The world of digital media and advertising is chock full of good ideas, many of which come from agencies. But not all good ideas work as well in practice as they do on paper. Communism taught us that.
Digiday asked agency execs to highlight some ideas that sound great in theory but just don’t work that well in practice. Interestingly, many of them relate to the issue of “reinventing” the agency business model itself.
Brands like Oreo and its agency 360i have been applauded for the way it reacted in “real time” to events like the Super Bowl blackout. All of a sudden, brands and agencies are touting the importance of being “always on” and ready to react to cultural events at the drop of a hat. In reality, it’s not quite that simple. Oreo was able to react as quickly as it did to events at the Super Bowl because it had key stakeholders in the same room at the right time. It might have appeared “real time” to those on the outside, but in reality an effort like that requires a huge amount of preparation and investment or, frankly, good luck. As one agency exec put it, “It’s less about being real time and more about being predictive. You can plan ahead, to a certain extent and have content and ideas ready to go if and when you can use them.” Again, clients, too, are often bottlenecked when it comes to doing anything in “real-time.” Approval is often required from multiple parties, and that’s before it even reaches the legal department. Saying brands should react in “real-time” to cultural events is easy. Actually doing so is a different matter entirely.
Agencies increasingly complain about the number of vendor calls they’re inundated with on a daily basis. Meanwhile, vendors themselves grumble that agency buyers and decision-makes won’t meet with them. The reason? Although their offerings sound good on paper, they’re just not feasible for most agencies to implement in practice. They might add a slight boost in efficiency or efficacy, but by the time they’re integrated with the other technologies an agency might be using for a certain campaign or client, they can become counter-productive. “Ad-tech features look great on paper, but the last thing I want on my plan is point solutions,” said one agency exec. “Some of these things sound great when they’re talked about, but they shouldn’t be businesses, at least many of them.”
Agencies should be paid based on the results they produce for clients, the theory goes, because it aligns the incentives of both parties. In reality, however, it rarely works that way. Not only is it near impossible to agree on metrics based on which agency should be paid, but clients aren’t set up to compensate them that way anyway. Agency execs report that when they exceed targets previously agreed with clients, they rarely get paid what they’re owed anyway, simply because the client doesn’t expect or plan for it. One exec recalls a situation in which his company was once owed a six-figure bonus after blowing performance targets out of the water, and the client just didn’t pay. “The client was not happy when they realized how big a bonus was due. The head of marketing had to go to the CEO, who was surprised, and then they renegotiated the performance definition that we were held to. It upset everyone and proved extremely disruptive to what, beforehand and later, was a usually positive relationship.”
Agencies creating products
As they look for ways to diversify their revenue streams beyond the dwindling margins they get for by-the-hour client work, agencies love the idea of creating their own products and IP and taking it to market themselves. They have the talent available in-house to build robust digital platforms and products, so why not put it to good use outside the realm of their regular client work? The issue, though, is that agencies simply don’t have the resources to support side businesses and to turn them into legitimate, revenue generating entities. Even if they do, they often serve as little more than a distraction from their core focus of serving clients. “With the structure they have, I don’t think it’s possible for agencies to create real products,” Hashem Bajwa, CEO of product development studio Design & Development, told Digiday. “They’re not dedicated enough to it. Clients and new business will always be the priority for an agency, so product development ends up becoming this dream on the side.” There are exceptions to every rule, of course. Avenue A built the first iteration of Microsoft’s Atlas ad server, for example. But the idea that agencies will one day garner significant portions of their revenues by generating their own products and IP seems like a long shot.
As their margins continue to erode and the cost of acquiring new clients grows, agencies are increasingly looking for new ways upsell existing ones and to offer “one-stop” shops for their clients’ needs. The result is that many agencies refuse to specialize and instead claim to do everything well. In theory, that makes sense. Why should a client hire six different agencies if it could hire one. In practice, it doesn’t work like that. Most agencies tap major agencies primarily for a single service, like media buying or creative, but not both. Some execs argue agencies are actually better off selling themselves as specialist, rather than generalists, as the digital world continues to fragment. There will always be a place for broad strategy, they say, but execution is still best handled by specialists.
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