The End of Ad Agencies as We Know Them

Do we really need advertising agencies anymore? Are we witnessing the great “reboot” of the advertising industry hastened (but not caused) by the current recession?

It’s pretty obvious to any reasonable person watching the tens of thousands of layoffs in the industry along with the simultaneous implosion of the newspaper industry that the ad biz as we know it is in serious trouble. Couple that with the ongoing decrease in advertising spending along with new studies (such as this one from Microsoft that predict that the Internet will overtake TV in 2010, and it’s clear that advertising as we’ve all grown to know it is on the way out.

I’m not predicting the death of advertising. That’s baloney. If anything, we’re witnessing the rebirth of an entire industry that’s going to expand in ways we’ve never thought of before — especially if we expand our concept of what advertising means. And we’d better. Before we blow it like the newspaper industry has.

To understand the tectonic shift we’re in the midst of now, it’s helpful to remember where ad agencies came from. Originally advertising agencies were “agents” for newspapers, placing ads produced by clients in newspapers. In 1877, the J. Walter Thompson Co. figured out it could sell more advertising space if it created the ads instead of relying on clients to create ads. The modern agency was born.

As new media developed, the advertising agency adapted. Radio and TV required new creative skills and new people. Agencies kept growing and adding more overhead. Agencies became more unwieldy, more rigid, and more set in their ways. “Creatives” were privileged above all and people were drawn to the industry because of the glamour associated with big-budget clients and flashy TV campaigns.

Then along came the Internet and all that changed.

It took a while, but today advertising is less about the big splashy TV spot (with questionable effectiveness) and more about producing measurable results across a host of media and channels. Social media, search marketing, and online direct response (with its associated need for customer-relationship management and other data-handling technologies) have required new skills and and a new way of thinking.

And that’s the crux of the issue. Advertising as we’ve known it has always been about an “interrupt” model that requires consumers to pay for content by sitting through (or paging through) commercials and print ads. It’s been about grabbing and holding attention in a linear way because that’s how media worked.

It doesn’t work that way anymore. And neither does the advertising agency as we know it.

Why? The full-service monolithic agency model worked fine in a world where there were four major broadcast networks, large-scale radio networks, and a couple daily newspapers per town. It doesn’t work when you have to deal with dozens of media channels that change on a nearly daily basis. New technologies pop up (social networking, Twitter, online video, etc.) and new skills and new thinking are needed to deal with them. Large organizations with large payrolls, hierarchical structures, and well-defined (and well-defended) areas of expertise can’t possibly hope to make any money when they have to staff themselves with a constantly expanding cast of experts to deal with new media challenges. Add to that a compensation model based on a world that’s long gone (retainers and media commissions) and the agency model we’ve all grown up with starts to look like a relic of the past. Turmoil in the industry provides proof.

So what to do? Simple: explode the idea of the monolithic agency. Get rid of the concept that only an agency that does everything can possibly create and manage large campaigns. Look for more flexible and fluid models that expand and contract as needed, bringing in new expertise when needed and ditching it when it’s not. Think distributed, not centralized. Think “collective,” not “company.”

As more people get laid off and can’t find jobs at other agencies (who are also laying people off), more people hanging up their shingle and do whatever it is that they do best, creating an explosion of entrepreneurs and experts who (without the overhead of a big company) can do things cheaper, faster, and more flexibly than their counterparts at big companies.

If this sounds suspiciously like the “free agent” and “new economy” predictions we heard eight years ago, it kind of is. But there’s one big difference: now we have the (free!) tools to actually make it happen. Social networking, collaborative tools such as Google Docs, and advances in mobile technologies make it possible to create a distributed team that doesn’t need to be in the same place to work effectively.

So what’s the agency of the future going to look like? Probably a lot smaller and focused on strategy, account/project management, creative leadership (but not execution), and media strategy (but not planning and buying). Most agencies will revolve around these hubs if they’re honest with themselves. Agencies will exist to provide high-level strategic guidance that clients need in a media-chaotic environment. Agencies will expand or contract as needed or will explore radical solutions such as crowdsourcing to get work done for less money.

Whether this scenario turns out to be completely accurate or not remains to be seen. But nobody can look at what’s going on today and say that the agency of tomorrow is going to look much like the agency of today or yesterday.

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