Existential Threats to Advertising Agencies
Published B&T – Sept 2016
Part 3: Competitors:
There are those who argue that advertising itself, as opposed to specialist practitioners, is facing future extinction. Advertising is a service that will always exist, though continue to evolve at an ever increasing pace. The question is will this service in future be offered by specialist practitioners, or will fragmentation result in different types or styles of advertising/communications being offered by a diverse range of businesses for whom a particular area of communications is part of a much broader suite of services and products?
Not that long ago, it was pretty simple “advertising agencies did advertising”. But with rapid changes in technology introducing new media and disciplines, advertising/communications is now so incredibly broad, identity is a vexing issue i.e. what services should an advertising agency now offer? This is further complicated by having disciplines that are simultaneously relevant to a number of what were once distinctly different areas of specialty e.g. Big data, whilst providing highly relevant insights for communications, also provides information relevant to most areas of business operations.
Arguably, the greatest threat to advertising industry as we know it (creative and media) comes from both firms who traditionally have provided clients advice and services not associated with marketing/communications/advertising and what can broadly be termed, the media. The previous articles looked at the threats of identity and credibility – issues that have helped open the door for competitors.
Competitors could be grouped into 3 categories.
By far, the biggest threat to our industry. And though the threats these firms pose are only now becoming obvious, they have been quietly working away at providing services which overlap with ours since the late 80s and early 90s.
Most would have heard of The Big 4 Advisory firms – PwC, KPMG, Deliotte and Ernst & Young. Though I am not sure if many know of their origin. The four firms all started as Chartered Accountants. They were originally the Big 8, in no particular order:
- Arthur Andersen
- Coopers and Lybrand
- Deloitte Haskins and Sells
- Ernst and Whinney
- Peat, Marwick, Mitchell
- Price Waterhouse
- Touché Ross
- Arthur Young
This became the Big 6 and ultimately the Big 4.
We had Arthur Andersen (who became extinct with WorldCom) as a client in the mid-nineties, and the question they (and their competitors) asked most was “What is an alternative title to Chartered Accountants?” The descriptor was too limiting. They wanted to increase their service offering of traditional accounting. Their core services were tax, audit and MIS (Management Information Systems). By the late 80s, MIS was had become a core competency - they saw the technological landscape changing long before agencies did. They were the people who put together stock exchange floats. Did due diligence for mergers and acquisitions and most importantly, had access to the most sensitive (and useful) of client data and the ear of the CEO and the board. They recognised that information was gold, they had access to the best of it and as they were subject to a proper working professional body, were seen as serious, trusted business advisors.
When we talk about strategy, it is in a relatively narrow capacity i.e. marketing and communications strategy. The large accounting firms, as they were known then, advised on a much larger and complex level. Through a series of mergers and the addition of services, the Big 8 evolved into The Big 4 Advisory Firms. They have voracious appetites for new work and fees and see our area wide open for rape and pillage.
Rather than just accounting, they provide strategic business advice and this straddles many disciplines. The advertising industry has only relatively recently been preaching integration. The Big 8/6 saw the future of integration before the digital era started. Recently PwC released a study on advertising, concluding that the average creative director was a white, middle to upper class male who lacked the empathy to drive communications in what is now a diverse society.
A former accounting firms telling us about creativity. WTF? That should set alarm bells ringing throughout the industry.
No agency (creative or media) has either the credibility or CEO/Board access as any of the Big 4 and you can add Macquarie Bank, UBS, Goldman Sachs, Credit Suisse etc. The latter have sophisticated in-house media analysis capabilities and provide regular reports to your clients.
A recent report on advertising spend, market shares and predicted future trends in sports betting was released by UBS. (An investment bank). Not that long ago, the natural order would be that such research be conducted by a Carat or Group M, a media specialist.
It is not only the Big 4, there are many second tier advisory firms and what were once called management consultants such as McKinsey and Accenture who are moving into what has traditionally been our area of speciality.
If PwC, KMPG, Deloitte or Ernst & Young decide to open a creative/content division, then the threat level goes through the roof. That would allow them to provide a fully integrated business advisory service from financial engineering through to communications. A business is not a series of discrete entities. An advisory firm with a marketing and communications arm would complete a fully integrated service.
Further complicating matters is the fee structure, the final subject in Existential Threats. Media agencies still draw a significant proportion of their fees through commissions. Sales people are paid by commission and sales people do not provide objective advice. We talk about innovation and rapidly changing technology, yet use revenue models that were outdated before the digital era began. (In fact, haven’t changed much in over 150 years).
Last week News Limited launched a new service for advertisers. The report was full of buzz words that made it difficult to understand exactly what they were saying (but it was being done “at scale”.) It is a content play, (which works for food and home renovations), but the crux of the issue was that the media are going direct to clients more and more frequently. They don’t need an “agent” to tailor make programming (oops sorry bespoke programming). Think TV was developed primarily because media agencies had become so besotted by Google and Facebook, their efficacy was not being accurately and objectively put forward to clients.
And don’t think Google and Facebook won’t do the same. They have paid far higher commissions to gain access to clients and are now going direct in many instances. They don’t pay 20% commissions because they nice people. It is a long game and they are winning.
When you read comments such as “Facebook is the greatest advertising medium of all time”, it does set a new benchmark for super salespeople. Facebook “sells” their ability to micro-target. We now see traditional media, in particular TV, responding with the advantages of “positive wastage”. This is the first time I have seen wastage used as a positive. Yes, Facebook can target down to levels unheard of with traditional media, but what they don’t mention is the lack of impact these ads have – small screens, mobile, interrupting two conversations etc.
Then there is social media. Anyone who has read my columns would know my opinion of the effectiveness of social media for business. (Apple did OK without social media). A great research tool, no debate. But as an advertising medium, way over-rated.
Search is by far the most effective of all online advertising. It is analogous to Yellow pages. If you are a plumber, electrician etc., it is a must. But if you are a strong, highly desirable brand, it is more effective for finding your nearest outlet, rather than finding your brand/business.
Investment Banks & Specialist Operations
As previously mentioned, USB published a study on the betting market media expenditure and market share. They are not going to be the threat of an advisory firm and offer the full suite of services in direct competition to agencies, but will (in many instance already do) offer individual services in competition to specific areas of traditional agency operation.
To say that advertising has changed radically in the past 20 years and the rate of change will continue to increase, is stating the bleeding obvious. As an industry we must change and adapt, but in doing so, stick to what we have always done – and this can best be described as Persuasion. Whether the goal is to persuade a consumer to trial a new product, advise on and persuade relevant people to use government services, persuade consumers that a client’s business is eco-friendly – though reasons for engaging people are large and diverse, the primary task is the same. Persuasion at every consumer or audience touch point.
To survive, agencies are either going to have to take the WPP route and put together a large organisation made up of firms who specialise in the wide array of disciplines that now make up advertising, or specialise in one particular (or a couple of complimentary) area to a level of excellence that no operator, whose core business is not communications, can approach. (For smaller specialist operators, strategic alignments with specialists in other communications fields will be critical as the need for integration increases.)
Never before has our industry faced such diverse and intense competition – there are so many who want to eat our lunch. But lunch is something that any good advertising person has always excelled at.