The Four Biggest Threats to Ad Agencies (And Why I'm Excited for the Future)
If you don't spend a lot of time reading marketing articles, you might be unaware of this, but the advertising industry (and to a lesser degree the marketing industry as a whole) is in crisis. Sure, every industry has been hit by the economic recession, but the challenges facing advertising are far more significant and far-reaching than the temporary dip in overall corporate spending. Many insiders have begun recommending the wholesale retreat from the ad agency model altogether. Even the more conservative leaders have begun to seriously consider the long-term (or even mid-term) viability of competing in the advertising business using the traditional business model.
The four most serious threats facing the industry in ascending order are:
4. Power and Availability of Do-It-Yourself Tools
This problem isn't a new one, but its reach continues to expand. Most of the financial and technical barriers to things like publishing, video production and website development have disappeared. This has been the case for many years, and the widespread availability of these tools has raised a generation of marketers who intuitively understands the mechanics of taking and editing photos and videos. I never owned a video camera growing up; my daughter won't know what it's like to be without one. The same is true of web publishing. More and more jobs will assume this knowledge as a baseline, similar to how word processing skills are viewed today.
3. Consumer Control of the Marketing Channels
As content creation becomes easier, consumers are also gaining unprecedented control of what they see and hear. Like I've mentioned before, many consumers are nearly unreachable through traditional mass marketing channels. Not only is there significant segmentation, but digital tools such as DVRs and ad-blocking software enable consumers to nearly eliminate advertising from their lives. And even if the consumer does sit through an ad, their attention is more likely to be split. A recent Nielson survey reported that 40% of U.S. smartphone and tablet owners multitask on their devices while watching TV.
2. Commoditization of Creative Services
As clients and consumers become more empowered, the "world-shrinking" effect of the Internet has increased the competition for agencies dramatically. Agencies no longer compete with a handful of similar companies in their geographic region; they must compete globally. After preaching "differentiation" to clients for years, agencies are finding it hard to offer anything truly special when competing on such a large scale. Because of this, creative services have started to become a commodity, where low price is all that matters.
1. Failing to Evolve With the Changing Marketplace
The ad agency model has remained largely unchanged since the days of Mad Men.
There are good historical reasons that the traditional agency is set up with four typical departments: accounts, media, creative and production, but now the industry is struggling to find a model that effectively replaces it. This structured system with checks-and-balances may have worked in previous decades, but it's struggling to meet the demands of today's real-time communications. Many have suggested organizing agencies more like a broadcast newsroom to meet the needs of a significantly shortened publication cycle, but that model comes with it's own difficulties. The only thing that industry experts seem to agree on is that the current model is not viable moving forward.
Where We Go From Here
This picture may seem pretty bleak, but it's important to be realistic. In order to make progress, we need to be honest about reality and not sugarcoat our future viability as an industry. That said, this is actually a very exciting time for advertising agencies. The choices that we make in the next few years will lay the groundwork for a new kind of agency model, one that would be unrecognizable to Don Draper.
At Villing & Company, we're discussing these issues every day, and working on ways to evolve to meet these challenges. We've never really considered ourselves an "ad agency" since we do a lot more than advertising; however, that's becoming even more true as the market environment changes. Very little of what we do these days would be considered "advertising." We're in the marketing communications business, which, these days, is more about public relations, customer service and relationship management. We're meeting the changing needs of our clients through development in the areas of mobile apps, location-based marketing and social media. We provide the words, images and tools that help companies better serve their customers.
The next few years will be challenging, but also exciting. We’d love to hear your thoughts on the future of marketing agencies - the ideal model and how an agency can better serve clients in our new digital world. Feel free to comment on our Facebook page or send us an email.
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