Welcome to 2019: The unsustainable ad agency business model

Business models are broken, leaders are toppling, agencies are consolidating. In-housing, predatory consultants and automation are ratcheting up the pressure.

It’s a shame that Karl Marx wasn’t born one year later. If he had been, 2019 would mark the bicentenary of his birth, fitting rather neatly with the fact that it also marks the year in which, according to BMB co-founder David Bain, his economic principles have become so tightly embraced by increasingly weakened ad agencies it is strangling them.

Marx’s theory on the notion of surplus labour value – the creation of capital by first harvesting and then selling the fruits of other people’s talent at a cost greater than you paid – has been an effective model for agencies over the years. But, Bain posits, it’s now broken and we are seeing the consequences. If it was evident in 2018 by the wholesale redundancies, most notably, but not exclusively, at the top echelons, and the disappearance of venerable agency names that had for so long stood the test of time, it’s unlikely that 2019 will be hugely different.

The challenges that clients face will have a continued impact on agency business models – more cost (in the name of talent) is likely to be stripped out from a sector that is both oversupplied and has minimal barriers to new entrants. Moreover, looming on the horizon is the conclusion of the tortuous Brexit process in March (at least that was the case at the time of writing) in which Britain will have to forge an entirely new trading relationship with the rest of the world. It’s little wonder that some clients are jittery, and zero budgeting has become the order of the day, thereby confounding the Marxist principles on which the ad business has been dependent.

If it looks like an ever-decreasing circle, rather than a virtuous one, then that is maybe because it is. This downward spiral of squeezed agency budgets, new entrants in sub-disciplines fighting for a slice of a shrinking cake and strict cost controls looks like an unsustainable model.

The product gets worse, the talent gets thinner and the clients get less happy. Inevitably, the model will eventually break, as existing – and expensive – talent leaves the business (either forcibly or of its own volition) while new talent decides to look at other sectors for creative and professional fulfilment.

So in 2019, the sad news is that the existing world order looks enfeebled. But out of the apparent chaos comes opportunity – at least for those agencies willing to keep hold of their talent (or, even better, attract more) and to break the cycle that has meant that their business models have become unsustainable.

Yes, costs must be reduced, particularly in the more functional roles of the business. If law firms and accountants can successfully find a way to use AI to take up the slack, then there’s no reason why ad agencies can’t – think, for instance, of the menial but essential high-volume, low-value, always-on communication.

This would free up the resources to keep and encourage the most talented people in the business – the creatives and strategists – to pursue what they are best at doing: using their imagination. And this imagination can be deployed beyond the confines of "just" advertising to include real brand and business problems. For these, a hefty premium can be charged – it’s what management consultancies do and their access to creativity is, at best, very limited.

Agencies may bemoan the end of the retained payment system and the shadow of uncertainty it therefore casts on the balance sheet, but the opportunity to do more valuable work could dispel these fears. Confidence, something that seemed lacking in 2018, is required to demand these grown-up, if difficult, conversations with clients, but the industry must stand firm.

Elsewhere, the opportunity is ripe for start-ups. Uncertain times can fuel entrepreneurship, and Brexit will undoubtedly change the way that UK agencies are perceived across Europe and the world, and, of course, there will be an impact on the economy.

In 2019, will we see a resurgence in domestic, rather than pan-European, business? And will the UK in general, and London in particular, retain their places as the leading hubs for brilliant creativity, innovation and talent? Given that, despite the management cull of 2018, the UK still contains a disproportionate number of the best and most talented – as well as leading-edge tech companies – there is reason to be optimistic.

In 2019 agencies have the opportunity to change their flawed business model by hiring the best talent and charging accordingly; to demand to be remunerated for the growing and multi-faceted contribution they provide to clients’ businesses as well as the "big ideas"; to use technology to take on the most mundane tasks; and to push the UK on a global level.

And, what’s more, for every old brand that disappears, there’s the opportunity for a new one to take the stage. For the best agencies and talent within, this could be a golden age.

More turbulence ahead

Jon Wilkins

Executive chairman, Karmarama (part of Accenture Interactive)

I must start with a disclaimer: I wrote this article on a plane. It was my sixth flight in just over a week, and it dawned on me that the complexities of air travel make a stunning analogy for what creative agencies are facing.

Changing the engine while flying the plane is a phrase you hear from some people about the state of our industry. It’s a task few would attempt but feels strangely appropriate heading into the new year. 

