What Happened to the Ad Agency Model?
Remember when businesses looked at the ad agency as something respected, something revered, something bursting with creativity and smart thinking everyone wanted? Clients had budgets, creatives were actually creative, and the account guys biggest job was to keep clients happy on a golf course or steak dinner? So now, yes, I’ve dated myself. Because my guess is that most reading this only share insights watched on an episode of “Mad Men.”
There’s many thoughts on why agencies have lost luster, or no longer have the appeal to clients, forcing customers to find new ways to accomplish their marketing tasks. And most are probably correct, but I wanted to share my thoughts on how this whole thing sort of “slid off the cliff” over the past 20 years. And no, the Internet didn’t kill advertising. Spolier alert…Agencies killed themselves.
Actual Value Matters More Than Perceived Value
For decades, agency accountability to clients based on actual “performance” for their work was dicey. Your work either stimulated sales or it didn’t. There weren’t many ways to prove it other than the bottom line, and even if the bottom line was flat, agencies were great at convincing clients that “this was just what happens and please keep spending.” Then in the late 1990’s, this led to advertisers breaking up budgets as agencies fragmented based on specialties, such as web development, banner ads, sports marketing, etc. The core agency watched as annual revenue began to fall apart in different directions, causing agencies to panic and begin buying those smaller, focused shops so they could stay in the game and tell clients they too had those abilities. At the time it felt like desperation, because it was. And the more they freaked out, the deeper they sunk into the sand, because agencies were built on capitalized revenue, not actual revenue, and quickly, margins shrank due to the competition for clients spending dollar. 15% margins for media evaporated into “Let’s Make A Deal” tactics, ending up bartering with free creative for that 2% media margin. The rope had frayed and momentum towards the eventual fall was gaining speed.
Exit Stage Left
With the erosion of annual revenue, agencies were then forced to do whatever they could to maintain the significant overhead of those bloated, expensive buildings, full of talent, hope and the proverbial ping-pong table. “How can we do more with less,” became the mantra, and the conglomerates capitulated back and forth, rearraging furniture on the deck of the S.S. Titanic. It wasn’t enough their internal greed blinded them to the actual issues they COULD fix, instead, they looked towards the horizon rather than right beneath their noses, forcing them to reach the ultimate, stupid decision of kicking their most experienced (and often most expensive) talent to the streets. It wasn’t enough that for years, agencies walked in a parade of the ‘Blue Suits’ to pitch businesses, only to later replace that senior talent with younger, inexperienced teams to do the actual work in order to preserve the agency margins. And guess what? Clients knew what was happening, but they now had options.
The writing was now on the wall. Agencies had unwittingly set themselves up for long-term failure, and the onset of additional digital media channels, social media, alternative marketing solutions, etc., would only accelerate their demise. Get rid of the expensive smart guys, pay less for junior guys, client recognizes bait-and-switch, client threatens to leave, agency re-hires or farms out to expensive smart guys, margins go out the window as a desperate move to save client, client gets sick of the rollercoaster ride, client puts account up for review…client CMO gets fired, agency gets replaced…rinse and repeat.
“I got it! Let’s just buy regional agencies to get their clients!”
Brilliant! (not) Once again, pre-1960 thinking wins the day. Bigger isn’t better, less is more and even though the professor can build a nuclear energy plant with coconuts, he still can’t fix a hole in the side of a damn boat?
Does this tactic even need explanation as to how short-sighted it is and doomed immediately? Sure, some clients might buy into the “swash-buckling” British guy preaching how special they are going to be to the agency and how they’re going to stop at nothing to help make them successful. But that’s only putting a bandaid on a severed head. So I’m not going to drone on about why this is a failed idea. It’s too “Captain Obvious.”
So where does that leave us?
The end. Literally. Sure, P&G, American Express, Nike, they’re always going to have a huge agency affiliation. But you’d be shocked at how high the intolerance from big advertisers is bubbling up. Because there are simply too many good alternatives. Consumers are pummeled now more than ever in history, every damn day with slogans, imagery, promises, and really crappy ads. Especially broadcast. (Please come back Joe Sedelmaier!) Advertising always has been seen as a medium born of the young. Fresh minds with passion for selling. (Forget the selling part, it became viewed as an art from in the 1980’s. And again, THAT is another reason. It’s not art. It’s commerse.) Point being, agencies never truly evolved. They thought they could do it the same, but try to appear to be different, falling into the trap of perception being reality, but now, it’s not. Reality is reality.
There’s a better way. Always. It just takes work and commitment.
I bailed out of the plane as it augured towards earth in 2001. I saw the end, I clearly knew what was happening around me, and I felt like some stooge in a bad “B Movie” crying out “it’s coming to get us, run!” but no one listened. I wasn’t an entrepreneur. I never started a business or raised money to start one. But I did it. And I never looked back.
My idea was 20 years ahead of it’s time, I quickly learned that. But instead of quitting, I pivoted and built a marketing technology company so we could learn, grow, make money, and bide our time until this day. I learned about pain, going broke, surviving, making payroll, achieving, selling, helping others, nurturing people, being accountable to investors, delivering on promises and so much more. I lost a lot, almost everything. But I got the best education anyone could dream of, my PHD in ‘never giving up.’ There are so many people to thank for what they did for and with me, and I stand here today having just launched the idea that threw me overboard in 2000, finally realizing that the “hunch” I had way back then actually works, and it works phenomenally well. Through the patience and understanding of my family and friends, we’re here, my hands weary from holding onto the side of the boat so long, but my mind is full and my passion on fire like never before.
Ad Giants is all about the future, the future I saw in 1998. Check out our revolution.
