Advertising Agencies R.I.P.

Advertising Agencies R.I.P.

The research I have done has the first full-service advertising agency starting in Philadelphia in 1869. Within the next 10 years advertising agencies, as we have known them for nearly 150 years, may well be extinct. Why?

Remuneration

I first joined an advertising agency in 1983 (Masius, later to become DMB&B), after 3 years in market research. There was no such thing as a planner back then. My boss, a Civil Engineer with an MBA, thought it may be useful to have someone who could be a bridge between account service and creative. Research had the image of being “dry”. All analytical and no fun staffed by people who could have been accountants. Agency people were creative and crazy, researchers were considered and boring. Fortunately, my 3 years were spent working with George Kelly, a research legend, who could be best described as a “mad genius”. George was banned from most client offices (he burnt holes in their furniture, often smoking 2 cigarettes at once). No tracking or mundane studies came our way, but when the problem was complex, he was the guy turned to by Nestle/Maggie/Lifesavers, Johnson & Johnson, Cottee’s, Goodman Fielder (Tip Top, Meadow Lea) Tooheys, Richardson & Vicks. Swift and Moore, NSW Rugby League, General Foods. The list went on and on – for a guy who could not get motivated until the Stoned Crow opened at 11am, he had one hell of a client list.

I digress. It was therefore not the eccentricities of the people in advertising I found hard to understand, it was how we charged clients. Every month my boss would call his 3 suits (I was classified as account service) into a billing meeting and we poured over a huge computer print-out of production costs (print, TV and radio) and “marked them up”. The terms of business said 10% commission plus 7.5% service fee, added to the cost price of all jobs.

Boring as bat faecal matter, I was often told to pay attention “this is what pays your salary”. This hit me as very strange. Not just for the people in account service, but for the creative department as well. I was in awe of some of the creative people and the ideas they would come up with. But these ideas were given way, literally free. We marked up the cost of producing the idea they had come up with and that was how the agency made money.

Media was in-house in 1983 (it was around this time someone thought it would be a good idea to separate media from creative and in 1984, it walked out the door to join other media departments from other agencies who had the same overall owner). The old 10% commission and 7.5% service applied. So, if the answer was not TV, print, radio, cinema or outdoor, we didn’t get paid much. No conflict there right? And although successful advertising was driven by sound strategy, agencies were known for producing ads, not providing advice.

“The Scotch Behind the Man Behind the Bar”, the great campaign for Johnny Walker Scotch was developed by two of our creatives. It went worldwide and personally, I think it pisses all over the “Keep Walking” campaign (brilliant on two levels. The ad itself and the boys got to pick famous bars around the world they had always wanted to visit and shot on location.) And the reward for this thinking – marking up the cost of producing it. An age-old adage – if you don’t charge for something, people place no value on it.

University friends who had gone on to become lawyers and accountants never went anywhere without their little diaries, in which they logged the time they had spent working on each job. And they charged for it. Intangible time may be, but clients had been paying for it since the professions began and are still doing it today (down to 6-minute increments now).

There is some debate as to when the first full service advertising agency started. (Creative and media under the one roof) – in 1869 a business started in Philadelphia which offered clients media space (print of course) and graphic designers to put something in that space (content).

Prior to the first full service agency in 1869, there were advertising agents who only dealt in media – they would buy space in bulk and on-sell chunks of it to merchants for as much as they could (something familiar today in that concept).

Since the dismantling of the accreditation system (Google it), there has been a shift to various forms of fee-based remuneration. But commissions are still a major component of the remuneration structure in advertising.

For most of our existence, we (as in advertising agencies) have given away the good stuff, the many great ideas and charged for the periphery.

Identity

Not that long ago, advertising agencies made ads. Of course, time and technology changes, at an ever-increasing pace. But it does seem that many so-called ad agencies do everything but advertising. We have been seduced by technology. The media landscape has exploded into a million pieces. No longer can we throw and ad on TV and in one night and reach 85%+ of our target market. And it is no longer a one-way street, where we talk to (or at) the consumers. The buggers can answer back now.

