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Do ad agencies have a future? The What, How and Why.

January 25, 2010 23 Comments

Reading Time: 4 minutes

Credit/Copyright: Hugh MacLeod/@gapingvoid

Social media has done more than connect consumers in ways never imagined before. It has done more than challenge brands that traditionally communicate with consumers by dictating behavior in a “push” rather than “pull” strategy. Social media has also redefined the short and long-term roles of advertising agencies. Here’s why.

Traditionally brands have broadcast their messaging to consumers with the help of their strategic and creative partners, advertising agencies. This relationship operated on the long-standing premise that brands and consumers were already in dialogue when, in fact, brands played a dictatorial role.

When the Internet gave consumers access to an almost unlimited amount of information, it created transparency like never before. Rather than simply following the dictates of brands, consumers could satisfy themselves as to what they thought about a brand’s products or behavior and share their thoughts with each other. As a result, the dynamics between brands and consumers have fundamentally changed.

Brands have good cause to be concerned. The dynamic they have relied on for some 40 or 50 years still exists but the polarity has reversed. If brands carried the most weight in conversation with consumers in the past, social media has meant that the weight is now shared equally. This shift in control will continue as consumers become better equipped to communicate in real-time from wherever they are. As a result, consumers will get increasingly organized and vocal in opinions about brands.

Brands are being forced to respond by changing their behavior. They may create a product that consumers want, change messaging that is considered inappropriate, or behave in a way that is conscionable to better serve the interests of consumers.

So what does this mean for advertising agencies? In the short term, advertising agencies must help brands accept and engage this shift in polarity between brands and consumers. That means several things:

1. Facilitating a mind shift among corporate management and employees about this new communication dynamic.

2. Helping brands restructure their internal organizations, employee roles and skill sets.

3. Educate their brand partners as to how consumers are currently communicating and the best ways to reach them.

4. Assist brands in monetizing this new dynamic.

In my experience brands often understand this shift better than advertising agencies, making the need for advertising agencies to embrace this new role even more urgent. Many advertising agencies were slow to embrace the digital revolution and are proving equally reticent to embrace the social media revolution. As such, agencies will contract or disappear as new social media companies fill this need just as digital companies did five years ago.

What about the long-term role of advertising agencies?

Once an advertising agency has facilitated this shift in mindset, organization, and messaging to consumers, they must be re-born as strategic and creative partners. They do this by helping brands embrace a wider definition of self-interest that includes the greater good of consumers as well as their own profit. They do this in several ways:

1. Communicate to consumers how the brand has reworked and improved its business practices in order to serve them better.

2. Use strategic and creative thinking to enable their partner brands to profit from their conscionable behavior. That means using their skills to translates consumer goodwill into loyalty, word of mouth advertising and sales at the cash register.

3. Monitor, strategize and continually re-conceive both the identity of the brand and it’s messaging to keep up shifting consumer communication and technology.

4. Constantly resolve the tension between the timeless purpose of the brand and the changing ways to reach consumers. Their role is to ensure the brand’s identity remains consistent, it’s purpose fulfilled, and its engagement effective in the marketplace.

5. Prove themselves to be like-minded partners who operate with the same integrity they expect from their brands.

The short-term role for advertising agencies will be critical in the next 12 to 24 months. After that, the majority of brands will have internalized the importance of social media. (Here’s a great Nielsen report on adoption rates). Those advertising agencies that wait longer will suffer the same fate of those agencies that ignored the digital revolution for too long. New companies, born out of the revolution, will fill the vacuum and steal market share.

For confidence, brands need only look to efforts by industry leaders like Coca-Cola, Nike, Pepsi, Starbucks and Ford. For even more granular examples, the Center for Marketing Research at the University of Massachusetts Dartmouth has conducted a study that looks at the usage of social media among Inc. 500 companies. It confirmed that America’s fast growing private companies are adopting social media at a much higher rate than other companies.

Joseph Schumpeter characterized capitalism as “creative destruction”. In the same way that we have seen a massive reconstitution of the music, television, auto and publishing industries, the advertising industry is now undergoing the same transformation. Technology does not destroy industries, it just changes the players.

There will be those that are so invested in the habits and thinking of the past that they will only respond appropriately when it is too late. There will be those that try to saddle the future with the past with varying degrees of success. There will be smaller, nimble companies born today and tomorrow that will be the titans of the future.

