Time to Reinvent the Ad Agency?

Should the ad agency be reinvented? These days, that question may seem pretty pointless. We’ve changed to deal with the Internet’s challenges. Take a hard look at your agency (or your internal marketing department) and examine how things get done. You may realize things aren’t as different as you thought. That’s bad.

Most agencies now handle traditional and interactive through parallel structures. Sure, account supervisors may oversee an entire account through all channels (to some extent), but in the trenches most agencies maintain parallel structures: one runs online stuff, the other runs offline. Creative functions the same way. There are traditional creatives and interactive creatives. There’s some convergence on the media end, but most agencies assign specific media to media buyers.

Where does search engine marketing (SEM) fit in? Mobile? Where does Web development (not ad production) fit? Where does database management and its links to CRM, direct email, and sales force automation fit? Who handles strategy? Who directs creative? Who really understands all that’s going on?

To be fair, things are much more complicated than 10 years ago. We still work in traditional media (radio, TV, print) but also have content with a host of digital (and soon-to-be digital) options. Web sites, email, SEM, advergaming, product placement, and VOD. Challenges from DVR, digital satellite, and direct mail. And there’s relatively esoteric online media, such as blogs, RSS, and viral marketing. Saying there’s a lot of stuff to consider is an understatement.

Many traditional media are going digital, threatening the way advertising’s been done for a nearly a century. Addressable cable boxes and capabilities to targeting TV advertising are on the horizon. DVRs provide new possibilities for on-demand, long-form spots. VOD is cropping up. Though it’s mostly ad-free (at least on my Comcast network), that’s bound to change and create new challenges. Even print isn’t immune. New developments that allow customizable, high-res PDF creation on the fly offer a host of new possibilities for localized national advertising.

The list goes on. Like it or not, technology has a major impact on how advertising works. Yet advertising has been slow to respond. We still don’t have an industry-accepted definition of an online impression (it’s being worked on), much less a definition of a TV “impression” for addressable cable (that’s being worked on, too). Meanwhile, savvy clients accustomed to the Internet’s accountability are demanding the same accountability in traditional media. It just isn’t there.

All in all, the traditional agency model is in trouble in at least five ways:

• Niche providers: Look at your agency. Unless you’re a big multinational with a whole stable of linked companies providing every service imaginable, you probably outsource many core tasks. E-mail marketing companies, SEM companies, and Web development companies do a lot of the work, and take lots income, for many agencies. Even media companies are getting in the mix. Many agencies outsource media buying to big buying companies. Many of them are adding creative to their mix, effectively competing with the agencies.
• Measurability: As stated above, savvy clients are used to actually measuring how many people saw an ad, at least online. The growth in pay-for-performance online advertising habituates clients to only paying for leads they get. Expectations change and quarter-by-quarter return on investment (ROI) goals are set. Measuring services are pressured to come up with better metrics. As a result, justifying what we do is getting harder. As addressable set-top boxes come down the pike, things will only get hotter.
• Data: A byproduct of all this measurement is measured data. Who owns it? You? The client? The third-party server? The cable company? Who can access it? How can it be used? Does your agency have database management capabilities to store, much less analyze, it? Can it be shared among various media systems? Will there be standardization? If you can’t yet answer these questions, you’ll probably soon stay up nights trying to answer them.
• Technology: Keeping up with the latest media offerings and capabilities is a huge task. Even if someone in your agency is tasked with keeping up on the latest, getting that knowledge to others who need it is a huge challenge.Because it’s so tough to keep up, many agencies turn to niche companies (email, SEO, CRM, Web development) to handle technological stuff. These companies can be Trojan horses when they’re in front of a client who suddenly realizes she’s paying an agency to be a middleman but it isn’t adding much (perceived) value.If agencies want to get back into the game, they must invest substantial time and financial resources. Along comes another technology, the cycle repeats. But resisting technology doesn’t work.
• Payment: Commission-based compensation has been on the way out for a while. Most work today is on a fee or project basis. Longer relationships aren’t as common. Spending $50,000 to pitch a $150,000 project doesn’t make sense. Outsourcing drains income (more important than bogus “billings”), yet agency structure hasn’t changed. The risk factor is way up, while margins are going way down.

What’s the solution? Options for agencies to study to plan future strategies:

• Concentrate on creative: Losing money on outsourcing and hemorrhaging on the demand of today’s media climate? Your structure makes multiple-layer account management a profit-suck? Cut back. Focus on creative. Creativity will never be a commodity.
• Concentrate on strategy and outsourcing management: The flip side is to get rid of creative and become a brand strategy and marketing management company. Fire the creatives, ditch media buying, outsource everything. Focus on managing the relationship with the client and with your stable of vendors. Think of yourself as a producer (in the film/TV sense), not a one-stop shop.
• Find a strategic resource who understands the new world: Only keep account leaders who fully understand new challenges. Tough, but manageable if you do what’s necessary. With management that sees the big picture, other pieces could fall into place.
• Define roles and boundaries, and get it in writing: Another temporary patch is to clearly define roles and responsibilities of everyone in the agency and all outsourced vendors. Don’t assume vendors won’t poach your clients. Don’t assume everyone in your agency knows what to do. Trust, but verify.
• Give up and concentrate on one channel: A risky strategy, but worth considering. Don’t want to deal with traditional? Don’t. Don’t want to deal with the Net? Don’t. It may be tough (or impossible) to land large, full-service accounts, but if you pick your clients correctly and become an expert in one thing, it could work.
• Do everything: Become a multinational conglomerate. Way easier said than done, but the current climate may validate the benefits of big holding companies. However, if they can’t correctly manage the whole advertising supply chain, they’re in same boat as the small players.
• Educate and collaborate: Probably the most achievable and immediately actionable of all strategies. Everyone, client and agency, is in the same boat. Have the courage to raise these issues with clients. Work together to come up with the best solution. You may be surprised at the response. Recognizing there’s a problem is the first step to recovery.