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February 7, 2024

Vaughan Townsend

Where Did It All Go Wrong For Ad Agencies?

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There was a time when ad agencies were instrumental to a business’s success. But somewhere along the way, agencies lost their seat aside the CMO as an influential partner in moving a business forward. In turn, CMOs lost the trust of CEOs as their partner in driving growth. And agencies lost their collective agency. 

When exactly did it all go wrong? Rory Sutherland, Ogilvy UK’s vice chairman, tweeted that ‘you can largely explain the decline of advertising in a sentence’. 
 
‘Media agencies know how to make money from media in the absence of creative,’ he wrote, ‘creative agencies don’t know how to make money from creativity in the absence of media.’ 

He's right, as he so often is. But perhaps the current malaise is deeper than the uncoupling of media from agency balance sheets. Without doubt, weaning an agency off a 20% sure-fire revenue stream was painful. After all, it paid for fully stocked creative and planning departments. And more to the point, it allowed the time to develop work that produced better crafted outcomes, rather than the time-limited outputs and singular brief chasing we see today.  

Are you a commodity? 

The truth is, agencies haven’t fully adapted to the seismic shifts of the last decade. And they haven’t solved their own biggest business problem; being a reliable instrument of business growth. 

Brad Simms, CEO of Gale, summed up the current malaise concisely. “If your client has one more dollar to invest, be honest with yourself, would they call you and ask you your advice on where to put that? If the answer is no, because they know your answer is going to be put it into media because I'm the media agency or put it into CRM because I'm the CRM [partner], then you fail the adviser test. And frankly, you're a commodity.”  

And the commoditisation of agency output seems to be the rule rather than the exception. 

Margie Reid, CEO of Thinkerbell seems to agree, stating in a recent Campaign article, "If an agency can’t stand for something clear in the minds of their clients, then they probably shouldn’t be trusted with that client’s brand."  

The uncomfortable truth is that there hasn’t been any real disruption or innovation in ad land since Bill Bernbach teamed up the art department with much vaunted ‘writers’ to create the first creative teams back in 1949. 

And after that? Well not much really. 

Sure, we’ve tried in-housing and sprints and pods and agile working. We’ve teamed writers with planners and designers to form a new type of idea-generating triumvirate. We’ve hired creative technologists and re-explored the 360 model. We’ve had the Mother model. And the Oliver model. And specialist agencies and generalists and everything in-between. 

But despite all the changes, few agencies have a significant point of difference. And fewer still have a seat at the top table solving real business problems with truly disruptive thinking. 

Publicis Groupe CEO Arthur Sadoun summed it up bluntly in an interview with Campaign in July, noting that creative agencies are no longer ‘accretive to growth.’ 

And as the custodian of storied brands such as BBH, Leo Burnett and Saatchi & Saatchi these words are tough to read for anyone in the ad game. 

RIP old agency model 

Rory Sutherland’s argument was that the splitting of creative and media departments was the original sin, and creative agencies accelerated the misstep by adopting a time-sheeted compensation model. However, the subtext here is that combining them again is their salvation. But I don’t think it’s as simple as that.  

Simms, in his recent Mi3 article adds further fuel to the fire, calling the head hours model ‘flawed.’ Instead, he campaigns for a market mix product with a packaged service menu, effectively putting the focus back on outcomes and not outputs or head hours. 

He may be onto something, given the agency’s impressive success of late. Clients are desperate for measurable business growth and are less interested in the mechanics and the what-it-took-to-get-there. 

So, a menu of services rolled up into an easy-to-understand pricing model, focussing on outcomes seems to be a good answer. And possibly the innovation (with a small i) the industry is hankering for. 
 

And where to now? 

Agencies have always been fond of trying on a new suit of clothing to spruce up the outdated wardrobe hiding beneath.  

If you’ve read Michael Farmer’s book, Madison Avenue Makeover, you would have noted CEO Mat Baxter’s attempt to rescue digital agency Huge by ditching the standard fee model and selling fixed-price products that promise to help clients grow. 

Time will tell if it’s a viable model. Whatever the potential solution, the overriding problem as Sutherland puts it, is undeniable — ‘We can't be at our best if we're paid by the hour.’ 

We wholeheartedly agree. It’s time for a better model and for agencies to find a more influential position in the machinations of modern business. Watch this space. 

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