Opinion: After COVID, ad agencies are in for a big awakening
The standard fee-for-service ad-agency business model is on the way out—a long-term trend that COVID has only accelerated. The standard model is simply too expensive for clients, who no longer need to pay that price. As automation takes over more agency functions, the future belongs to products. Agencies that know how to perform in the new environment will flourish by sharing those products much more widely than they could share their services. Those who succeed will experience exponential growth.
Since programmatic advertising began to take hold, a number of foresighted agencies, including Publicis Media, Xaxis, Accuen and Cadreon, have set up better technology teams and products including trading desks. At the same time, martech product companies including Adobe and Salesforce have moved into what was traditionally viewed as agency territory. Some agencies have found solace in business transformation (Publicis Sapient, RGA, Wunderman Thompson), but consulting firms including Accenture Interactive, BCG Digital, and PwC have also moved in on digital transformation.
The walls are closing in. If you don’t have a product team, you’re already falling behind.
It’s time for agencies to look for products they can white-label and customize for their client base. Your team should ask itself regularly: Given the services we provide, what products can we build or buy that will automate those services? If you’re not asking that question, your competitors will. The only way to stay ahead of automation is to automate faster. The right products can help you serve your clients better than ever. The wrong ones will lead your clients to look elsewhere.
Data acquisition offers a way forward
Thanks to the GDPR and CCPA, third-party data is increasingly hard to come by. Yet your customers need good data more than ever. Why not build products to help them acquire it? Businesses’ need for data will only grow, and most are now adopting customer data platforms. But simple things like a proper consumer engagement strategy around daily or weekly content (a podcast for which people can register), free content that requires an opt-in (including an infographic or a report) or a true loyalty program (with points or badges) can provide value while enabling you to compile first-party data.
As more clients ask agencies to express results in cost-per-acquisition, average revenue per user and return on ad spend, agencies need to prepare for those requests in advance. Developing metrics like that requires the right technology, sure—but also the right human expertise. The next marketers agencies hire must be performance marketers. Creativity and performance are not mutually exclusive, of course. It’s possible to train a generation of marketers that understand that creativity can increase performance, time and time again.
Related to that: As more brands go direct-to-consumer, agencies need to demonstrate that they are “D2C first.” They do that by showing prospective clients their D2C-first design, tech, media and data strategies. Products that make it easier for brands to execute D2C campaigns (storefronts, subscription revenue models and support and omnichannel setups) could become the most valuable products your agency ever builds.
Agencies that focus on services can grow only in a linear manner. They have to hire new people each time they grow. And the more they grow, the more people they need to hire.
A focus on products, however, enables exponential growth. There’s no reason why one marketer can’t service thousands of campaigns against true investment return and return-on-ad-spend goals.
Rather than worry about how to defend the meager linear growth that competitors have been attacking for years, agencies should switch to offense. They should move toward the exponential growth that awaits the developers of useful products.