The Agency Issue

When Did 'Agency' Become the Thing Nobody Wanted to Be?

Critics Think Traditional Moniker Screams 'Status Quo' and 'Service Only,' but Perhaps It Simply Needs to Be Redefined

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Search "We're not an ad agency" -- the quotation marks are vital -- and you'll get 16,500 results on Google.

In the annals of negation, it's nowhere near as popular as the colloquial "Not that I'm into that" with 757,000; the Nixonian "I'm not a crook" with 1.3 million results; and Magritte's "Ceci n'est pas une pipe," which nets a whopping 2.3 million.

Yet when you page through the results, it's clear there's a hell of a lot of people who don't want to be confused, under any circumstances, with an ostensibly respectable category of business that, for more than a century, has bestowed fantastic wealth upon a few, and a respectable living, low handicaps and battle-hardened livers upon many more. Sure, cancer is not being cured at Grey. But, at the same time, it hasn't started any wars or crashed the economy. Still, the aversion is strong enough to cause people spanning the globe to commit great acts of violence against grammar and syntax and logic and semantic systems all to dodge the label. When one of the industry's oldest shops, Campbell-Ewald, celebrated its 100th anniversary in February, it revamped its website, adding this descriptor to it: "We're not an agency. We're hundreds of diverse minds rattling as one."

While you ponder the question of what it means to go to great lengths to convince people what you're not, also ask yourself this: When did "agency" become a bad word?

Rejecting the "ad" part is nothing new, a common rhetorical move since the internet kicked media fragmentation into high gear and the industry figured it needed to be doing something other than just 30-second spots. But now there's a big old bull's-eye on "agency." Marketing businesses from the huge ( Saatchi & Saatchi) to the midsize (Anomaly) to the tiny (Omelet) have rejected it, which is kind of interesting when you consider that as recently as the early 2000s, working at an agency wasn't a bad way to get rich.

Today, acquisitive interest has shifted from traditional to digital. But there's a catch: There's much less interest in snatching up service businesses. Buyers will pay top dollar only for tech platforms and intellectual property -- the stuff that'll make money overnight -- which is pretty much the direct opposite of the agency, where value lies in fragile client relationships and labor is tallied up on timesheets.

"When you've got a combination platform-technology business, your greatest fear is ever being defined as an agency," the head of one ad-tech company told me. "We make personnel decisions and a lot of other decisions, so we don't fall into that world. [If you're an agency] your revenue cycles tend to be shorter, your customer-lifetime value tends to be lower, your revenue tends to be project-based, and you tend to have much more intense conversations with procurement. They're sniffing out agencies. And no one's investing in them unless they're technology-enabled." At the end of March, equity-research firm Nomura issued an analysis of Interpublic, Omnicom and the ad-agency business at large. The short form is that Nomura isn't terribly excited about those companies or their agencies.

The good news is that the apocalyptic threats to the business that reared their heads a few years back were overstated. The other good news, which is also kind of bad news, is that average agency profit margins allowed by their clients have over the past seven years, to put it in analyst speak, "become less volatile." Nomura, citing Association of National Advertisers research, found that for the past seven years, margins have set up home in the safe but not-terribly-luxe neighborhood of 13%-14%.

Translation: Nobody's going broke, but nobody's getting particularly rich, eitheron profits. Besides not getting Wall Street types dewy with excitement, this reality takes a toll culturally on the creative and strategic rank-and-file. Despite the great amalgam of talent the best agencies have, innovation of the kind that changes the playing field for a business doesn't thrive. Happily, the grim acknowledgment of these struggles has stoked a desire to transcend the grind.

You can put these efforts in two separate groups. On one side you have a now well-chronicled trendlet of agencies setting up mini venture funds to make capital investments in startups.

On the other, you have a longer-term, full-fledged trend of agencies spending time and resources to incubate and develop products and platforms. Shops from Mother to the Brooklyn Brothers have done this for years. Kirshenbaum Bond Senecal & Partners is investing in it, in the form of its Spies and Assassins unit. And later this year, Droga5 will launch a division dedicated to intellectual-property development. I asked its CEO, Andrew Essex, how much of this had to do with improving the firm's valuation.

"[This] takes you into technology valuations, which are a different type of bubble," he said. "It would be expedient just to elevate the valuation. But it's existential. There's a long-term, almost spiritual obligation. We have to find ways to be more entrepreneurial. There's too much talent at one space not to do that." One of the largest undertakings of this sort will go on at McCann Erickson, which, by Ad Age's count, is the second-largest agency brand, with $1.4 billion in revenue. Its parent, Interpublic, recently shifted Matt Freeman into a newly created role of chief innovation officer.

