Are ad agencies history?

Discussion
Photo: AMC
Sep 14, 2018

Knowledge@Wharton staff

Presented here for discussion is an excerpt of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

In his new book, “Frenemies: The Epic Disruption of the Ad Business (and Everything Else),” media critic and best-selling author, Ken Auletta, argues that, in a radical shift for the advertising world, the influence of traditional ad agencies is rapidly declining as former clients increasingly take more and more projects in-house.

“In the “Mad Men” days, the creative guy like Don Draper was in charge. He sat at the head of the table. Today, that no longer is true,” Mr. Auletta recently said on the Knowledge@Wharton radio show on SiriusXM. “The creatives don’t sit at the head of the table. The people who sit at the head of the table are the people who have the data. The media agency, the media buyers, the people who buy the ads and shape their strategy and target the ads on particular people — they are the dominant forces at the agency.”

The disruption is being driven by the arrival of smartphones, tablets and other digital devices and the expansive data being collected in the digital world.

“Google, Facebook and Amazon have the best data of all,” said Mr. Auletta. “That data is not matched by what the ad agencies have. Increasingly, the people who advertise are saying, ‘Hey, why shouldn’t I go directly to Facebook and Google, and increasingly Amazon, rather than deal through the agencies?’”

Mr. Auletta suspects that ad agencies will likely become smaller and look to continue to expand into other areas, such as public relations, to rely less on traditional advertising. One unknown that may revive the need for traditional agency services is any changes that may arrive due to growing privacy concerns with digital data. Another is whether concerns over monopolies being created with the Big Data aggregators will lead to regulation.

But he also said many of advertising’s traditional clients — newspapers, magazines, TV, etc. — are looking for other revenue sources amid challenges to their core businesses, and one option will be establishing an in-house ad agency.

DISCUSSION QUESTIONS: Do you see advertising work increasingly shifting in-house at traditional media institutions with changes brought on by Big Data? Is that a positive or negative for retailers or brands? What adjustments may be required?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I agree that people who hold data about customers and can analyze it are the new Don Drapers! "
"...there is a place beyond simply leveraging data, predictive analytics and artificial intelligence to engage, entertain and retain customers."
"...businesses have lost the edge that decades ago the Don Drapers knew how to create. They knew how to develop that “amazing” ad campaign that got everyone talking."

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18 Comments on "Are ad agencies history?"


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Chris Petersen, PhD.
BrainTrust

Data is just that — sets of numbers. Retailers and brands need people who can interpret those numbers. More importantly, they need talent that knows how to apply the data in ways that engage customers. Traditional media agencies who ignore Big Data will be severely challenged. Those agencies that transform and create value to reach customers “where they are” will have a rich future. BTW, there no longer is a “head of the table” — everyone is working in cubes.

Naomi K. Shapiro
BrainTrust
Sorry for cribbing from my colleagues, but they said it better than I ever could: — Chris Petersen: “Data is just that — sets of numbers. Retailers and brands need people who can interpret those numbers. More importantly, they need talent that knows how to apply the data in ways that engage customers.” — Steve Montgomery: “Data must be turned into actionable information. This is a function of drawing insights from it. In the case of ad agencies that means being able to use that insight to create something that will create or reinforce brand awareness and drive sales. Data is just data.” — Ricardo Belmar: “…data without insight is just trivia! … While data is king, the real trick is knowing how to use it to get the outcome you want.” — Phil Rubin: “What value is all the data if it is not associated with customers?” — Kai Clarke: “Any advertisement still needs creative, managing the ad spend, maximizing exposures, cross platform manipulation, etc.” — Brandon Rael: “While data is a critical piece… Read more »
Ralph Jacobson
BrainTrust

There are several tools, many free or very affordable, that retailers and brands can use to leverage the best AI. True machine learning capabilities for advertising, especially for online presences that provide intelligent sequencing of imagery and other content, detect anomalies when shoppers respond to messaging and get “stuck” in their journey and multiple additional functions. There is every reason in the world for advertising teams to at least look at taking some of this in-house for businesses large and small.

Ken Wyker
Guest

The people at the head of the table now are the new creatives. They are the ones that create messaging and promotional impact through a knowledge of the data and how to leverage it.