The good news is that every advertising agency has the ability to choose which one they will be. The bad news is that no choice is easy. No amount of wishing away the changes in the marketplace can change the massive shift that is already taking place. It is a tidal wave that will crush some companies and throw others forward if they position themselves ahead of it. One thing is for sure, though. If an ad agency chooses to be a part of the future they not only ensure their own survival but get a chance to shape it.

The tension between ad agencies, digital companies and the new crop of social media companies is such a hot issue. What do you think ad agencies should do?

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23 responses to “Do ad agencies have a future? The What, How and Why.”

  1. […] say every post, every book, every movie gets to you at the right time. And this post has come to me at that pivotal moment where my agency passion is slowly starting to fade away. The […]

  2. peterriva says:

    Smart comments and prescient thoughts. I am passing it around.

  3. Thanks, Peter, I hope its useful. There so much opportunity for the ad industry out there if they grab it. Hope you are well and thanks for passing it around.

    Simon

  4. Many agencies in the last decade have farmed out digital expertise the same way they've farmed out TV production, photo shoots and radio production for years. This won't work with social because it's not just reselling something to a client – it's part or the fabric of the client's business. Agencies are going to have to get smart on social or risk becoming irrelevant and fired.

  5. Jimmy, I completely agree. As custodian for the brand voice an agency must own its social persona or their audience will reject it so quickly their heads will spin. This is an investment in technology, resources and a new mindset that many agencies won't want to do often because “they can't see the money in it”. But it must be about their clients and there is money and longevity in it for them. Here's hoping the majority will embrace their social roles and responsibilities. Thanks so much for the feedback, Simon

  6. Iconic88 says:

    Loving this post Simon. It really gives an insider's meta-view on the effects of social media on the ad agency market.

    Several themes stand out. Transparency, creative destruction, power shifts, change and innovation.

    In a market-place where there is a disparity between what is known and what is truth to the consumer, brands and people can play a dictatorial role. The market can only know what the brands release in the form of advertising.

    For example, if you as a consumer didn't know that you had options to a product/service in the form of competition and only had limited access to information about a company, then you would likely believe most of what you see advertising thereby making a purchase.

    However, in the age of real-time search, this disparity decreases dramatically because of the wide availability of information vertically and horizontally in the marketplace.

    The outcome is this. Transparency of the marketplace increases, transparency on the conduct of brands increases, transparency of the experiences of other fellow consumers increases which leads to this power shift towards enabling the consumer to make an 'informed' purchase decision.

    Schumpeter's concept of creative destruction is affecting the ad agency market today because the channels of communications between the client and their consumers hasn't decreased, it's arguably become more efficient. Disintermediation of communication channels is occurring, therefore the consumer market can now bypass the agency market by accessing directly the brands or client's (whom they play advertising gatekeeper for).

    In a marketplace where transparency levels have increased and communication channels have become more efficient, new paradigms of thought and practice have to be established including matching compensation plans towards these new behaviors to encourage this new thinking. Like you mentioned Simon above, 'advertising agencies must help brands accept and engage this shift in polarity between brands and consumers'.

    With many agencies, in this new world of social media, currently it is a case of the blind leading the blind. You can see this by the social media campaigns that are using 'old' paradigms of thought ~ dictatorial thinking. You can also see a low level of risk-taking in the number of imitation campaigns that exist in the market. Risk-taking should be encouraged in agencies.

    Some may argue that agencies can't afford to take risks. I argue that in the world of social media, you can afford to make many risks and run several smaller campaigns along the same theme and analysing them all over an agreed period of time via multivariate testing. Then push through with the one that's getting traction. Why not? If you can do it with pay per click, why not apply the same thinking to campaigns? Campaign costs using social media doesn't have to be that expensive to be effective. Just understand and know what you want to measure.

    In summary, agencies of tomorrow will be innovative, flexible, transparent and educational. They won't be gatekeepers. They'll be more facilitators of the message and navigators for brands to identify and assess the currents of meaning and winds of conversation.

    Thoughts?