He will now attempt to take a global agency network that presently gets about 100% of its revenue from fees from clients like Microsoft and Johnson & Johnson and diversify to create two other kinds of streams: equity investments and licensing software services and other intellectual property. Over time, Mr. Freeman told me, he wants each segment, along with fees, to contribute a third of McCann's overall revenues. Essentially, he described what would be one of the more radical business transformations in the history of Madison Avenue.

Mr. Freeman until recently ran an Interpublic unit focused in part on investing in startups and incubating products and services, and he's critical of agencies' push to get into the venture-capital space. "That's a novice instinct. I want to go deeper into the clients rather than farther away. To think that you're going to out-VC the VCs is stupid. To apply that methodology and mind-set to what you're truly talented at makes a lot of sense to me."

So if McCann gets to the point where only a relatively small chunk of its business can be summed up in timesheets, can it still be considered an ad agency? Well, historically speaking, yes. Mr. Freeman points to McCann Erickson co-founder Alfred Erickson's biography as evidence of a day when agencies were more ambitious. Not only was Mr. Erickson an early investor in Technicolor, he also turned a failed product called Congo, which he bought from a chemical-company client, into a successful floor covering. According to Time magazine, "the renamed product, Congoleum, was Erickson's first big killing."

Product development, equity relationships, real partnerships. They were all there at the dawn of advertising. What wasn't? All the concerns about nomenclature. Now, faced with the fallen state of the ad agency, when bright creative things want to start a, um, firm that gets paid to do marketing stuff for another company that makes goods and services, they're likely to call it something relatively complicated.

The notion of a studio, which at once evokes both a small organization and cooler fields like film and design, has become popular of late. Before that, there was a trend of shoving the word "idea" into the description, which made for some absurdist applications, like Saatchi & Saatchi, perhaps having seen one too many Magritte exhibits, declaring, "We're not an ad agency; we're an ideas factory." Lowe took it one step further when it began billing itself as a "High Value Ideas Company."

Of course, it's easy to laugh at this, but rhetorical decisions like these can also be a key way of defining oneself and one's company. Los Angeles-based Omelet's Twitter bio reads: "We're not an ad agency -- we're an IDEAS company. We love advertising, brand entertainment, interactive marketing and making people smile." Of its declared non-agency status, co-founder Ryan Fey wrote to me, it's "pretty important to our DNA." He said this decision goes back to the company's founding in 2004.

"The term 'agency' often equates to ego and to less of partnership, more of a service-only relationship," he said. "If we're good at our jobs, we should be able to grow the business horizontally and vertically as well." Here he's referring to redefining the notion of marketing as cost into something that can actually make money for the client.

Talking with Mr. Fey, an intense guy who uses the word "humbly" a lot -- particularly in accounts of occasions when he's essentially telling people to fuck off -- you get the idea that this categorization has been something of a mixed bag. On one hand, it's helped give Omelet an individualist perspective, the most extreme manifestation of which may be its purchase of a stake in Pillow People, an all-but-forgotten mid-1980s toy that's going to be remade into a "sleep system." On the other, this nonconformity has not always been a boon to the 50-person shop's growth, especially where communicating Omelet's propositions to the search consultants who run agency reviews is concerned. Nevertheless, you get the feeling Omelet is what it wants to be in an industry where that's not so common.

When I was researching this piece, I was passed a note that John Coleman, co-founder of Portland, Maine-based Via, sent to his industry contacts to announce that Via would henceforth be called Via Agency. Thus, Mr. Coleman adopted a label he'd avoided for 18 years for many reasons, including its multidisciplinary origins and a distaste for typical agency egos. "When someone called us an ad agency, we recoiled against it."

In recent years, however, as Via, soon to be about 85 people strong, has taken on more national business, in the form of Samsung and Unilever, he realized that his competition was ad agencies. He was also hearing praise from clients along the lines of "You care more about our business than we do." I asked Mr. Coleman whether calling Via an agency is antithetical to innovation or entrepreneurialism. He replied by telling me about two projects in development: a line of cleaning products and a social-media property. Both will be part of different company aligned within Via, not wholly unlike the structure that Droga5 is embracing.

"Let's embrace it," said Mr. Coleman of his decision to plunge into agency history. "I know there's a baggage to it, but we're not like those people. We're proud to be part of this lineage."

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