Ad agencies will resolve their identity crisis

The future of the advertising agency has never been so conflicted.

The holding companies have been fretting over their ad agency networks, which have been suffering since before coronavirus, as clients have looked beyond 30-second TV spots and big retainers in favour of data-driven marketing and project-based work.

At the same time, barriers to entry have tumbled. That has made it easier for smaller agencies, content production studios, social media specialists and boutique outfits to pick up creative work, and for clients to bring more in-house (albeit virtually during the pandemic).

The role of advertising itself is under pressure. Consumers are embracing ad-free services such as Netflix and Disney+ and brands want to manage the whole customer experience and build direct relationships via experiences and commerce, rather than rely on interruptive messaging. 

“Advertising is important but I think we all recognise its relevance in the hierarchy has diminished,” Mark Read, chief executive of WPP, told the Campaign Connect global conference in December.

Read had a telling statistic about JWT, once one of WPP’s top ad agencies. The New York office had 670 people in 2010. By 2018, this had slumped to 160, which was part of the rationale for the merger of JWT and digital shop Wunderman.

It is an open secret that media has performed better than creative for the big groups in the past decade but WPP spelled out what that meant in revenue terms at an investor day at the end of 2020: Ogilvy, Grey, JWT and Y&R, each recorded a compound annual decline of between 1.5% and 4.9% in the five years from 2015 to 2019.

They suffered from “the boiled frog analogy”, Read said, meaning they did not realise what was slowly happening until it was too late. Crucially, they failed to embrace digital, data and tech, unlike the media agencies, he added. 

They clung to past glories, including expensive salaries and offices. Scale became a weakness and they employed too many “creative managers”, instead of “creative originators”, as one independent agency chief observes. The separation of media, and then digital, from creative in the past 20 years and the holding company structure led to problems: ad agencies were ill equipped to integrate services when clients needed tech and data smarts, flexibility and speed to cope with digital disruption.

Brands began to take greater control of their marketing and first-party data and to create more fast-turnaround content. Some big-spending advertisers, such as Procter & Gamble and Unilever, slashed the size of their agency roster and fees, while newer digital brands were already doing a lot in-house and willing to take a chance on less established agency partners.

That has created space for nimbler, smaller players and attracted new entrants, from entrepreneurial start-ups to consulting giants, which have the benefit of having little or no legacy operations. Some of them have been reporting good growth, even during the pandemic. The rise of these insurgents is proof that clients still prize creativity because it is a source of competitive advantage and innovation.

Some will always say big is the enemy of good and it is fashionable to write off legacy ad networks but they have changed before. Coronavirus may have helped, by forcing them to carry out radical surgery, cut costs and speed up efforts to simplify, integrate and digitise their operations.

All of this upheaval has caused a growing identity crisis for ad agencies. Hence the proliferation of alternative names: creative agency, communications agency, creative studio, experience agency, brand and customer creativity agency, brand tech group. None of which matters, so long as it’s delivering what clients want. 

As James Murphy, co-founder of Adam & Eve/DDB and New Commercial Arts, said on a recent Campaign podcast: “No-one really cares about your model. What they care about is your output.”

Long live the ad agency.

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Gideon Spanier is UK editor-in-chief at Campaign