Agencies act like wasted sorority girls giving everything away for free. From a sustainable business model perspective, it seems ridiculous to give free services to clients, but in actuality they’re retention rate and ability to win business depends on it. And like sorority girls – agencies are very good at looking desirable in what seems like a low barrier to entry industry.
Talking heads within the space are talking about the role of agencies, their value, etc. which has led to people suggesting that Advertisers will bring more and more functions in-house. One of the most overlooked arguments against this theory is given the fact that agency folk work for peanuts compared to Advertisers and procurement teams they represent incredible financial value. The value of an Agency Junior Media Planner on a sub $40k salary is worth more to an Advertiser than an in-house Marketing Manager making twice that.
On top of the pennies for dollars executional work Agencies do for Advertisers, much of the negotiations to retain Clients come down to last ditch efforts by Agencies, resulting in giving Creative and Strategy work for free. The asks pile up: “Resize this. We’re doing a HPO – we need a reskin. Our intern handles our social pages so we just need you to send over a few social ideas.” I’m not trying to say Advertisers bark orders to Agencies, but Agencies have less friction internally to do these asks for Clients. Major global deals of most of the holding agencies are still reliant on how much they give for free to seal the deal rather than their differentiated and specialized offerings.
For all my avid readers, you’re semi-correct in asking yourself, “Isn’t she contradicting herself from her previous post highlighting the inefficiencies of agencies?” My last post touched on Agencies being bloated and too focused on execution instead of strategy. However, the previous post supports the theme in this post whereby highlighting that Agencies do it to themselves. It’s like the drunken bathroom talk you give your drunk sorority sister, “Sugar, men will appreciate you more if you aren’t so easy – trust me,” while wiping smeared mascara off her cheek.
Agencies shouldn’t start a war of attrition against Advertisers, but rather solidify their currency. Value Add, Makegood (J), etc. are all negotiation tactics that in the long term cheapen the Agency currency. Even if Advertisers bring Search and Social (to some extent) in-house, they’ll likely still need resources in order to execute the strategies that the handsomely paid Marketing Director of Company X creates. Regardless of whether the future of a digital agency will shift to focus on just technology, execution, or just strategic work –Agencies did it to themselves to leave their future so uncertain.
It is not inconceivable to suggest however that Advertisers start being in more control of what execution happens. Let’s face it, executing *can* be a low margin business and the majority of advertisers aren’t going to absorb the capital expense to do this. What they will start doing is being more involved in the brand direction through the digital channels; being more involved in data management / distribution; creative / brand messaging etc. Whilst performing this role in-house, the agency model could then be under threat if you see a wave of specialized vendors doing the executing. Managed services from tech companies should start sending shivers down agencies spines. But given these companies are leveraged to the tunes of double digit millions, don’t expect their investors to let them work to the same margins as most agencies. The question becomes can good quality execution be managed by agencies in the future when continuing to work to sliding margins?