Evan Snively
BrainTrust

The problem with relying on Google, Facebook, and (especially) Amazon for feedback on data is unless you are a behemoth of a company, you won’t get the time of day from them. Yes, they have the data, but they are not set up to be client-focused organizations like agencies are. As long as agencies respect this core value and brands are OK sharing their data with them, the agency world has a clear and bright future ahead.

Joanna Rutter
BrainTrust
2 months 28 days ago

I agree that people who hold data about customers and can analyze it are the new Don Drapers! Though as a marketer, I hope we always retain a bit of magic around selling customers something aspirational and bigger than what they clicked on last. That’s the romantic in me. The realist is looking at this trend with retailers, especially the DTC/DNVB freshman class, working with design firms and branding agencies rather than a traditional ad agency. The folks who know how to do the cheeky subway ads but also open a gorgeous pop-up experience. Partners & Spade’s work with Warby Parker and Sonos comes to mind. There are a handful of these design agencies who are the new quiet retail marketing superpowers — we just don’t hear about them in Adweek every day.

Art Suriano
BrainTrust
It is not just advertising. Businesses are continuing to take more and more in-house including training and a wide variety of services once delivered through outside vendors. There is a big problem with this philosophy long term, and that is often you can’t buy the same talent and what you find out is your in-house departments don’t have the creative abilities and often the capability of fast delivery. When looking at advertising, too many businesses have lost the edge that decades ago the Don Drapers knew how to create. They knew how to develop that “amazing” ad campaign that got everyone talking. It is true that traditional advertising such as newspaper, television and radio is a lot less effective today, but there are other opportunities by using social media to generate interest. However, the creativity is severely lacking. Data is great, but without that inspiring campaign, one with excitement that creates curiosity and desire to come and shop, all these businesses will only wind up with much money spent on something that will not drive… Read more »
Steve Montgomery
BrainTrust

Data must be turned into actionable information. This is a function of drawing insights from it. In the case of ad agencies that means being able to use that insight to create something that will create or reinforce brand awareness and drive sales. Data is just data.

Ricardo Belmar
BrainTrust

Someone I know well in the retail industry once said to me “data without insight is just trivia!” and he couldn’t be more right! While data is king, the real trick is knowing how to use it to get the outcome you want. This turns the process of advertising and marketing into more of a science than a “gut feel” as it might have been described in the Don Draper days. This has left ad agencies far behind the times and as many others (including Scott Galloway) have pointed out, the entire ad industry is in decline. The point about traditional ad clients like newspapers and magazines looking for other revenue sources is indicative of something Prof. Galloway is fond of saying — advertising is a tax on the poor while the rich are able to buy their way out of advertising via content subscription models. There seems to be no end in sight for this trend.

Doug Garnett
BrainTrust
Data is not the way to efficient ad spend – unless a retailer has decided to abandon any attempt to be a brand. First, the error in data is at least as big as the error in any other form of targeting. (One simple observation: In the vast majority of cases, by the time the data shows a consumer searched for a product and you send them an ad, either they have bought or their interest has moved on.) Second, the incredible fragmentation of message and brand across the micro-targeted messages of data will destroy your brand. Brands build and succeed best with targeted mass media campaigns. Big data DOES show decent (but not outstanding) direct response sales results – selling to one in 100 and offending the other 40 who see the ad. While that’s acceptable for DR, it’s not okay for retailers. No CMO was ever fired for suggesting what Mr. Auletta argues and the ad business is not going to get by without change. But retailers need be wary of the attractiveness… Read more »
Phil Rubin
BrainTrust
2 months 28 days ago

What is disrupting advertising is, and should increasingly be, customer marketing. What value is all the data if it is not associated with customers – not machine IDs or other surrogates? Data, coupled with addressable customers, presents the best alternative to paying to reach customers through intermediaries where there is limited accountability, both for reasons of ad fraud and attribution.

Agencies of the future will be focused on the intersection of customers and brands that are loyal to them.