But the role of advertising has not changed – to persuade. A good friend and one of Australia’s greatest ever marketers, has an acronym that goes to the very heart of the role of advertising – MSOS (Move Shit Off Shelves). Some may think this crass and simplistic, but it leaves one in no doubt about the purpose of advertising.
 
With the explosion in the number of platforms that can be used to reach consumers and the resulting need for integration, ad agencies should be in boom times advising on and creating communications that effectively utilise this vast and growing array of options. Instead we have morphed into a series of mutually exclusive silos – “experts” in their narrow fields, but with little or no idea of how they should all work together, to form a big picture “sum of the parts” master plan. A series of tactical activities, rather than an integrated strategic plan. Agencies are becoming specialists in tactical activities.

We have Customer X “Specialists”, Influencers, Social Media “Experts”, Innovation Labs, Digital Marketers/Advertisers (Professor Mark Ritson, currently Australia’s number 1 marketing academic by a bull’s roar, has a very eloquent description of such people and it ain’t complimentary), Content Specialists (still not sure what they really do, apart from claiming everything), EDM/DM, SEOs, Ad Tech and on it goes. And of course, Data. These operations are either separate departments, or in the case of data, separate companies. Today, clients have the choice of a number of different operations who specialise in one of the many different fragments that have evolved. The separation of media and creative, whilst occurring prior to the commercialisation of the internet, is arguably the greatest own goal in the history of advertising. I have used this simple equation many times:

Media + Message = Advertising.

Another consequence of this identity crisis is the advertising industry becoming as much concerned with social issues as business. Whilst the industry goes through massive upheaval and faces a threat to its very existence, many (not all), practitioners sit in inner city coffee shops and decry the threat faced by gay whales. Like all businesses, agencies have a social responsibility. But, in 35 years, I have never seen anyone not hired, or discriminated against in anyway, based on gender, ethnicity, religion or sexuality (though I have seen people blame perceived bias for not attaining a job or promotion). Advertising has always been a most liberal (as in attitude), “live and let live” industry. Agencies should be cooperating on how to ensure the industry remains relevant in the face of huge change and competition from many quarters. Yet the most cooperation seems to be in areas of social engineering. Brand Purpose is an absurd example of this type of thinking.

Credibility

“I am a digital marketer/advertiser”. That is when it started. Suddenly we had two “types” of marketing/advertising. “Everything is different now” is another catch cry (most often said by people who were not around when things were supposedly different). The fragmented media landscape made integration a mandatory, not mutually exclusive silos that have evolved.

Yes, it's a vastly different environment today than 30 years ago, but ultimately, online is just another medium or platform. Just as TV requires a different approach than radio or print, so does online. But the key basics of communications remain. It was both amusing and frustrating to read articles around 2006 to 2009 by the major Adtech companies “preaching” basics as if they were the first to recognise and publish these pearls of wisdom.

A dichotomy grew. As advertising places very little store in experience, experienced practitioners left the industry and the “digital advertisers” took over (the client side mirrored what was occurring in agencies). Fashion was presiding over function. Ritson, in one of his AANA presentations, said to a room of Australian marketers “If a new social platform called thwhacko came on the scene, half of you would be in it before the week was over”. The damage to the credibility (and integrity) of the advertising industry came not from many of the loopy theories and approaches. Though suspicions had been rife, in 2016 the issues of volume discount rebates and other non-transparent business practices exploded, not only in Australia but the US and UK as well. It became very ugly, resulting ultimately in loss of trust – ironic as probably the only point all agreed on was that trust was the most important brand attribute. Clients have a lot to answer for in this by screwing down fees to a point where if agencies followed the terms of business to the letter they would lose money. Google and Facebook played a role, but that is another story.

It is our industry who has suffered the reputational damage and no one should be in any doubt to the extent of this damage. Undeclared commissions, secret rebates (money, inventory and both), and accusations of “unethical” behaviour of agencies has dominated industry news. Neville Wran, the former NSW Premier, once famously said “Throw enough mud and some will stick”. Advertisers have become aware of and extremely concerned over the conflict of interest facing their agencies – in the world of online (digital media), the ideal “media solution” is often at odds with the solution which offers the greatest financial reward for the agency.

