This article is an extract of the book
“Agencies & Brands in the Experience Economy: Management Organization”. (available in Amazon)
Chapters 2.1, 2.2 and 2.3
The long path of the agencies
In the ’70s, due to a massive and constant emigration from the Caribbean and South America, the American record industry saw in Latin American music a potential to be commercially exploited. A cultural and musical heritage made up of different rhythms and styles: Timba, Guaguancó, Bomba, Cumbia, Rumba, Pachanga, Mambo, Guajira, and many others. Too many kinds to be marketed to the masses and too much effort needed to promote their presence in radios and shops. So the record industry decided to label them all under one name and genre: Salsa.
The term ‘Agency’ today can be compared to the term ‘Salsa,’ for the function of representing different forms of interpretation under the same umbrella such as: Advertising, Marketing, Brand and recently Digital and Experience.
These are all terms that the exponential technological innovation of the last 20 years has transformed and redefined, in many cases blurring the differences, leading to the creation of often multidisciplinary realities defined as integrated or 360. Each agency has its own DNA of skills, methods, processes and narratives, as well as its own business and client size, often creating confusion in the general public, in terms of expectations and/or interpretation of its role.
In the last ten years the world of agencies has not only faced an identity and growth crisis, caused by the downsizing and fragmentation of the media system and the impact that the Digital world has had on changing the dynamics of communication and marketing, but also from the increasingly strong presence of tech companies first and consultants now, in the budget traditionally allocated to the world of the agencies themselves.
The effects were many and varied, from the downsizing of some realities, to the merging of others in an attempt to consolidate the business and re-define their skills, until undertaking a radical operational transformation, looking for a new identity, a new role in the market.
A role that fundamentally does not change the ultimate goal of any form of agency that is to create and give value around brands, but that more and more redefines a new way to do it.
The friction of a successful heritage
For decades the Agencies represented a model of success, capable of sustaining operations with large margins of net profit and consequently able to invest and innovate.
A bit like “Virgilio,” a character who guided Dante of the Divine Comedy, the agencies were able to guide the brands through the complex media system, understand its rules, increase market share, save brands from problematic situations and define the success of many others.
Agencies for a long time had the keys to comprehending the market, the brand and consumers; and to decoding the link and the effect on business growth. A noble, impeccable legacy, made up of big names, great people and brilliant ideas that have marked the history of many companies and the culture of this business.
But the world has changed, technology has and is changing the way of doing business with a speed never seen before. The consumers themselves have changed, with much more diversity, with many more economic dynamics, creating an increase in opportunities but also more challenges.
New players were born and grew up in this scenario, defining new rules, new dynamics and a new culture around the link between the interaction with consumers and the economic growth of brands, questioning the whole old creed of that world called Advertising & Marketing.
The agencies were not blind, they saw the change coming, but changing and transforming is always a difficult, expensive and unknown process.
Change does not mean buying skills through acquisitions of companies or exotic talent. Changing does not mean presenting itself differently and offering new services.
Transforming means changing one’s way of thinking, as well as the perspective with which one faces and creates solutions to challenges; changing the way of working, organizing the company and how it relates to the outside world.
Innovating today is not what you do or why you do it, but how you do it.
The excessive success and importance of a great culture generated over decades by the agencies themselves, was the real problem of their lack of transformation: “Too big to change.”
The multiverse of the agencies
The agency world is also affected by what the information world today calls the Bubble Effect. The presence of these information systems around us, which shows us what we want and what we believe is useful, often also plays the role of making us ignore other realities or perspectives. Sir Martin Sorrell mentioned this phenomenon following an interview last October:
“The biggest impediment on the world of agencies in innovating is the bubble effect in which they live, ignoring in fact the presence of other operational methods, other forms of business to do marketing or advertising.”
– Sir Martin Sorrell (Former CEO of WPP Holding)
An unsustainable model
For decades, the organizational model of large agencies has grown around the large advertising and marketing budgets that each brand allocates from year to year managing its distribution through one or more agencies, which are involved in developing initiatives, content and planning for what was called the “media system.”
The “Agency of Records #AOR” represented for a long time the final phase of every relationship between an agency and a brand, an unofficial acknowledgment of continuous and undisputed collaboration, which allowed the agencies to invest in talent, experimentation, support and business development activities. This stable and long-term relationship planning made it possible to construct its structures in the likeness of its clients in order to facilitate their interaction and integration.
It was clear already at the beginning of 2000 to the community developing around the new economy, that digital would become the new reference system, incorporating the old media system, and that large agencies, especially integrated ones, were increasingly giants with feet of clay or “walking dead” in some cases.
This is because with the development of the digital world and the so-called New Economy, big brands noticed how the ROI of advertising budgets no longer justified such investments, and a more democratic access to the digital system allowed the brands themselves to be able to build their own system, integrate it with others and directly manage the relationship with their audience.
The budgets began not to be decommissioned, but to be moved to other forms of investment, diversified in technology, content production, social & audience governance, experience, etc.
The large Agencies and Ad holding companies, to maintain not only their dominant position in relation to the big brands, but also the control of those budgets capable of maintaining their structure, started buying companies/skills such as those mentioned above and thus extended on what they already did in the digital world without any distinction.
Engagement with its audience began to derive from forms other than traditional advertising, and the impact on the brand often took place from a technology and/or a service of the company itself, rather than from an advertising campaign.
And it is in this period (2000–2005) that new forms of “agencies,” based on new operational models, began to grow, some to the point of turning into real global networks like R/GA and subsequently seeing consulting firms, such as Accenture and Deloitte, trespassing in the digital marketing world.
Let us remember that R/GA was born as a Production Studio, and arrived at the big table with projects such as IBM’s global website, Nokia Vine and Nike+.
In addition to this fragmentation, the new economy, has shifted entire budgets of the media centers, directly into Google, Amazon, Facebook and Apple, creating in turn the various internal Agencies, thus consolidating an exclusive relationship with the brand without intermediaries.
In recent years (2014–2018) two out of three talent have moved from an agency to a tech or consulting company. The traditional media system was no longer the dominant system, but it had become one of the many systems, within what some called the system of systems (“digital”).
The organizational model of the Agencies was no longer sustainable economically because fewer and fewer companies were investing in an AOR. Increasingly, the retainer model was migrating to an on-demand model and as a result the available budgets were reduced.
A mix of deadly complications: a complex organization, a cultural friction, a fragmented business, a budget dispersion, have shown how a new operational and business model for the world of agencies was and still is necessary.
- AdWeek — Agencies, why the traditional agency model is struggling to keep up with demand
- Financial Times — Advertising companies struggle to adapt to a new world.
- Forbes — The State of advertising has never been worse
- Huge consulting firms are coming after the ad agency business
- Accenture, Deloitte and McKinsey spent $1.2 billion on agency acquisitions