New Services Threaten to Cannibalize Revenue

The New Agency Economy

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Phil Johnson
Phil Johnson
It's interesting how quickly last year's debates lose their intensity. For instance, the back and forth about whether traditional or digital agencies will own the brand in the client relationship is running out of steam. Last year a lot of energy went into defending the dominance of social media. Today, even the most lumbering agencies now proselytize about the power of social media in the marketing mix. The fury over pricing pressure, brought on by the recession, has simmered down to a whimper. It's time for some hot new debates.

One topic that interests me is how the agency economy is going to change -- not how much people will pay for services but what services they will want and how they will value them. In 2010, I think we're going to see a new economy emerge with less expensive services that will displace a lot of the premium services that agencies depend on for the lion's share of their revenue. This new economy will change the organizational structure of agencies and determine the next wave of innovators and leaders. This will be good for clients and challenging for agencies.

Here are a couple of examples of what I'm seeing happen within my own agency, PJA Advertising & Marketing.

A major driver of new business has been the demand for social-media programs, or at least integrated programs that have a large social component. These social media programs do not command the same pricing as larger advertising programs, but they have high value for clients. Originally, we made the mistake of trying to manage these programs through the established agency creative process. It drove up the costs and didn't necessarily add any value. The work can largely be managed without production and traffic, and the creative department often plays a tangential role.

In response to this dynamic, we have created a new role in the agency for a Social Media Analyst, a hybrid role that understands social platforms and the client's marketing challenges. These people also manage all of the social-media channels for a client. It's high-touch and ongoing. Their responsibilities span account, creative, digital and media roles.

This service does not command the same pricing as senior creative or account functions, but neither is it a supplemental or support position. It's central to our client relationships, and in that way a new function is becoming more valuable to our clients than other traditional and more expensive functions. It has also begun to shift the organizational center of gravity from teams of people who create assets to people who manage social networks.

A second force changing the agency economy is the demand for fast, inexpensive content that feeds a lot of the new social and digital channels. Mike O'Toole, our president, calls this social-media-ready content. It has different attributes than traditional marketing communications. Production values are not as fussy. The point of view has moved from corporate to non-partisan. It's ongoing. In many cases, this work doesn't require a creative brief. It often doesn't need the management of a creative director. Side by side with the production of highly produced, high concept work, we're also producing a steady stream of video, audio and written content that gets deployed across multiple channels and may have a very short shelf life.

Increasingly, clients place a high value on this social-media-ready content, but we need to produce it quickly and less expensively than other communications. We're hiring more writers with journalism experience. We have a growing group of video producers who can shoot and edit an entire production independently with a minimum amount of creative and administrative support. These changes have created a demand for a new kind of talent and a new economic model.

Clients will stay pay premium pricing for creative directors, planners, and account people. Smart strategic direction, original consumer insights, and program design will always have high value. Every brand still demands conceptual creative work with excellent production values. These will remain essential services, but we can no longer build the agency economy around them, and they may no longer be the sole drivers of the client relationship. We need to make room for new services, even when they displace other services that historically may have paid more money. That may cause some short-term pain, but in the long run it will align agencies with what clients need and value. That goes a long way towards creating relationships built on mutual trust and respect. That would be a great outcome for 2010.

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You can follow Phil Johnson on Twitter: @philjohnson

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