Agency of the Future: Survival of the Fittest

  • Ad Age
  • By Lindsay Stein
  • April 2, 2018

Two thousand eighteen is the new 1859, says Michael Kassan, MediaLink chairman and CEO.

It was, of course, in 1859 that Charles Dickens wrote "A Tale of Two Cities," which kicks off with one of the all-time great first sentences: "It was the best of the times, it was the worst of times." The same year, Charles Darwin authored "On the Origin of Species," which introduced the concept behind "survival of the fittest."

That Dickensian sentiment, combined with Darwin's great theory, resonates deeply with Kassan. Technology, data, consumer demands, talent, financial pressures—marketers' needs are changing rapidly. The big question: What will agencies have to do to stay ahead of this incessantly shifting industry? And what does the agency of tomorrow look like, anyway?

"Nobody has a crystal ball and nobody can say the agency of the future will be this way or that way," says Kassan. "But what we can say is that there has to be a true willingness for the agency of the future to be more adaptive and reflective of clients' needs. Only the ones who can adapt will survive."

Experts do agree that agencies will have to meet a number of incoming trends and challenges, from figuring out data and fighting for top talent to keeping up with consultancies and more.

Data reigns supreme

"It's the age of the customer, so what we have to look at is what customers will be doing, and then translate that into brands and then into what their partners will be doing," says Brigitte Majewski, VP and research director for Forrester.

One of the recurring themes right now is around how customer data will keep transforming marketing. "Brands will need data strategy and the right technology to allow them to analyze data, and that's where agencies come in," says Majewski.

A lot of the more traditional agencies don't rely on data since they're so focused on creative, and that won't work anymore, she adds. The future will be about marrying creativity with data, which means agencies will have to make sure they have staff on board that can dissect data in creative ways.

Andrew Essex, co-founder and former vice chairman and CEO of Droga5, who is now consulting, says that agencies will lose if they try to compete in the data space with tech giants like Facebook and Google. "The pendulum has to swing back to human ingenuity, like storytelling and ideas, which is where tech companies fall off," he says.

This doesn't mean that agencies shouldn't be fluent in data, but they should look to collaborate with, not go up against, tech giants in this space.

Big ideas

The global brand strategies—read, consulting services—and creative that agencies deliver for clients will also have to be stronger than ever, according to Matt Ryan, CEO of Roth Ryan Hayes, who believes that marketers will bring more functions in-house in the next three to five years.

Transactional capabilities, like programmatic, SEM and SEO, and simple data gathering, can easily be shifted in-house to give marketers more control and drive efficiencies. This means that agencies will have to work hard to recruit talent, says Ryan. For example, top creatives would likely prefer to use their expertise at an agency with a variety of clients in a major city than at one brand based in a smaller market. However, marketers are typically known to pay better and are sometimes seen as more modern and savvy. Several creatives who jumped ship for the likes of Apple or Google have also said they felt they were selling ideas more than creating things at their agencies.

"Let [marketers] bring in the commoditized stuff and then agencies can go back to bringing big ideas. Marketers want that big thinking and they're willing to pay for it," says Nancy Hill, former 4A's president and CEO, who recently created the consultancy Media Sherpas, aimed at helping agencies navigate the changing landscape.

Size will matter

At a time when many brands keep reducing fees and cutting back on agency rosters, it doesn't always seem like they're willing to cough up the dough.

Gene Grabowski, a partner at crisis communications firm KGlobal, says that clients don't want to pay for unnecessary overhead anymore or talent they don't need, which gives a leg up to smaller, independent agencies and freelancers. The smaller shops have cut out a lot of the fat that clients don't want to pay for and they can make their own decisions since they're not beholden to a parent company.

Larger agencies, Grabowksi adds, are trying to keep costs down for clients by going through mergers, such as Cohn & Wolfe and Burson-Marsteller, or creating a one-stop-shop offering like Publicis' Power of One model.

Majewski believes that niche agencies will eventually fade out and the shops that can do nearly everything under one roof will succeed. "Agencies will have to break down fragmentation because it hurts brands, and silos create communications challenges," she says.

One thing seems certain: Midsize shops that lack the advantages of either small or large agencies may suffer the most.

Consultancies: Get used to them

That's where the consultancies, like Deloitte and Accenture, may have an in. They may not have figured out the creative execution part of advertising for clients yet, but they already have established consulting relationships with marketers. With the data and rapport in place, "it's only a matter of time" before they crack the branding and creative aspects, says Majewski.

"The consulting firms will absolutely play a big role in advertising in the future," she says. "They are making a play for this space and they have the cash to do it. They're here to stay."

Essex thinks that agencies will continue to try to creep into the consulting space, but he doesn't think it's wise. "They'll lose their differentiation in trying to provide those other services," he says. "I believe in doing two or three things really well, rather than four things averagely."

Return on outcomes

Kassan says that CMOs are zeroing in on consumer data and that data has to be actionable and fuel powerful stories, "or it's just noise."