What’s causing the disruption that’s making many creative agencies attempt this strange task, you ask? Well, it’s not disruption from within – we’re a breed that doesn’t like too much change. It’s hard enough protecting and nurturing our ideas, let alone changing our business model at the same time. 

So, where’s the disruption coming from? Ultimately, it’s the turbulence of the business environment, the destabilisation of marketing and its leadership, which is forcing our planes to wobble a bit and seem a little less fit for purpose.

The life span of the chief marketer role continues to shorten; months are now being shaved off their tenure. And many are facing their own existential crisis around their value to the business and their ability to be accountable for driving new growth revenues rather than just being the customer champion within. 

What do we need to do? Well, we need to help these chief marketers as "they is what pays the bills". And, to help them, we need to spread our creative wings.

According to Accenture research, 87% of organisations agree that traditional experiences are no longer enough to satisfy customers. We need to create ideas that are as powerful in culture as they are accountable in commerce. Ideas that are as engaging in communication as they are in service design.

We need to continue to help clients orchestrate creative experiences that change behaviour and drive growth, while never losing sight of the creative skills we value so much.

This coming year agencies will experiment with different team structures, and siloes and walls between disciplines will continue to collapse. There will need to be a more collaborative way of developing, designing and creating experiences, and a new-found desire for accountability to support our chief marketers with their challenging environment. 

The new plane we’re designing will need to be less complex, more agile, less command-and-control-oriented and will involve our crews working in different ways.

From 32,000 feet, the task seems daunting but not impossible.

Time to stop chewing on the toffee of risk aversion

Sarah Douglas

Chief executive, Abbott Mead Vickers BBDO

Are you a bit tired of change?

I’m not. Because I don’t think we’ve done it yet.

Yes, we’ve added. Well done, us.

But that’s just noise. Not evolution.

When I talk about change, I mean the passing-through-to-adulthood type of change.

The change Michelangelo exacted on a cold slab of marble when he revealed David.

The change that is as much about taking things away to excavate the beauty of a person or a piece of art as it is about the relentless adoption of increased stimuli.

It’s a bit like adolescence. But, like all good adolescents, we got seduced and distracted from our path to successful adulthood by the 12 ways to consume alcohol without our parents smelling it on our breath; the six ways (to be used in strict rotation) to get off games when it’s raining; and the three things we absolutely have to do to stand an outside chance of borrowing the car on Saturday night.

We have created more data in the past two years than in the whole of history. Yet only managed to analyse 0.5% of it. I wish I could claim the credit for this illuminating factoid but it was our friends at Asda at their annual summit.

I worry that this has become our big adolescent distraction. The point of adolescence is to find out who you really are. So, adland, do you know who you want to be when you grow up yet?

I want to be a fierce creative business. Using all the smarts and firepower of all the talented people in Bankside towers to deliver for clients.

Now, more than ever, as our national psyche smashes its face up on the rocks of Brexit it’s time to get back to what we really believe in.

Ed McCabe said it first: "Creativity is one of the last remaining legal ways of gaining an unfair advantage over the competition."

If you’re reading this and you are not creative (not "a" creative, note, please), you’re in the wrong business. Creative is an adjective, not a noun.

We must stand up for creativity in all phases of a brand’s journey if we want to move culture for competitive advantage, as we have done this year with our amazing partner Essity.

2019 is the time to stop chewing on the toffee of risk aversion and finally grow up.

The best data is powerful

Stef Calcraft

Former executive chairman, Dentsu Aegis UK and Ireland

"I’ve seen things you people wouldn’t believe. Attack ships on fire off the shoulder of Orion. I watched C-beams glitter in the dark near the Tannhäuser Gate. All those moments will be lost in time, like tears in rain. Time to die."

Roy’s death soliloquy from Blade Runner, set in a dystopian future, 2019.

No replicants yet, but Trump, more Brexit, more hacking, massive data breaches, climatic catastrophes, the scourge of plastic and a widening poverty gap – 2019 brings more to worry about than ever before. 

But then, the full embrace of female leadership and values, the celebration and promotion of cultural, ethnic and mental diversity, the rewiring of society by the most progressive generation in history and the triumph of human spirit in adversity. It also brings more to be hopeful for than ever before. 

For all of us, it will be the year of working differently and better. Bringing together diverse, multiskilled teams from different backgrounds, enabling better, more creative work to be done, more quickly. It’s also a lot more fun.