Herb Sorensen
BrainTrust

Are ad agencies history? If “ad agencies” means “what they have been up until now,” then the answer to the question is YES. But the same question can be asked about a lot of businesses, and for many, the only helpful prescription is “change or die!” One relatively comprehensive (and very detailed) view of what is driving the BIG change can be found in “Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy” by George Gilder. But there are a torrent of articles of the type being discussed here that are swelling into the commercial space.

Kai Clarke
BrainTrust

As Big Data becomes more important, traditional agencies are simply going to add more focus to managing this data. Any advertisement still needs creative, managing the ad spend, maximizing exposures, cross platform manipulation, etc. Ad agencies have managed data for TV, Radio and Print for years. Data has always been a key part of any advertising agency since it determines how successful a campaign has been and where it needs to shift to be more successful in the future. Now you just add the online portion and extend the ad agency’s reach.

Brandon Rael
BrainTrust
I am going to take a contrarian view as Ad agencies are far from being history. Unfortunately, those that have not evolved and shifted with the times are no longer relevant. While data is a critical piece of the ever-shifting sands of the advertising complex, there is a place beyond simply leveraging data, predictive analytics and artificial intelligence to engage, entertain and retain customers. Growing up, there were countless commercials that simply resonated with you, and made a lasting impact. Coca-cola, Budweiser, Apple, Life Cereal, and countless others, took a page out of Don Draper’s playbook to connect with the customer beyond simply the product. Once you tap into the nostalgic, sentimental components, customers will connect these with your products, and spark a conversation. Wieden + Kennedy’s advertising work is outstanding and demonstrates that even with all the data and artificial intelligence, there is plenty of room for brands to drive powerful messaging. Far from the traditional ad house, the firm has produced some of the most noteworthy ads over the past 2 years and… Read more »
Craig Sundstrom
Guest

This seems a bit confusing. Yes, certainly the FAANGs have a lot of data available about customers, but how, exactly does that translate to (the design of) ads? Or more specifically, why aren’t we saying (or hearing companies say) “this gives us even more tools for our agency to design a better ad campaign”?

My suspicion is this is really a cost-cutting move, bolstered by the belief that Big Data makes the in-house viable (“we can do it just as well”) … whether or not that is true, I don’t know.

Liz Adamson
BrainTrust

Amazon, Google, etc have offered ad management services to brands, and while theoretically they have access to more data than a 3rd party agency, in our experience we have not seen the same level of service that is offered by ad agencies. The disconnect may be a difference in company focus for Google vs. an ad agency. Ad agencies are more client and relationship focused while Google and the other tech companies clients can turn into just another cog in the machine. I don’t see Google, Facebook, Amazon, etc being able to offer the same level of service and personalization as smaller agencies, despite their access to more data.

David Naumann
BrainTrust

Advertising agencies in the traditional sense are a dying breed and if they don’t change they will become obsolete. While there is still traditional TV, radio and print advertising, these dollars are quickly being shifted to other communication mediums like online, mobile, SEO, social, etc. And instead of focusing on mass advertising communications retailers are evolving to one-to-one customized communications.

Big Data plays a big role in supporting the new marketing model, but there is still a need for killer creative. In-house marketing teams can accomplish most of the creative needs, but sometimes a fresh ideas from a third-party marketing agency is needed. Ad agencies need to be integrated marketing agencies, as niche agencies that focus on one aspect of the marketing communication mix doesn’t make sense in a world where all communications are intertwined. Similarly, many public relations firms are expanding there services to be integrated marketing agencies.

Advertising agencies aren’t necessarily dying, they’re evolving.

gordon arnold
Guest

Sharp reductions in consumer support bring sharp reductions in revenue for advertising. This is the cause for in-house bring back. Not listening to the paid-for resources is why many are suffering. Moving to an in-house solution will only remove the company further from the consumer and the truth. Big Data had nothing to do with it.

wpDiscuz
Braintrust
"I agree that people who hold data about customers and can analyze it are the new Don Drapers! "
"...there is a place beyond simply leveraging data, predictive analytics and artificial intelligence to engage, entertain and retain customers."
"...businesses have lost the edge that decades ago the Don Drapers knew how to create. They knew how to develop that “amazing” ad campaign that got everyone talking."

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