From a compensation standpoint, he says that CMOs are rethinking agency KPIs and compensation around performance. "They will pay for innovation, but that innovation has to deliver ROI," says Kassan. "The math around FTEs [full-time employees] will have to be more precise. The conversations can't focus on bodies; they need to focus on outcomes."

One of the issues with performance-based models is that the outcome can sometimes be out of an agency's or marketer's control. If a factory burns down and the compensation was based on the sale of those products, then the agency won't get paid, says Ryan. Even though it's still a risk, he says, if an agency agrees to a reduced flat fee with a bonus structure, at least it gets paid something regardless of the results.

Ryan also believes that more marketers will use "variable-pricing relationships" in the next few years, where one agency is retained for capabilities like consumer insights and strategy, but then projects are put into review. The retained agency, Ryan says, would also be put in the running for the projects, giving it a chance to make more money and showcase other skill sets.

Jump into the void

Some of the "obvious" areas that agencies should concentrate on to make sure they're ready for the future include AI and voice, says Hill. "It's important for agencies to figure this out because clients cannot possibly keep up with it."

Bitcoin technology and cannabis are two industries that are worth looking into, Hill says. The good news for agencies that jump on the bandwagon is they will gather insights along the way and probably fail a few times too, but it's worth it to "test and spend some money to learn," she says.

Diversity and inclusion, however, won't be an option for agencies of the future, says Hill—it will be "table stakes." Young generations don't talk about people as being black or white or gay or straight. "It's not part of their lexicon," she says, adding that they see everything transparently and they won't let the industry get away with "gray areas" in marketing or employment around diversity.

The bottom line is that there is not one "right" model because marketers' challenges and the technology landscape will keep changing. But if Essex had to bet, he says he'd put his money on creative excellence being the keystone for agencies of the future.

1859 all over again

It's not just Dickens and Darwin who are giving us that old 1859 déjà vu. On June 30 of that year, Charles Blondin crossed Niagara Falls on a tightrope. He may have been the first, but it certainly feels like there will be some perilous pirouetting in the months and years to come.

The agency of tomorrow, today

For an industry that prides itself on creativity and innovation, advertising isn't always great at predicting the future. We looked into our crystal ball, though, and can tell you this at least: There is no single future model. Just look at today's boldest experiments.

The following eight agencies are all at advertising's cutting edge, but none of them look the same.

Bullish

Ownership: Independent

Head count: 18

Agency model: "We're strategy, innovation, creative and investing," says Managing Partner Mike Duda. The agency invests in brands like Peloton, Warby Parker and MatchaBar, but also launches new products and does creative work for clients in which it does not have a financial stake, such as Anheuser-Busch and Pepsi. Bullish also has consulting relationships with marketers that sometimes take the form of surveys or business dynamics studies rather than ad creation. The agency, which is only three years old, often benefits from its small size because it can be nimble and efficient. However, Duda says, "the world still needs big agencies to do work in global markets, so our model may not work for everyone."

Compensation: No time sheets. More than 80 percent of Bullish's business is performance-based and the rest is based on fees, projects and returns on equity. Duda says the agency is willing to take the risk. "Bullish seems to bridge the world of consulting and creation, and we will bet money on its ability to successfully do so," he says.

IBM iX

Ownership: IBM

Head count: 15,000

Agency model: IBM iX is "not part of a legacy," says North America Chief Experience Officer Kelly Mooney. Which means it behaves very differently than a holding-company model: It doesn't have to figure out how to coexist with sibling shops. IBM iX positions itself as an adjunct to ad agencies, offerings clients consulting expertise along with capabilities in data, technology, content creation, design and more.

"We're not looking to displace advertising agencies—we partner with them," says Mooney. "Our goal is to be our client's digital reinvention partner. That's the value we deliver."

Compensation: IBM iX uses several different models, such as being paid for retained staff and teams, large-scale projects and multiyear transformation initiatives. The shop does employ time sheets, using the logic that they enable IBM iX to understand how staffers are using their time and to forecast talent needs for clients.

Publicis Groupe

Ownership: Publicis Groupe

Head count: 80,000

Agency model: Publicis Groupe is well known for its integrated Power of One approach, designed to deliver end-to-end solutions for clients by bringing together agencies and services from within Publicis Communications, Publicis.Sapient and Publicis Media. Carla Serrano, Publicis Groupe chief strategy officer and Publicis New York CEO, says the model is unique because it's not so much about advertising as it is about digital and marketing transformation for brands. The company has created dedicated agencies for clients such as Walmart, Mercedes-Benz, HP and USAA by bringing together resources from within the holding company. Publicis Groupe also has 35 global client leaders who oversee relationships with top accounts through a single P&L. The group launched its data division, Publicis Spine, last year, to target consumers on an individual level and in May will reveal Marcel, the holding company's AI-powered professional assistant platform, which will operate across its 130-country network of staffers.