Partnering clients in much deeper, more flexible ways is liberating, not something to be concerned about.

Embracing the opportunities that come from co-locating with clients and other partners to invent new ideas and new ways of doing things.

Using data and technology to reconnect with real people in much more meaningful ways, as marketing was always supposed to.

But understanding that although not all data is good, the best data is enormously powerful, insightful and fuel for creativity, innovation and growth.

Putting all of this together, we call this "winning with the power of each other", and it works better for our people, our clients and our partners.

While 2019 might not be quite as dystopian as the vision created by the incomparable genius of Sir Ridley Scott, it will continue to turn the familiar inside out and hasten changes that no-one can foresee.

There is one certainty, however. The year of 2019 will be one where fortune will favour the curious, the change agents, the new creative thinkers and those who best understand humankind.

Reach the parts that clients cannot reach

Johnny Hornby

Founder, global chief executive and chairman, The & Partnership

Two years ago, I was heralding the arrival of the new-model agency as a galvanising response to the changes sweeping our industry. I saw it accelerated by the twin challenges of content and cost: the need to produce greater volumes of high-quality, tailored content, but in ways that were more efficient than old-model agencies could hope to deliver. Instead, it demanded a totally new way of working, radically fusing agency disciplines into one team with a single bottom line, often co-located with the client, and harnessing talent and technology to deliver genuinely data-driven creativity.

Doubts were expressed. At best, that this was a full-circle back to full service, and as such, a retrograde step. At worst, that the new-model agency was just a studio-on-stilts, designed to churn out "collateral" rather than reinvent creativity. Yet momentum has gathered, evidence has grown, awards have accumulated, and two years on, clients are no longer asking whether they need a new-model agency, but how they do it best.

The speed with which we have arrived at this place has taken the industry by surprise. A recent Association of National Advertisers survey of North American advertisers found 78% now with some sort of in-house agency, with two-thirds saying that its workload has increased "a lot" in the past year. This is a revolution in progress. So, who will lead it?

Clients could go down the DIY route. I’m sure that’s what lies behind many of those ANA numbers. Yet there is still a very persuasive case for the advantages of in-sourcing over in-housing: access to talent, data, buying power. This case, that a true new-model agency reaches the parts our clients can’t, is one we must continue to make compellingly.

Consultants could protest that they are the natural new-model leaders. They certainly know how to successfully (and profitably) embed themselves within client organisations. They’re better at the machines than the magic, though, and the best solution will be excellent in both; nevertheless, I expect them to be a real competitor in this space.

Where does that leave us, the agencies? Some, like Oliver or Wunderman Inside, have some strong new-model trappings, but I’m describing a much richer proposition. The networks are now racing to put it together, but they’re hindered by legacy structures and systems. The behavioural change it calls for is so fundamental that even with a clear end-state in mind, the obstacles are still formidable.

At least we have a clearer picture of that end-state. The new-model agency has to blend our time-honoured understanding of brands and creativity with new skills: integrating major behavioural data sources with clients’ first-party data; providing transparent, objective media solutions; managing talent across far more dispersed agency configurations and cultures; operating at the speed of life, with the energy and agility of a marketing newsroom. It won’t be easy, but we must get there and get there first.

In 2017 the new-model agency was a prediction; in 2019 it will be a prerequisite.

Operate at the speed of life

Annette King

Chief executive, Publicis Groupe UK

The year ahead is about the rubber meeting the road. Everyone talked endlessly in 2018 about transformation, data-led marketing, collaborative models and dynamic content optimisation across touchpoints. But now the question for clients should be: "Who can really do it, and do it really well?"

Agency brands are our spearheads: their different cultures and approaches are what make our work powerful and diverse. But the days of them sticking to their knitting and loosely coalescing under a holding company umbrella are over.

Holding company groups can no longer hover above as financial constructs, or organisational ones. To be successful they need to be active platforms around which to build solutions for clients. Brands and businesses should demand a group with one operating system, which is able to plug in the right resources at the right time, in the right way.

As we preserve the spirit of our agency brands, Publicis Groupe works together across the business, solving client problems. Easy to say, hard to do. As I said, it’s where the rubber meets the road.

It’s commonly accepted that you cannot change strategy without changing structure, and that’s what needs to happen industry-wide: creating a dynamic organisation that flexes across all disciplines, in line with the task, or tasks, at hand.

