MediaBizBlog: Cory Treffiletti: Prescription to Heal the Ad Agency Business

Part One

This guest Media Business Commentary was written by Cory Treffiletti, President and Managing Partner of Catalyst SF, a Marketing Capital Firm based in San Francisco and working with clients on the development and management of strategic marketing efforts designed to achieve measurable business success. Catalyst has adopted many of the prescriptions suggested in this commentary, with great success. In this 3-part article Cory offers his prescription for what ails the agency business and how agencies can succeed in the forward. Cory has been an executive in such interactive agencies as i-Traffic, Freestyle Interactive and Carat, starting his career at DeWitt Media in 1995. Cory can be contacted at cory@catalystsf.com.

The diagnosis is terminal when it comes to the current Ad Agency model; that has been repeated time and time again. Many people have put in their two cents and diagnosed this problem, but few have offered a solution. Few have offered a Prescription for what ails this business and a way to fix it for the future. I say it is time to take an old biblical proverb and put it into action; “Physicians Heal Thyselves”! Let’s address the solution for the ailing Agency business.

Forecast after forecast has been published over the last three months predicting how ad spending will continue to increase over the next five years, but how will these dollars be managed when the ad agencies that traditionally service this industry are faltering and facing challenges to their very own business models? I come from an Agency environment and spent the last 13 years either building, fixing or scaling digital shops and I think if our industry is going to heal we need to do it from the inside; we can’t wait for someone to do it for us. I think we know what needs to be done, but we need to set the stage for the prescription to work. We need to observe the symptoms and understand the ailments affecting our industry before we agree on the solution and write the prescription.

OBSERVATION OF THE SYMPTOMS

In order for the advertising Agency business to succeed in the coming years we need to make some changes. It’s no different than a Doctor telling a person with high blood pressure or a person with high cholesterol how to get healthy; they need to make some changes in their lifestyle! We need to find a way for agencies to flourish in a world where there are far too many choices for media consumption facing the consumer and far too many ways to spend dollars to reach those consumers with advertising. Conversely, with the increase in opportunities, there is fragmentation. There are fewer and fewer mass-media outlets and targeting your consumers becomes hard so publishers have difficulty finding a way to make money and the business becomes slightly less stable.

There was a perception in the past that advertising agencies were composed of cubicles full of brilliant people, within creative departments and media departments, who possessed incredible insights into consumers. These people were like interns in a hospital; learning their craft and practicing it every day; capable of operating under duress to save Brands, create messages and campaigns which drove specific consumer actions and drive sales and market share for their clients’ products and services. I’m sad to say those days are gone and there’s no more magic. Not only have we exposed the public to secrets to our services but we’ve gone and made our efforts more accountable through technology. Technology has exposed the “man behind the curtain” and made the general populace aware of the ways in which agencies serviced their clients in the past. User Generated Content came along and made it so anyone could create highly effective messages for their favorite brands and distribute them over the Internet for a fraction of the costs they previously demanded. Google came along and began the current shift towards the advertising marketplace with products such as AdSense, allowing anyone with a credit card to buy media and reach a targeted audience to sell their products. These factors have worked together to commoditize the areas where agencies traditionally make their money; media buying and creative development. The magic is gone; in reality the execution of these concepts were always a commodity but as a result of these strides in technology and the door being thrown open into the world of the Agency, the client’s are now aware and they’re no longer willing to pay for it! Additionally, our ideas are now more accountable than they used to be so not only are we exposed, our effectiveness is exposed as well. I like to refer to these phenomenon as the “Kids in the Garage”. When the Kids in the Garage can do what the big Madison Ave. shops can do, then the clients recognize the even playing field and are unwilling to pay for it.

These days, anyone can be creative and anyone can target an audience online. We’ve progressed so far to the future that we’ve come across our very own past. In the past the Idea was King, but now the Idea is King and its accountable! These days it is more important to be Strategic and for the Strategy to drive the execution, which anyone can do for a price. The differentiation lies in Strategy, no longer in how you execute.

HOW LONG HAS IT BEEN HURTING?

Every seven years (or thereabouts) the Agency business witnesses a cycle wherein the business moves from a strategy of Bundling agencies towards the Unbundling of agencies. Bundling is defined as using one Agency that handles all your marketing needs whereas Unbundling refers to using multiple resources, or what many refer to as the “best-of-breed model”, where experts in each area work together under the direction of a single point of contact. At different stages of a business and at different periods in time either model will work, hence the cyclical nature of the process.

Each cycle of the decision making brings with it its own pain and this recurring pain all points to the issues facing the industry. The current cycle appears to be focusing its attention on consolidation as a direct result of having witnessed the issues operating with too many partners on too many disparate efforts and lacking a cohesive structure (such as when campaigns lack a singular message or a distinct look-and-feel across multiple media formats). When we’re in the midst of an economic downturn, Bundling agencies and consolidation of resources is a typical reaction (fewer agencies to manage translates to fewer costs for outsourcing and fewer resources internally to manage them). This shift makes sense, but due to the threats facing the Agency model the effect may be negative. The threats still lie in the fact that Strategy is what will drive the business, not execution. The Agencies still focus their business, their revenue generation opportunities, on execution. Most agencies recommend what is in their best interests to recommend because these are the areas where they make the most money. In a Bundling or even in an Unbundling landscape, most agencies are focused on what they do best, not what is best for the client. Strategy contradicts this. Strategy means saying what the client needs, not what you want them to hear! Strategy is accountable as well, yet it is not a revenue source for most agencies. When a client looks to save money, the first thing to get cut is typically the Account Mgmt people or the Project Management people because these people are not responsible for execution, but I think the issue facing the agencies lies in this exact decision; do we retain the executional elements or do we retain the strategic elements?

Next Wednesday: The Prescription for Change