The Advertising Agency Business is Under Siege -- Mike Drexler

It is no surprise that with the emergence of the Internet, programmatic media buying is increasingly commonplace between buyers and sellers. Automation in the advertising industry is on the rise in almost every aspect of the business. Most people have mixed emotions (even creatives) about its place in advertising. But when it comes to the bottom line economics of the relationship between advertisers, agencies and media companies it’s an easy decision. Automation usually wins.

Many arguments on both sides have persisted in discussing its benefits and drawbacks. The face to face conversations and relationships that can be enhanced between vendors and their buyers, they claim, would be mitigated if the process becomes automated. While some inventory is likely to be offset by direct sales (premium inventory), that’s only a pacifying response. Another argument is that many qualitative factors, including creativity and innovation, would be diminished.

It’s also argued that better negotiations occur when buyers and sellers meet to discuss marketplace conditions, client objectives and strategy and “special circumstances.” But, the fact of the matter is that operating efficiency and cost almost always trumps everything else. (The rise of procurement testifies to that.)

Another consequence to the agency business is that more clients are setting up trading desks. Since they previously would have had to build huge staffs, the automated process keeps that to a minimum. But analyzing the data and performing the necessary analytics to gain insights and to understand the results of transactions still requires smart, experienced, strategic professionals. One of the biggest limitations for in-house, however, is the investment that agencies make in research and material resources -- an expensive proposition for advertisers.

Most creative staffers much prefer working at an agency where they can work on several accounts, move up the ladder and get paid more. They also can get more recognition. But with the evolution of the Internet, the digital experience of media and creative is almost inextricable. Content in that context can come from anywhere. And we see some top level creative people moving over to the client side, working with the CMO to help direct marketing strategy. Although not many. Yet.

Perhaps one of the most compelling and difficult situations in today’s environment is that cost savings are almost paramount for advertisers. How do they get the best work at the lowest cost? And agencies are really getting squeezed for profits. That pressure is the killer in the client agency relationship and it doesn’t help the media companies, either. So other compensation methods are also being pursued, some of which lack complete transparency (which henceforth raises another issue). Watch.

Mike Drexler is co-founder and Managing Partner of Drexler/Fajen & Partners, a media consultingand agency review firm that works with advertisers to evaluate their agencies’ performance. He can be reached at mike@drexlerfajen.com

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