    Best, Mahei

  7. Thanks so much for the great response. Great breakdown of the role of transparency. I totally agree that a breakdown is occurring between ad agencies and consumers, while brands are actively listening.As a result, agencies are becoming increasingly irrelevant in trying to reach consumers. I also agree that while it may be risky in an agency's mind to give up control, they are only giving it to their consumer base and not to a competitor. As such, they should take confidence that such a vote of confidence would earn them goodwill. Risk is a way of life in a real-time marketplace, and like any smart gambler, agencies should simply spread their risk across many targeted initiatives. Your characterization of agencies is spot on. So good, I'm going to have to tweet you out! Thanks as ever, Simon

  8. iconic88 says:

    Thank you Simon for the tweet 😉

    Superb feedback as usual.

    Simon, you mentioned control. That is a word and frame of mind which will inhibit many agencies from moving on. In a real-time environment that’s so dynamic and fluid, ‘control’ is a mentality that has to be reduced in order to fully appreciate the nature of the currents of meaning and winds of conversation.

    This is a case of where the more people try to control things, the less control they actually have because conversations and topics of interest change so quickly now. More pertinently, choice has increased on the consumer side with increased levels of transparency via the web and competition. Competition can substitute brands or compliment brands at the speed of a tweet. All consumers have to do is ‘ask’.

    Thanks again, Mahei

  9. Great Article! Very informative and good take on the industry. You should also check out my blog on how Social Media is forcing Advertising agencies to go after the Tech Startup community investing their fees into struggling companies:
    http://blog.nothingGrinder.com/investment-design

  10. Thanks Gabriel. Will do. And its very true what you say. There are lots of opportunities for the more aggressive ad agencies. Thanks and will see your post. Simon

  11. Totally agree. I think brands will increasingly be distinguished by the quality of their listening, in addition to their messaging and products. Finally corporations are in the service business agin. Best, simon

  12. Great article.

    For more on this topic and what agencies do and how they do it, check out fascinating insights from R/GA, digital agency of the decade working with many of the world's top brands. http://www.youtube.com/watch?v=KsRpXZML5YU

  13. Thanks so much Umberto. Great reference and I'll share it with others. Thanks.

  14. kathy says:

    One problem I see, Simon, is that sometimes the feedback to the big corporations is that they need to substantially change their product/service. And though many corporations embrace social media, it seems to me that less of them embrace the idea of changing themselves from within.

  15. Totally agree, Kathy. Sadly they must change from within if they want to be effective in the social space. Your internal brand always affects how consumers perceive you due to systems, service and values exchanges. In fact, the first place brands should look is internally. You're right. it will be difficult. But not as difficult as catching up to competitors who did it and are stealing your market share. Many thanks, Simon

  16. Alterpreneur says:

    Simon, this is a really insightful article.Thank you for sharing your knowledge about brands, and particularly about brand management online.

  17. No problem. Glad you enjoyed it and hopefully it nudges a few agencies further forward in the right direction. Nice to be in contact, Simon

  18. Bryce says:

    As an art director in the ad industry for several years, your article is interesting but with one fundamental flaw, as I see it: you're treating 'brands' as some sort of omniscient entities. They're created and run by people – and quite often in my experience, lazy, ignorant, petty, narrow-minded, old-fashioned, and incompetent people. There are many exceptions of course but I'd say brands run by cutting-edge-thinking passionate people are still in a minority.

  19. Thanks, Bryce. I agree its difficult to generalize about brands. There's large and small for profit companies, all types of non-profits and individuals brands built around personalities. I'll write a post soon about what i actually mean by brands and thanks for pointing that out. As for who runs them, in my experience they are typically smart, creative and really engaged about surviving and getting ahead. Understandably they also suffer from fear of change, inertia because they're so invested in the past and market forces – like all of us. What distinguishes the best ones is their ability to take educated risks and an acceptance of the odd failure or three. That's why brand regeneration must start with the people behind them. Thanks, Simon

  20. Zack says:

    Nice post. Here is a presentation on Modern Agencies and how they might start behaving. http://isaque.posterous.com/

  21. Thanks Zack. Great stuff. I'll pass it on. Best, Simon

  22. Seo Pk Seo Pk says:

    Nice post about advertising agencies for read my post about advertising agencies in Pakistan then please visit at http://advertising-in-pakistan.blogspot.com/2014/07/about-advertising-agencies-in-pakistan.html

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