On top of making ads for marketers, agencies have long created products of their own, from Eos lip balm by Anomaly to the HurryCane walking stick from Minneapolis direct-response shop Marketing Architects. Now agencies are pouring resources into developing a very different kind of intellectual property: marketing technology.
As brands spend more money to reach the right consumers with the right messages in digital media, agencies are looking to go after those dollars by creating the tech to help, such as tools to gauge consumer sentiment or optimize campaigns while they're still running.
For marketers that buy in, shops often charge a monthly, subscription-like service or tech fee, a departure from the common per-head compensation model that agencies use to charge clients for traditional services.
While Publicis Groupe's Razorfish Global is making hefty intellectual property, or IP, investments, including compensating a team of a few dozen expensive engineers and data scientists, it's still generating a profit from the efforts. "It's higher-margin than the traditional agency business of paying for bodies," said Shannon Denton, CEO of Razorfish Global. "Now we're investing to get it scaled and ramped up."
Razorfish's IP business has grown from 1% to 2% of company revenue in years past to 3% to 4%, before counting any growth from luring clients with its techniques. "We're planning on 20% of our leads coming from IP-related co-investments in 2016," said Mr. Denton. "The economics are good for us," he said.
Wunderman is planning to spend 20% more on new IP this year, and sibling shop Possible will likely grow its mix of IP assets by 20% this year.
All those numbers are bound to continue rising as so-called martech companies such as Adobe and Salesforce make it easier for agencies to build and sell products using their underlying technology. That is, when ad agencies are not competing with those marketing-tech giants to build the same products.
"These marketing-tech stack providers like Adobe and others are creating an app store for their technology, and the opportunity is for agencies to put apps in the app store and then license those and charge additional fees for those," Mr. Denton said. "They haven't focused on it until the last 12 months."
Prior to that, it wasn't as easy to work with the big marketing-technology companies, he said.
There's still the risk that the larger martech powers will build technology similar to the agency IP into their core product, but it's worth the investment to differentiate, said Razorfish Chief Technology Officer Ray Velez.
Razorfish is working on an algorithm to predict which customers are most likely to churn (or buy and then leave the loyal customer base), and another that can guess what a customer is likely to buy based on what he or she has in a shopping cart. The IP can run on top of either Adobe or Microsoft Azure. The shop is also developing a product compatible with the Adobe Marketing Cloud that uses a Google image recognition algorithm to automate tagging and assigning metadata to digital assets.
Razorfish and Adobe 18 months ago created Razorshop, an IP play that can use both Razorfish and Adobe tech to send information on store visitors' shopping history to sales associates' tablets. It can also customize messages on screens as shoppers approach based on shopping history it gleans from their phones via Bluetooth.
Dentsu Aegis' Isobar generates about 3% of its revenue from marketing tech IP, according to CEO Jeff Maling. That's "up from about a couple years ago when it was zero," he said, adding that it reinvests about the same amount. And the IP is profitable.
Clients are more willing to spend money on things that "actually touch a customer" than on expensive, one-off customized marketing-tech IP, Mr. Maling said. But they're attracted to marketing tech that they can subscribe to through a software-as-a-service model. "It's a lower cost of entry for them versus spending millions to invest in their own technology," he said.
Another product the shop built, called Rapport, creates landing pages for web users based on the search query that brought them to a brand's site. "Users convert at a much higher rate when you can reflect back to them what they are looking for," said Mr. Maling. "Search on 'convertible car rental' and you will convert much higher if you actually show them a convertible and list what is available versus dumping them to the home page. We built that for a single client and have used it for multiple clients."
Like Razorfish executives, he recognizes that there's the risk of Adobe, SAP or "you-name-it" software companies offering the same product. So he's cautious and acknowledges that selling software as a service will never be the shop's core business. But for now, as long as there's client demand, the shop will continue to invest in its own tech, he said.
Wunderman CEO Mark Read echoed that. "Our focus has been on IP that enables us to take our and our clients' offline data and use it online," Mr. Read said. "It's data we sell on a per-unit basis."
The shop is also focused on integrating the different screens around consumers, recognizing them "on their TV set or on a mobile device or on a laptop to connect profiles of consumers."
But building and licensing technology is not Wunderman's core business, Mr. Read added. Rather, "it's something we do to support our core business."
WPP digital shop Possible still invests in a lot of campaign- and client-specific IP, such as consumer-facing apps, and expects that business to grow 50% this year, said CEO Shane Atchison. Still, Mr. Atchison said he's seeing an uptick in the shop's IP investment around broader "sophisticated" marketing. "We're not going to win an arms race against big software companies," he said, "but we have to have a unique, more specialized position."