Creative Revolution: Disrupting The Advertising Agency Model

By Umair Mohsin

A few months ago we received an RFQ (Request From Quote) from a potential client in Dubai to redevelop their existing website. Understanding the competitiveness there, especially because of template buying and modifying firms, and hoping to make more money through selling additional services once they were on board, we quoted a figure of $4000 for the project which by our calculations was quite low for the scoping and time involved.

Imagine to our surprise when it was rejected by the procurement as being substantially high and they told us that they had locked a vendor for $250. A little dejected by the rejection and client’s dependency on freelancers, we went back to the proverbial pavilion.

Five weeks later, the same procurement called and said that the vendor had not worked out and requested us to submit a price again. Anxious to not lose out, we dropped the price down to $3,300 which was almost a money losing proposition.

The value proposition of agencies has been reduced greatly due to cost pressures on clients and a flood of low quality workers who diminish perceived value

Again, a new vendor was locked and it wasn’t us at $900. Downcast at the inability of the client to understand our value-proposition, we were rewarded at last when 3 weeks later the new vendor was again fired and our proposal was accepted this time with no change mostly due to extreme pressure from the top management. Suffice to say we delivered on our proposal and now have a happy retainer client.

Once the domain of the ‘Mad Men’ who produced work that created the culture of the day, the agency landscape today has been obliterated economically, organizationally, and culturally by the increasing cost pressures on clients, global policies, global recession, the rise of internet and technologies which allows disintermediation on a scale never before witnessed and to some extent perhaps even corporate ignorance. The headiness and the glamour of the “Mad Men” era is a relic of the past. Now ‘Math Men’ rule the roost in media and the power with them is growing.

Yet the blame for this lies nowhere else but with the agencies for the diminished value advertisers now place on the craft.  There was a time once when ad agencies used to be indispensable and termed ‘brand partners’ and ‘brand custodians’ when it came to advising clients how to build brands.

Coming up with an enduring campaign like “Chai Chaiyay”, “The Legend Leads” or “Dil Dil Pakistan…Pepsi Pepsi Pakistan” would power the agency’s fortunes for decades. In those heady times, an agency would produce a maximum of two or three ad campaigns for TV, print and or an outdoor in a year with some format modifications and get paid handsome retainers that would allow agency owners to buy the lifestyles of their dreams.

It’s no secret that some of the biggest advertisers in Pakistan set KPIs for media buying at 20% of full rates, an impossible feat usually performed at the expense of increasing advertising time on TV Channels

In the late 90s, however the biggest agency networks started spinning out their media departments out of existing creative agencies into stand-alone companies, creating new entities such as Mindshare and StarCom. The goal was to hold onto a client’s media spend even if they took their creative business elsewhere, whilst at the same time drive efficiencies with the clout of volume buys. However in essence what agencies really did was de-value the creative and strategy part of the business and with it the practices of hiring and paying for great agency talent.

For a while it worked and the groups grew until the clients began to realize that ‘We are paying them too much for creating too little value’. Clients than turned tables and forced agencies into accepting a fee based model instead, which of course was far less lucrative. As cost and marketing pressure grew, agencies were later were turned into ‘vendors’ to be controlled and policed by procurement departments, bought and sold like the ingredients that go into making products.

Perhaps an another example might suffice. A few days ago we were requested by an advertiser to pitch for their business against an incumbent agency which had gone into review. On inquiring how many agencies had been called to pitch, the answer we received was shocking – 50 agencies. We excused ourselves from the process.

Not only the pitching would have entailed undertaking a sizeable volume of work in developing the appropriate response but we would not have any indication of the final scope or value of the revenues especially when against 50 agencies there will be excessive pressure on price and to deliver more and to promise more. Combine this with the fact that clients are now looking for extensions on payment terms to as much as 120 days, it would have been disastrous. However even I we know that we do not have this luxury of declining this process for too long.

Starting an agency now is simply putting up a Facebook page and sourcing for work and producing an ad doesn’t have to be an expensive undertaking anymore

Squeezed by clients on one side due to their own myopia, agencies on the other have been beset by a horde of new tech invaders attacking every aspect of their value chain. Technology companies have commoditized the ad business model.

Starting an agency now is simply putting up a Facebook page and sourcing for work and producing an ad doesn’t have to be an expensive undertaking anymore, especially given that commercial-grade HD video can now be shot on cameras that cost less than a single print ad in Dawn Newspaper.

Agencies are now viewed as nothing more than glorified Photoshop experts

Efficacy maybe debated but there’s no running from the fact that pirated software and global access to cheap free-lance platforms that offer everything from $5 logos to $50 HD stock videos had turned the agency model on its head with tech firms now offering ‘marketing solutions’ from as low as Rs.4000.

In a world where the brand builders themselves never took time to create their own brands nor did we ever really define our value, we are now treated as little more than people with Photoshop skills, perhaps another reason why clients now expect marketing campaigns to be delivered ‘Over-Night’.

Digital advertising is effectively killing traditional media and anyone stuck in time will be extinct with it

Digital advertising is also getting speedier and smarter bringing transparency, efficiency and precision to the industry but killing off the traditional processes and ways of making money. In days of old, ad executives would call various publishers, negotiate good rates and then whilst consulting the clients to their needs, placed the ads.

15% commission on advertising especially television spent powered the growth of the agencies and their people. Now advertisers themselves specify which sort of audiences they want to reach, where and how much they are willing to pay for as low as 3% or sometimes even 0% media commission.

It must be understood that this media commission was never the client’s to begin with. It was negotiated by publishers to pay for the fact that agencies spent time and money on campaigns and saved the publishers massive resources which they would have had to undertake to produce the same campaigns.