In so doing, we need to make any complexity invisible to clients – it is for us to solve. Clients should be able to set the task, however challenging, and get the right solution first time from any part of the group. We’re not simply pouring ads into preordained media schedules, nor just writing opus TV scripts and trying to shove them into social channels. We are trying to take a client problem, match the most task-ready talent to answer it, and do it with commitment and creativity.

Along the way, everybody will learn new skills; be exposed to different ways of solving problems and meet new and interesting people. It’s a great time to be in our business. But only if you’re part of a group that is brave enough to make the changes to enable you to do what you say you can.

Rediscovering the knack for capturing the zeitgeist

David Abraham

Chief executive, Wonderhood Studios

Brexit will reach its messy climax in 2019, so creative companies in the UK – and their clients – will be thrust into a new landscape in which a Britain divided goes it alone. Fear for some will mingle with excitement for others, and this will spur the best among us to reflect, through the work we create, what Britain might look and feel like when we enter the 2020s in 12 months’ time.

It doesn’t seem so long ago since 2010, so let’s imagine what Britain might become over the next decade – some years out of the EU. This will be creative and cultural disruption at its most bracing.

Brexit will be the backdrop against which more industry-specific disruptions continue to play out: between collapsing agency networks versus true independents; national versus global media; "big ideas" versus "always on"; between "legacy media" and a further breakdown in trust in big data; short-termism and brand-building for the long term.

We may all pitch our tents differently along these divides but I sense an ambition from a growing and influential client base that is seeking to migrate back to creativity and breakthrough ideas – helping to unite rather than fragment their communications in a world that has been zagging the other way for a while now, not at the expense of ROI but in its long-term interest. The most ambitious creative agencies will seize the moment in 2019, to re-engage their clients in a new balance between digital activation and the recurring value of imaginative and creative brand-building.

The optimist in me remembers that, at their best, the UK creative industries have always shown a knack for capturing the national zeitgeist, propelling culture, media and brands forward. So I will be looking out for the new "Chuck out your chintz", "Superhumans" or "Skittles rainbow" moments that capture the public mood in forward-looking, rather than defensive or nostalgic ways.

Moreover, in a landscape in which brands and quality content become more adjacent, the potential for 2019 to be when bigger breakthroughs start to proliferate in mid- and long-form content creation and partnerships is tantalising.

Will it be the production or creative agency players that help to lead this? In 12 months, let’s regroup and see.

Putting 'relationship' back into CRM

Mel Edwards

Global chief executive, Wunderman Thompson

For my industry, the issues we’re managing are not for 2019 alone or even 2020. We are facing a seismic shift in how people expect to be treated, and that has permanently changed the state of play.

Put simply, everyone expects amazing. Consumers are being conditioned to believe that brands should be there when they want them, absent when they don’t, and able to provide an experience that anticipates their needs. The "relationship" part of CRM is back – and understanding just what that looks like should be every marketer’s goal.

To get there, the challenges are clear: understanding data and behaviour, organising people and processes, and still delivering a creative and human experience. It’s a tall order, so let’s take them one at a time.

Data and behaviour. Our research has shown that more than 70% of consumers will only consider a brand that "understands and cares about me". To achieve this, however, we have to start doing more than just capturing and collecting data. Marketers must seek insights from their data, going beyond what people are doing, and tap into more emotional and valuable reasons about why they’re doing it. Because finding that "why" is ultimately how we deliver real value for people.

People and processes. By now, we’ve learned that tech by itself is not an answer, with nearly 60% of marketers unhappy with their investments in it. That’s why organisational restructuring – finally paying more than lip service to moving out of silos – will take on accelerated meaning in 2019.

It will require internal changes as well as a recognition that partners need to better understand and deliver against the real needs of brands. Anything that simplifies and builds relationships with consumers will be welcome.

Creative humanity. With the many technological advances we have made, creative complacency is not an option. It’s important that our industry remains human-focused at its core. Ideas still matter. Imagination is essential. Whether we’re producing a traditional TV spot or trying to anticipate what will resonate in an email, we must deliver great work that inspires emotional connections with consumers.

In 2019, we have incredible tools and the ability to make them better and more effective over time. But we must acknowledge that none of this happens without effort. We have to continue to push hard, challenge old ways of working and keep nurturing the creativity and humanity we need to make what people really want.

As CRM-related objectives and technologies continue to expand and evolve, these ideas should always remain at the core of our "why and how".

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