Big agency “customers don’t know what they want”?
The mega-merger of Omnicom and IPG has again stirred up future of big advertising groups debate. Some lament sorry state of agency holding companies ‘I remember when all this was trees’, others that ‘it’s all about scale’, or a smaller group imagining a ‘future-fit transformation’.
In the last 25 years, USD $10-15 billion was pumped into acquiring the gold standard of digital, experience and design businesses ($13-25bn adjusted for inflation). Yet more billions into undisclosed deals. If they weren’t already part of a brave new future for clients and reshaping the industry for agency groups, then what happened? Something seems amiss between claimed requirements and purchase behaviors.
Audit of major digital, experience and design agency acquisitions (yellow = estimated / undisclosed)
Steve Jobs famously said “Some people say give the customers what they want, but that's not my approach. Our job is to figure out what they're going to want before they do.” If Big Advertising group customers want transformation, why haven’t they rewarded it with disproportionately more revenue and profit?
I am not saying the the agency model is without significant systematic problems, ones that might yet race it to the bottom - the intransigence of charging for time & materials over value-creation, questionable success in integrating acquisitions and the repressive role of last century’s legacy brands. Those are well discussed, as the image reiterates.
I want to instead look at the problem from the inside out, based on businesses that could have changed marketing and business significantly, but have seemingly not been rewarded.
I’ll rewind a bit to try to contextualise my perspective. When I moved agency-side in 2007, there were a set of amazing storied digital agencies that were a dream to work for, the likes of R/GA, AKQA, Digitas and Razorfish. These digital-first businesses were seen as the future of marketing at the intersection of multiple customer touch points from experience through advertising. Adept with data, segmentation, design and agile methodologies. So if they were the future of marketing, why are none of them household names amongst clients? Why are they not now the leviathans of tech-driven creativity?
Fast forward to the present day and despite multiple billions to acquire, these leading agencies are in various states of health. Some are still big, but maybe not growing that fast in the holding company structure, others are defunct, some have been flipped into Private Equity. S4 Capital especially made a big deal about being “digital-first” and Hakahudo to lesser extent as "next generation" integration. Neither has meant supremacy, even though these are the benefits that everyone’s been talking about.
I think there are five problem areas within the wider industry, corporations and clients, that are impinging progress, these are being hidden by headline hype and obfuscated by mergers and acquisitions.
Sales out of sync with Marketing: put simply, I think marketing is long-term sales. Marketing hunts for new or unidentified business to build demand and qualified pipeline. Sales focuses on converting known prospects and manage customers as part of a company’s overall retention efforts. A less glamourous way of looking at it, but B2B businesses appear to have a better grasp of the relationship than B2C. The two departments have to be unified for change to manifest. I worked for a business where the marketing and sales directors were in acrimony. It was chaotic.
Marketing out of sync with Procurement: large Agency Of Record deals come under the watchful eye of finance. At sufficient scale such contracts represent a sizable risk to the client business and therefore guardrails are enforced that bring contracts back to T&M, deliverables and therefore discounts. Attempts to shift to value-create or performance-based remuneration haven’t really taken off. The shift to perma-pitch for projects can’t be the answer. How to bring marketing and finance mindsets closer?
CEO out of sync with CMO: Gartner’s annual CMO report consistently highlights the identity crisis happening within marketing at the C-suite level, it appears few now really know or buy-into what marketing can deliver toward growth, resulting in a flimflamming between traditional brand goals and performance-driven marketing. Many corporates still drive briefs against CPMs and last-click attribution.
CAPEX out of sync with OPEX: favors shareholder value and DT consulting firms - principally Deloitte Digital and Accenture Song - hamstrings those functions responsible for execution of customer-facing interaction and marketing. Marketing budgets dropped to 7.7%, down from 11% in 2020 according to Gartner.
Expectations out of sync with reality: staying successful is getting harder, therefore budget required to achieve growth goals is tricky science and mistakes will have brutal outcomes. S&P 500 corporate longevity is down by decades versus last century, industry and stock market concentration rates are up, firm entry / exit rates have been falling consistently this century. The only response is concerted effort.
Personally, I've never found it harder to predict the future of agencies, because the things that were said to be hotly-demanded don’t seem to have been. Smaller enterprise upstarts don’t disrupt the industry before being absorbed and erased.
How will the advent of Omnipublic or even AI reshape an industry that doesn’t want to be reshaped or trigger an open dialogue between clients and agencies on what change requires and results in?