WPP’s flat 2017 earnings is another in a series of bad omens for agencies, as the largest advertising holding company is often regarded a bell weather for the industry. IPG, Publicis Groupe, and Havas also reported lackluster earnings. P&G and Unilever recently cut another USD 800 million in agency production fees and digital advertising spending. Nike is reported to be using procurement-led, reverse auction tactics in reviews. Combine these with the steady in-sourcing of digital media and advertising capabilities, and the outlook for agencies appears grim. It is understandable that some may question their viability.
However, those who do should consider that agency economics is only part of the overall picture. Competition also factors heavily. While consultancies are disrupting the agency business, they have yet to fully cross the creative threshold and are not pursuing media. In-house agencies are possible replacements for agency services such as media planning and buying or creative services. However, this fails to acknowledge the time, cost and resources to staff, and scale full-service in-house agencies. Amazon, Google, and Facebook certainly have the technology and customer data to automate digital advertising. However, as we’ve seen from 2016 forward, the Tech giants are unable to monitor and regulate their platforms to insure brand safety.
So, no, agencies will not start dropping off the map in 2018. Rather, they will speed up their efforts to reconfigure their offerings to better compete with other agencies and fend off new entrants. Consider the changes already underway, including:
At present, there is no viable replacement for your agency, beyond another agency. So, the question we should be asking is, “What will agencies become?” Based upon the changes already underway, we can expect:
The original Forrester blog can be found here.