With the rise of media buying agencies however, this was taken away from agencies and transferred to the client in the form of efficiencies. Creative & Strategy were always a loss leader components for agencies which the media department would overcome. This was taken away and the demise started.

How bad is it? It’s no secret that some of the biggest advertisers in Pakistan set KPIs for media buying at 20% of full rates, an impossible feat usually performed at the expense of increasing advertising time on TV Channels (now we have almost 22 minutes of advertising for each hour of content), invasive advertorials (e.g. front page of magazines, supplements, etc).

Global firms are now setting up their own Ad Exchanges and Trading Desks, bypassing digital agencies

Global firms like P&G are one-upping digital agencies and using their own Trading Desks on Ad Exchanges to buy space on websites that fit their requirements without requiring media planning firms. This is not just stopping at media buying either.

Advertisers globally are setting up their own in-house agencies since digital channels especially require hundreds of iterations of the same messages to fit the formats for social, PPC, blogs, etc almost on a daily basis and no agency can keep up with that cost efficiently. Whilst the big campaigns and ideas are still generated by the agency of record, more and more work is being done in-house by clients due to cost efficiencies and better data collection.

A fundamental shift in advertising is being seen with ‘real time bidding software’, instant analytics and electronic screens in malls

Many traditional and online publishers in Pakistan too are increasingly selling directly to clients and whilst some years off from being implemented in Pakistan, it is only a matter of time before digitization of media will ensure that radio, outdoor and television commercials will also be sold via ‘Real Time Bidding’ software.

Already print posters are slowly being replaced by electronic screens especially in our malls. These if networked can be updated instantly with ads and thus will be the first to be sold via real-time bidding exchanges. Though less than a percentage point of share at the moment, as these grow (and they will grow) will advertisers be needing agencies when software takes over in this country.

In 10 years, when an advertiser can display their latest commercial downloaded from their region’s server in any mall, any billboard or medium they want at the click of a button within minutes and when they have digital measurement tools such as those currently being rolled out by behemoths such as Microsoft, IBM or Google with highly accurate predictions for the best targets for a campaign and which increasingly can quantify the success of the campaign, what need is there to retain ‘glorified dispatchers’ against these powerful algorithms, machines and tools.

Attracting top tier talent without hefty pays of banks or the glitter and perks of FMCGs is becoming impossible

The agency lives and dies by the people it retains and with this pressure it is very hard to attract the best talent without the pay of banks and tech firms or the glitter and perks of FMCGs. Infact here I’m reminded of a joke – Advertising Agency: One Man Who Does The Work Of Twenty, With No Money, No Time Off And No Thanks.

Understandably, the client usually have a viewpoint that because they spend a lot of money, agencies must be rolling in dough because of the sheer volume of projects. Yet due to retainer and fees agreements at the out-set and then clients rarely sticking to their agreed scope of work and wanting everything immediately (thus requiring keeping larger teams than budgeted for) that is no longer true.

The truism ‘digital dimes don’t replace analog dollars’ is now our industry’s demon as well

Let me elucidate. I will talk about my client with whom we have had a very long and very strong bond with the agency acting as their marketing department and brand consultants. For some years however this particular client had operated on a ‘zero-cost increase’ mantra with the familiar diminishing marketing budgets arguments and an ever growing ‘to-do’ list (which I am sure many fellow agency professionals will have experienced).

With increasing costs of infrastructure and people combined with no rates or remuneration increases, we were finding it increasingly difficult to continue to service the business at the level that the client had grown to. The growing large size of the client meant (aside from the fact that we did a pretty great job) that there was increasingly an operational loss for the agency. After a long time, we had to let them go.

There is a truism in the media industries that digital dimes don’t replace analog dollars. It is a problem that music and movie producers and traditional publishers have faced and now it is our industry’s demon as well. I will admit that we the agency people like to talk a lot about taking risks and pushing innovation, but I’d be lying if I say our operational structures or our compensation systems are geared for it.

Fast changing management structures have negatively impacted client retention for agencies

Agencies are not paid for innovative work or projects that fail but for the work that clients expect, one which might even elicit the familiar “Maza Nahi Aayaa” phrase. A failed campaign or venture could in fact be the moot point where a review could be called.

This of course is assuming that the Director Marketing or CMO remains stable. After all with each new change at the top, the agency usually changes and that’s happening more frequently now (every 2 years). Thus not knowing whether the client is going to be around for another year or not, the agencies are increasingly just buttoning down and hoping to survive until the media wars subside.

With the new social order, agencies that adapt fast to new technologies and create value despite dropping margins will be the only survivors

Yet the same complexity that technology has wrought might be the agency’s savior. With the rise of social media, SEO, mobile and tools that generate an enormous amount of data, it is the mandate of the modern agencies to make sense of it all and regain our lofty position as the client’s Brand Partner.

We need to help them make informed choices based on data across channels. As the go-to mediators for electronic to outdoor, combining data from channels and even out-doing the mighty titans of tech when it comes to better decisions e.g. Google cannot recommend Facebook if the conversions there are better. Agencies can.

As an industry now there is a need of the time to be more strategic, develop technical creative people, introduce process innovation and learn to integrate and think like a marketing department promising marketing solutions rather than ‘ad placements’. This means it’s also time to bring media departments back into the creative and tech side.

We ask our clients this question but have we ever asked ourselves whether we’re actually providing value to our clients? Are we articulating what our value is clearly? If we can’t, chances are clients don’t see any value creation by us either and as we tell our clients “any product that is a me-too or tries to make money without offering real value… is certain to fail”.

There’s never been a worse time to be in the ad agency business, or the best.

Writer is a Global Director – USA, UK, UAE, Australia & South Asia For MI DIGITAL, a global digital marketing and advertising agency, that provides solutions at the interaction of technology and marketing for global brands.