The Future of Agencies, Part I
Technological disruptions mean that change is an imperative.
This article is part one of three that provide an overview of a joint project between the 4A’s and AgencyAgile, Winning the New CMO’s Heart, which explores the seismic changes affecting the business of advertising and marketing. This first article discusses how the forces of technology are shaping the future of the business. The second and third parts focus on the new face of competition, and key capabilities and competitive postures that agencies should consider.
Is your agency ready for the future? Virtually every aspect of the business of marketing, which includes advertising and many other services, is changing dramatically, driven largely by the impacts of technology upon the foundations of the industry. These changes affect how advertising happens, and where it happens, but more importantly, consumer-facing technology is shifting the way brands will need to connect to the buyers of tomorrow.
Possibly even more impactful are the shifts inside of the brand enterprise, that are re-shaping marketing’s role in the business, the seats around the C-suite table, and the face of competition.
Agencies: the Ad Hoc Service Business
The term “agency” is misleading, implying some level of homogeneity where little exists. Fundamentally, an agency provides a collection of services that are attuned to a style of marketing spend.
Our industry’s historic core is advertising, dominated by the large “network” agencies owned by holding companies such as WPP, Publicis, Dentsu and others. They command a lion’s share[i]of the industry revenues, but also now face some of the steepest challenges. The industry has a newcomer group, the digital agencies, who were largely born out of the internet growth of the internet, the world-wide web, and later, personal technologies, like the smart phone.
For most of the last two decades, the industry debate was around these two parts of the industry fighting for a share of the marketing dollars — decreased spending on traditional channels, like print media, instead shifting to digital advertising and social media.
That dialog seems almost quaint today, as the speed and depth of technological disruption will likely make an agency’s ability to change the key competitive determinant.
Advertising itself ,while becoming increasingly automated and commoditized, is also shifting to a Customer Experience-driven model.
Advertising spend overall will grow, but they way it is spent will change, and digital will grow. Technology is now attacking the core of the industry, the buying and placing of media. For the moment, much of the traditional media buy still remains in control of the large media agencies, but virtually all of the steadily-increasing digital media spend is under siege due to an explosion of automation in programmatic buying and optimization. Increasingly, brands will deal directly to manage and optimize their spend, driving prices and margins down, and paying only for Creative if and when they need it.
As the business of media accelerates, so also goes the conversation, with social media accelerating and amplifying brand messages and their meanings, both good and bad, often faster than brands can. And with social media also comes a decreased control over the conversation and what advertising was all about: portraying the brand experience and benefits positively and persuasively.
Social medias were the initial crucible from which came the idea of Customer Experience, or CX: a multi-touchpont “brand conversation” that goes far broader than advertising of years past.
Technology has also impacted services and retail, upending traditional distribution and supply chain models upon which the industry relied. The early dot-com boom touted the idea of “dis-intermediation” shortening the length of the supply chain; today’s new-age retail and service models (Amazon, Dollar Shave Club, Uber, as examples) involve a re-intermediation that provides for deeper and better customer experience…and a deeper relationship with the consumer.
As these new intermediaries grow and merge, they become “experience ecosystems” that are effectively walled gardens that increasingly shelter or hide consumers from direct access . Brands and agencies will need to broaden their presence outside of traditional purchase-consideration touchpoints to get their message heard, and even transform the brand’s offering to play in new models.
CX Enters the C-Suite via Enterprise Automation
We’re nearing the end of a 20-plus year wave of automation inside brand enterprises that started with Y2K and most recently connected most of the major business functions into a cohesive operational and business analytics capability…except for marketing, its last beach-head.
As a result, technology will likely become the largest spending category for CMOs — some of it for ad tech, for sure, but much of it for large-scale integration of marketing into the rest of the enterprise platform. The resulting fully-integrated view of the customer within the enterprise is yet another way to think of CX — generating improved customer ROI will be a cross-enterprise function, and if Gartner, Forrester and others are to be believed, a new C-suite role: the Chief Experience Officer or CXO.
Follow the money. The CXO function will likely subsume the CMO function, meaning that marketing investments (read: spending on agency services) will be subject to a broader tradeoff analysis: how best to spend money across the enterprise in order to create higher Customer ROI? This decision will be the job of the CXO and the question of who staffs that role is also likely critical to agency stability and revenue. Will that CXO be your CMO? It is not clear that they can claim that spot, based on history.
CMO’s are often the weakest player in the C-suite. Their often shorter tenures likely mean underdeveloped cross-organizational skills, including depth of peer relationships, and a potentially narrower strategic perspective on whole organization. And probably most challenging in this whole picture is that the business case and organizational charter for the CXO function will be written by one of Agencyland’s greatest competitors, the management consultancies.
If your CMO gets the CXO job, they might be beholden to the people who put them there.
Summary: Part 1
The technological shifts and disruptions are changing every single element of Agencyland’s industrial landscape: the products and services of agencies; the media channels and the way media is bought and managed; the way consumers shop, share and buy; the way the brand needs to reach its customer; and who the actual brand client is and where there money comes from. It is an industry and an industry supply chain undergoing dramatic transformation.
In the second part of this preview, we’ll discuss the management consultancies and how to think about their capabilities versus those of agencies. It is a somewhat dark picture, for they are formidable competitors and many of the impacts of technology favor them and their service delivery models. They have even made special efforts recently to compete directly with agencies through acquisition and development of agency-style capabilities.
Hear this whole story live on September 9th.
Register here for A 90-minute in-depth webinar with Q&A on September 9, 2019, 10am Pacific, 5pm GMT
Jack is a former RAND senior analyst, recovering client services executive, and the founder of the Agile leadership, transformation and consulting firm that helps agencies, marketers, and other complex service organizations, AgencyAgile.