Are ad agencies history?
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?