Compensation: While most of Publicis' compensation comes from the more traditional retainer and fee-based relationships, Serrano says the holding company is agile and flexible when it comes to payment methods. If one of its agencies is not on a client's main roster and is tapped for an "innovation sprint" or some quick project, then she says it's much easier to do some sort of equity-based or incentivized model.

R/GA

Ownership: Interpublic Group

Head count: 2,000

Agency model: R/GA Chairman and CEO Bob Greenberg says the agency of the future "must be built on a collaborative culture and infrastructure." And that R/GA happens to have been born that way, he says, as the IPG shop came out of the film industry and then incorporated design and creativity.R/GA groups its business practices into three categories: business transformation, which ties together consulting, brand and ventures; experience transformation, connecting product and service design; and marketing transformation, its new model for communicating, which includes R/GA Studios, a unit that brings together designers, producers and technologists to tell brand "stories." Chloe Gottlieb, R/GA chief creative officer, adds that the agency works with creative tech startups, like influencer marketing brand Whalar and social video editing platform Sightworthy, that are disrupting the advertising agency, which fits "R/GA's heritage of disrupting itself before we're disrupted."

Compensation: R/GA maintains traditional compensation structures (time sheets, retainers and projects), while exploring alternative models. The shop also usesR/GA Reporter, a proprietary system that tracks people, hours, billings, time off and more. "The business model has been challenged, but we anticipated shifts in the industry and have grown and adapted accordingly," says Greenberg.

Laundry Service

Ownership: Wasserman

Head count: 500

Agency model: Laundry Service, once a social media shop, is now a full-service agency that offers creative services, talent management, media buying, content distribution and more. "More brands want to simplify the agency structure and process, so being able to do everything in one place is increasingly important," says founder and CEO Jason Stein. It's simplifying the process for brands with Cycle, which evolved in 2016 from an internal influencer management division to a full-scale media company and content studio. Stein says Cycle goes up against the likes of Vice and BuzzFeed in pitches, while Laundry Service competes with the more traditional ad agencies.

Compensation: More than half of the agency's revenue comes from content work, whether it's for TV, print, digital social or other media, says Stein. The shop will deliver a certain amount of content, such as two 30-second spots, 100 photos and 20 social assets, and then will guarantee a specific reach, like 1,000 comments, 500 video views and 10 million impressions. The rest of the revenue comes from retainers and fees on media buying.

VML

Ownership: WPP

Head count: 3,000

Agency model: VML, which is often praised in earnings calls and at conferences by WPP Chief Martin Sorrell, is the digital darling of the holding company. "We came from an ad background, but we changed in the early 2000s and digital became a big part of our business," says VML Global Chief Creative Officer Debbi Vandeven. "We didn't put a department down the hall. It became the way we thought."

Even though it started as digital, the agency has adapted through time and acts as the lead agency for the likes of New Balance, Electrolux and Wendy's. The agency, Vandeven says, aims to bring the whole consumer experience together across e-commerce, in-store, design, creative, social, loyalty programs and more. VML also has a group of consultants that will help with what she calls that "race to the middle"—meaning the competition between agencies and consultants to be a middle ground, or full-service solution for clients.

Compensation: VML still uses time sheets, though Vandeven says she thinks "every creative in the world would want to not use them anymore" because it's "the opposite of being creative" as they put the focus on hours rather than ideas. VML also uses yearly fees for certain clients based on the scope of work. It rarely taps into bonus-based compensation models, but Vandeven says she'd be open to lowering a fee sometimes in order to put an incentivized structure in place.

BBDO

Ownership: Omnicom Group

Head count: 15,000

Agency model: BBDO is about 125 years old, but that doesn't mean it's lazy or complacent. "We never sit still and we never let ourselves live off of our legacy," says Kirsten Flanik, CEO of BBDO New York. While known primarily as a creative agency, BBDO makes sure critical disciplines, like marketing science, digital experience and communications planning, are embedded throughout the agency so they can operate as one team. Flanik says that even though data is the hot topic right now, BBDO's play in the space is mainly about using data to create game-changing ideas. "Data is table stakes, but how you apply the data is more important than anything," she says.

Compensation: Flanik says BBDO uses "every model under the sun," such as a normal retainer or an incentive-based relationship. She says the goal is to listen to the client and its needs and then pick a model that works best for both BBDO and the marketer.

Anomaly

Ownership: MDC Partners

Head count: 600

Agency model: Anomaly doesn't think ads are always the solution for clients; instead, the agency looks to tackle business challenges from all angles, whether it's innovation, brand strategy, new products, design, digital, social or in internal and external communications. The shop also believes in breaking down cultural division, particularly with "The Last Silo," an internal initiative to integrate multicultural insights into every piece of work rather than isolate them as separate practices. And when it's not working for clients, Anomaly is launching businesses, like its dose-based cannabis product Dosist, out of the shop's intellectual property units.

Read the rest of the article at Ad Age