By Amanda Plewes & Sarah Allen
For years, marketers and advertisers have been talking about the “digital revolution” and the “digital agency” versus the “traditional agency.” As the lines blurred and the “digital revolution” evolved into the “digital reality,” ad agencies and their clients also evolved to meet the demands of this new world.
While this change has been ongoing for many years now, reports of the death of the advertising agency have been greatly exaggerated. For better or worse, agencies have coped with and responded to the digital revolution for over a decade. However, in the coming year, agencies will continue to make more widespread changes to their business.
Ad agencies exist to endear people to brands – no matter the channel. As 2012 dawns, agencies will begin the radical adjustment of the previous business model, leading to more stability and more innovation.
Fragmentation Chaos
Every day, new platforms are launched, technologies are released and products are updated. Agency and corporate executives are hammered with emails from hundreds of services all promising to revolutionize their business. Marketing partners and vendors are suggesting that companies need to exist in dozens of online channels, all monitored and managed by dedicated resources.
With increasing clutter and demands for attention, one of the most important changes in 2012 will be the decision of brands to focus their energies on a few places rather than spreading across many.
Jim Collins, in his classic Good to Great, suggests that the best companies adhere to what he refers to as the “hedgehog principle.” The hedgehog principle lies at the intersection of what the company can be the best in the world at, what they enjoy doing and what they can make money doing.
Understanding this desire to focus leads us to believe that in the coming year, agencies will adjust by providing greater channel clarity in the face of new communication outlets. Marketers will look to agencies to be experts across disciplines and channels and increasingly rely on the thought leadership of their agency partners.
Experts Ascending
2012 will also be marked by the increasing battle to attract and retain top talent. While it’s always been a challenge to dissuade employees from agency-hopping, the past years have seen increased competition for technological talent. This competition comes not just from other agencies, but also from other sectors.
As complexities continue to grow, an additional need for specialized talent will arise. Employees specializing in social media metrics will add to their counterparts in analytics; those working in online community management will join the more generalized social strategists. This will lead to a requirement that agencies have subject matter experts on an ever-widening variety of topics.
As vanguard agencies forge ahead into this model, agency strengths will become clear. For decades, agencies have brought together divergent thinkers to collaborate on cohesive, creative work. Agencies’ ability to collaborate across disciplines will continue to be the cornerstone of their creative development and lead to groundbreaking creativity across channels. Now it’s incumbent upon agencies to leverage this creativity into holistic campaigns that simultaneously launch and encompass multiple platforms.
Rise of the Consultancy
The life cycle of ad agencies has evolved from the early years where they effectively comprised the entirety of a client’s marketing department and budget, to the modern era where procurement-led pitches are more frequent and clients viewing the agency as a vendor are more prevalent.
As the evolution continues, there will be a rise in the agency as a business consultancy. Smart clients will involve the agency in comprehensive business discussions leading to a more consultant-like agency-client relationship. Agencies will even begin developing in-house consultancies to compete with the larger, more established players.
The move toward business consultancy is driven by the need for successful agencies to understand every part of the client’s business – not just the part the agency has been selected to touch. By understanding the end-to-end business challenges and opportunities, agency consultants will be better able to see overarching themes and cut through the fragmentation of markets and marketing to develop innovative communications and business solutions.
Income Diversification
When I was eight, my mom taught me that a diversified investment portfolio yields the best returns over the long haul – forget about the glamour of the bubbles or the temptation to heavy up in a few select sectors, diversification will yield the most consistent returns. Through the financial crisis and ongoing volatility that started in 2008, fluctuating budgets and tense clients hit advertising agencies hard. This taught agencies about the dangers of having only fee and project-based income. To reduce the large swings in stability when the market experiences high volatility, ad agencies have devised new ways to create more consistent cash flows while remaining in the creative sector, and these will grow significantly in 2012.
One approach agencies can grow into new revenue streams is through creating software as a service (SAAS) products to sell to a wider audience. From platforms for creating and tracking mobile coupons to social media posting services to custom content management systems and beyond, there is a larger appetite for these services. While the initial investment in creating the services can be daunting, they can provide a constant income stream that does not have the same elasticity as projects and retainers.
Agencies are renowned hotbeds for creative thinking, and they will continue to foster that through the creation of in-house start-up incubators. These incubators will create and sell products – leading not only to additional agency revenue, but also to additional ways to showcase creative. Further, agencies will be able to demonstrate their marketing skills in promoting their own products, increasing credibility with potential clients.
The tech start-up world is starting to collide with the advertising world, and advertising agencies are better capitalized for growing ideas and companies. The development of a Silicon Valley-style start-up culture will help diversify revenue streams and help agencies win the talent war with attractive challenges to offer the best and brightest.
Agencies Will Patent Their Work
As the work of tech start-ups and advertising agencies converge, intellectual property ownership will become an increasingly important consideration of agencies. As creative powerhouses venturing into new revenue streams, agencies will seek to protect their creations as well as their clients’ through patents.
With the tech powerhouses like Apple, Amazon, Google and Facebook battling in court over technology ownership, the power of patents has never been clearer and patent trolls have increased. Since 1991, there has been a compound annual growth rate of 5.6% in the number of patent infringement cases filed, with many of these cases filed by non-practicing entities.1 With the proliferation in cases, and a corresponding surge in settlements, agencies will need to defend their technologically groundbreaking work in ways they haven’t previously. By developing their own proprietary technologies and maintaining a store of patents, agencies can also defend themselves and their clients from absurd licensing fees demanded by non-practicing entities.
The Richards Group
Recognizing the shifts in client needs and media landscape, The Richards Group has worked to make digital part of our DNA. We’ve stopped delineating between “digital” and “traditional” advertising and are using the combined experience of over 650 of the brightest, smartest, most-focused people in the world of advertising to create brands people love. Digital experts now reside in every discipline, from media to creative to brand management to planning, and form integrated, collaborative teams ready to excel at positively influencing their clients’ business.
In Sum
Five years from now, we might not call them “advertising agencies.” They might become “innovation centers” or “creative marketers,” but whatever you call them, agencies are evolving to meet the needs of an ever-changing world. Agencies are reinventing themselves as companies focused on providing the best marketing and advertising advice and services to clients – no matter what forms the advice and services take.