SF 2017
The Advertising Industry as We Know It Is About to Blow Up
“More clients are now willing to manage the process themselves.”
I’m not an alarmist, but I am being a little dramatic here. When I think about what is going on in our business, I wonder whether there is anything we can really do to save the industry from itself. Let me explain further by offering some facts.
Ten Key Facts That Must Be Understood:
Fact #1. The transparency issue has put advertisers, agencies and media companies in a confrontational zone. It was, in many ways, created by pressures on cost. Hopefully we can at least bring it to a resolution that engenders a greater level of trust, confidence and collaboration. But it will take a significant change in business practices and attitude on the part of all parties. Agencies need to be assured of a reasonable profit and advertisers need to understand the significant investment agencies are making to deliver what they want in terms of resources and technology. Media companies also need to understand the deal flow and that they can’t get in the middle of the advertiser/agency relationship to only serve their financial self-interest.
Fact #2. Technology has permanently changed the game and nobody has yet figured out how to best deal with these changes, with more to come. If you think programmatic buying is unsettling, with all that goes along with it, think about fact #3.
Fact #3. Ad blocking: That really is a problem. Digital ad spending continues to outpace all traditional media forms. And all traditional media forms are still trying to figure out what to do about digital platforms. Sure, all media must embrace digital technology and use their assets to enhance revenue and profits. But it seems to be a leaky bucket, because trying to preserve core assets while creating new building blocks is a difficult task. Ad blocking technology can literally take down the industry unless proper solutions can be found. Honestly, it’s not a legal issue, it’s a consumer issue and a business issue. Content and creativity (including native advertising, product placement, sponsorship, etc) will obviously play an important role, but ad blocking will change the monetization and metrics of digital media. (Don’t tell me about DVRs, it’s not quite the same thing).
Fact #4. Advertising in all forms is not necessarily getting any better. If you spend time with virtually any medium (on or offline) you can understand why ad blocking is so attractive. Sure, there are exceptions, as there always have been, but advertising today seems to be more about getting attention than making genuine emotional connections. “Break through the clutter”—that’s the mantra. Even if you have a really good commercial, can you expect anyone to sit through all the ones that precede it and still be held as an audience? Or to be interrupted so intrusively?
Fact #5. Client relationships are judged to be less than satisfactory. Look at any survey among CMOs and you have the answer. But what really brings it into focus is the number of agency changes that continue to go on among clients. Unprecedented. What’s even more stunning (as was recently announced) is that a client who changed media agencies about two years ago changed again last year and recently changed back again to its previous agency about a year later. (And the press release read about the same as it did the last time.)
Fact #6. Client in-house operations: It’s not necessarily new but it’s on the rise. Not only media but creative services too. With the advent of technology and automated processes, client in-house trading desks and strategic resources are gaining ground. Some are even bringing creative people on board. The reasons are primarily cost, data sharing, control and response time. Of course, many advertisers don’t fully realize the full cost associated with bringing communication and technology services in house, but once they get started they will be committed to getting it right (with plenty of help from ad tech companies, consultants and the media, who all expect to benefit in their own way).
Fact #7. Talent: Advertising used to be an occupation that at least seemed interesting and often exciting. It wasn’t ever ranked up there with doctors or lawyers but at least it attracted some very good talent. And the agency business was not just about making money. It was art and science as well as financial interest. Writers and art directors had strong motives for doing great work (not just to win awards) and they understood the commercial side about building client sales. Big ideas, unique storytelling, compelling connections that sold products, that was the end game. Media also had an important role, and it became as much a strategic competence as did buying efficiency. Now the agency attraction has waned and, even worse, there is little investment in training young people. Get it from the get-go or find a job somewhere else.
Fact #8. Wall Street influence: Most big advertisers are public companies. They need to keep that stock price up. Show top-line growth and good margins. Most agencies are owned by public holding companies too. The financial pressure is on both sides. So what do you think motivates the business? In my view it’s immediate ROI. If that’s the game, it’s being played on a quarterly basis. Maybe that’s ok. But it becomes a very high-risk business with a lot less incentive to invest. And that can drag down even the best intentions.
Fact #9. The rise of the startups: Needless to say, the digital explosion has perpetuated this trend as specific skills have compelled agencies and clients to add the services they require. But several clients have decided to engage these services directly, at fees they can negotiate without excessive overhead. Personal service and unequivocal commitment has also given rise to smaller creative shops in addition to specialized media agencies, consultants and ad tech companies, who dedicate themselves to clients in a way that used to be mainstream. These relationships have become increasingly important as the big got bigger and agencies became more detached from clients and preoccupied with internal management affairs. These new entities also offer full support and flexibility to clients who choose how and when they want to work with vendors. And more clients are now willing to manage the process themselves.
Fact #10. Overwhelming data: We are awash with data today. That’s good as long as we know how to interpret it, with the right people communicating it correctly and effectively in simple language. The advertising business, particularly media, has a lexicon all its own. And digital speak has made it almost a foreign language. Let’s get back to straightforward discussions that all participants can understand. Otherwise we subject the industry to misinterpretation, frustration and clients who don’t have the tolerance for sitting through meetings with a lack of comprehension.
If you want to add any more facts please go ahead. But I’d rather we all think about how we can make things better and really elevate the foundation we built.
MD 2015
Is the Agency Model Broken?
“Agencies must begin to think more like consultants or consultants will take over the agencies.”
Bill Koenigsberg, CEO of Horizon Media, is probably right when he recently pointed out that the old agency model is broken. But it has happened for many reasons that are not only associated with approximately $30 billion in client billings now in review.
As media review consultants, Drexler/Fajen Partners is also involved with a review at this writing. And in the many reviews that we have previously conducted, the least rewarded agencies are those that come in with presentations covering the kitchen sink, with an overabundance of general agency credentials and teams that appear as though they have never worked together before (I see the client’s eyes roll and the bodies fidget).