Adding to the confusion and distrust has been the inability to agree upon how to best measure online media performance and hence ROI (views, likes, shares, impressions, viewability etc). The use of programmatic has grown rapidly (the volume of online inventory makes it impossible for a person and a calculator to determine the optimum schedule). But when advertisers started seeing their ads appear in extremist and racist websites, doubts arose (headlines talking about “eye popping appeal/performance”, were a little too close to the bone, literally, when the video above shows some poor bugger having his head cut off).

Advertising agencies (or agents as called back then) began by selling media (doubt there was a lot of “planning” in the late 1700s). Many smaller businesses went and still do, go direct, but any advertiser of significance engaged an agency to conduct their media planning and buying (no individual client had the clout of large media agencies who controlled billions of dollars).

Now clients are questioning the need for a “middle man”, when programmatic can be brought in house. Google and Facebook have struck up direct relationships with clients and other publishers are now following suit.

Media agencies have lost their primacy in media planning and buying and though not the only reason, conflicts of interest and perceptions of unethical behaviour were instrumental in this shift. So yes, “things are different now”, but it is the differences the industry failed to see, rather than any radical change in the basics of communications, that have been the biggest threat.

Competition

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?

With rapid changes in technology introducing new media and disciplines, advertising/communications is now so incredibly broad, identity, as previously mentioned, 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.

A quote from Clearcode (a software development company), highlights the challenges facing agencies:

“As AdTech platforms, such as DSPs, allow brands to run online advertising campaigns with precise targeting and collect large amounts of user data, brands have seen higher return on investment and, perhaps most importantly, lower cost of campaigns than in the case of a traditional agency. The result? Brands today can increasingly afford to almost completely bypass the ad agency and head straight to AdTech companies instead. To remain competitive, advertising agencies have to find ways to combine their experience, knowledge, and creative potential with online technology, thus enhancing their client offer.”

Such thinking fails to take unto account the average person comes into contact with some 13,000 brands every year. Imagine 13,000 brands collecting data on you and sending you messages (email, text, phone)? Drive you bloody crazy. Already there is a significant consumer backlash against being “stalked” by brands.

IBM recently reported 2.5 quintillion bytes of data, 10 with 18 zeros, is produced daily and 90% of the data available has been created in the past 2 years. Data should be about quality, not quantity and the “weakness” with Ad Tech firms is their lack of understanding of communications. An opportunity for agencies.

And whether talking to one, or one million consumers, creativity in message design will be at a premium (and that is not going to come from someone who does “content”).

Competition comes from 3 major areas:

  1. Advisory Firms (once were Chartered Accountants). This trend has been obvious since the early nineties, though only now is the industry sitting up and taking notice due to the establishment of specific divisions and poaching of key staff. They are a major threat for a number of reasons – remuneration structure, access to the highest echelons of client management, MIS/Computerisation/Digital has been a core service offered long before the digital “craze” hit our industry. Integration of marketing strategy into the already broad suite of strategic services and trust.
  2. Management Consulting Firms. McKinsey and Boston spring to mind, but there are many more (and growing) operations. They also are broadening their suite of services as they see agencies struggle.
  3. Ad Tech and a myriad of smaller firms specialising in the many new areas that have opened.

The business world is a bit like nature. Once a creature is wounded or starts to struggle, it is pounced upon and torn apart.

This article is already far longer than initially intended. Even so, it barely scratched the surface of the 4 key existential threats advertising agencies face:

  1. Remuneration
  2. Identity
  3. Credibility
  4. Competition

As I near the end of my career, I can look back and can see it is far more challenging today that when I started. But times of great challenge also present great opportunities. One constant is advertising has always attracted creative thinkers, people with entrepreneurial flair.

So long as the industry does not self-destruct during this period of change and continues to focus on what has made us for the past 150 years or so – creativity, then advertising agencies will survive and prosper.

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