatives per placement, and switch them every two days, based on performance. Ads must include tracking pixels and must be hooked up to Google Analytics, which reports traffic numbers that never match up with the ad server. The client then wants to know why. Most importantly, he wants to be billed correctly, and that means making demand-side and publisher-side ad servers talk together, and agree on impression amounts (which, from my experience over the last 15 years, has never happened once). That's an awful lot of work.
That's why (as the 4A's reports), digital margins can be 10 times lower than the margins on traditional media campaigns. That's called mucho trabajo, poco dinero. Since digital agencies don't seem to be going away anytime soon, they must figure out how to improve their operating margins, rather than leverage the traditional agency model of overworking extremely young employees until they burn out. Here are a few things the modern digital shop must embrace for long-term success:
1. Use a platform (or two): I paraphrase from Akamai President David Kenny's remarkable keynote address at the OMMA 2010: "If you are still using people to do work that servers can do, you are already irrelevant." What value is there in providing ad operations for your clients? None, they just want their ads to work properly. How about reconciling and billing against different delivery numbers? Again, how does that provide value for your client? Those are low-value tasks that must be accomplished, but things that don't make you a better agency for your clients. There are many systems out there that can centralize these low-value tasks (ad trafficking, billing reconciliation, reporting, etc.) so your agency can focus on your clients.
2. Hire some nerds: I'm talking about math nerds. Media used to be about finding audience based on panel-based surveys. Now, media is about finding audience by using data, and then using performance and audience measurement data to perfect that audience - and using quantitative analytics to bid on that audience and optimize your results. Since media seems to be about understanding and leveraging data, you are going to need a few people who speak the language. They aren't the same old English majors from liberal arts colleges in the Northeast, either. And the good ones are expensive.
3. Be strategic: This sounds obvious, but sometimes the definition of strategic gets lost in the weeds when it comes to digital. Sometimes, an agency feels it is being strategic when it partners with enough technology companies that offer their clients a variety of digital tactics (social, video, mobile). But having those partnerships and capabilities is far different than using them smartly and in a way that gives your shop the edge over your competition (they have access to all the same technology as you do). True strategy involves finding what works for your clients and creating repeatable processes that lead to long-term success. When your clients say they "want to do social," are you smart enough to determine whether they simply need to access the Facebook API - or are they looking to find their customers through conversational density around their products, such as BuzzLogic offers? How you offer "social" to your clients should come with a unique strategic model. (BuzzLogic makes software that scrapes the Web and looks for where people are "talking about" different products/concepts in the social sphere. Conversational density happens where there is a lot of focused conversation around a topic.)
4. Partner: Agencies are really just an extension of their clients, and they should operate that way. Now, we are seeing agencies building their own technology to leverage media buying power (and even earning commissions from inventory sources), and acting a lot like technology and media companies. I'm not sure (at least for media agencies) this is sustainable. Building great creative that drives forward brands (whether through sales, or just audience exposure) is key - and finding new audience to interact with those brands in the new multiple screen world is where the core competency of today's digital agency should be. Let the technologists build the technology. They are happy to let you use it, and willing to partner (with both their technology and people) to share success.
Looking around at all the different technology available to digital agencies these days, we aren't far away from when starting an effective campaign, building amazing creative, deploying it to the exact audience you need, measuring it, optimizing it, and billing it will be as simple as…well, doing it on Facebook. That means that, once you and every other agency begin to avail yourself of that technology, you better be left with something unique to sell your clients.
Chris O'Hara is an ad technology executive, and the author of "Best Practices in Digital Display Media," a contributor to ClickZ, and the author of the new whitepaper "Best Practices in Data Management." He can be reached through his blog at www.chrisohara.com
June 5, 2013
1:00pm ET / 10:00am PT