Prediction: Ad Agencies will be Purchased by Web Marketing Firms

Posted by on Monday, April 7, 2008 at 11:23 am. 11 Comments.

Ad agencies will be purchased by web marketing companies in the future.

Starting now. Position yourself for this.

Why? Well we know in a recession that advertising budgets and public relations budgets get slashed. Drastically reduced. From big ad budgets to nada asap.  Staples is one obvious example of cuts:

From the looks of things at Staples, the recession is upon us.

and

So, the Framingham retailer is trimming costs everywhere it can, reducing advertising, delaying new hires and renovations, curtailing employee travel, and saving gas with devices that limit the maximum speed of its delivery trucks.

See that first item on the list? Ya, that one? It is *advertising*.

Advertising is almost always the first thing to get slashed in a recession. You CAN live without advertising in hibernation mode. Should you cut your advertising budgets? Well, let’s ask those in the business of advertising. The magic-eight-ball says about cutting advertising budgets in a recession.

Everywhere I turn we hear of the downward spiral of our economic state. I know what you are thinking; it’s time to cut that marketing budget. Signs of recession are all around us. Let’s start slashing costs and marketing is the first to go. Makes sense, right? No! Let me explain.

Don’t you dare cut your marketing budget. That is one of the first mistakes businesses make during times of economic crisis.

So the marketing professionals (I are one) recommend you do NOT cut your marketing budget. It is a bad idea. "Advertise through the downturn and you will come out stronger on the other side" we wisely encourage you. And this is actually my advice. Really it is. But it won’t happen. Here’s why.

Changing hats to the CEO hat - if most people don’t conserve cash there won’t BE an other side. And it is damn hard to lay people off and justify a 25k spend on billboards. So don’t hold your breath if you think companies aren’t going to cut their advertising budgets. OF COURSE THEY WILL.

So the top 15 reasons ad agencies will fail and be bought by web marketing firms.

  1. Ad agencies honestly like flash intros. Seriously.
  2. They still think web sites have to be "above the fold"
  3. They are more worried about aesthetics than conversion rates
  4. They still charge commission on ad buys, which creates a conflict of interest for online PPC management which is an auction format
  5. They would rather lay off 50 people than admit their creative direction sucks
  6. They hire two people to run the "interactive division" and don’t integrate online efforts with overall strategy for the clients. But they get a cool name for the division.
  7. They create web sites and take them down after a few months denying the client link backs over time. Clients will someday realize they are being linkback-screwed.
  8. Agencies pitch micro-sites because they are afraid of the actual work of running a web site and lack the expertise (beyond the two guys of course).
  9. They do not train their people on search engine optimization (everyone’s job)
  10. They don’t hire bloggers and if bloggers work inside the agency they are cynical and hide because of the rest of this list.
  11. They outsource all video production and don’t have micro-video-production capabilities. Flip Video anyone?
  12. They view advertising and public relations as different disciplines and prefer to have ad peeps tell the PR people what to do. Which is backward. Strategy first.
  13. They think badging means something a badger does.
  14. Webs have followed a progression from  1) web design to 2) SEO to 3) web marketing/conversion and now 4) social media. Most advertising agencies are still at 1. This is not good.
  15. Ad agencies don’t have a strong recurring revenue model beyond new business acquisition.

Why will web marketing companies buy the ad agencies? Because web marketing companies are profitable.  They can buy the client base, make money converting the remaining budgets into online advertising and massively leverage the network for reasonable interlinking and micro-video development.

What can you do if you work at an ad agency and you see management driving towards a cliff with no signs of changing course?

  1. Take responsibility to build your own personal brand. Strong people have their own voice. Get yours.
  2. Start a blog. It won’t make sense at work, but you WILL learn the basics quickly this way.
  3. Be active on facebook (not linked in so much as facebook specifically) and twitter
  4. Train yourself on social media and search engine optimization. Lynda.com has both and for $30 bucks a month you get unlimited training. Just do it.
  5. Look for curious people to work for. Curious people are FAR more open to change.
  6. Read. Read. Read. etc.

A couple of housekeeping notes. No, this doesn’t apply to all agencies, but it definitely applies to many I have seen. I have examples for every item on that list.

I see dead people if they don’t change their ways. 

PS – If you know me and think I am writing about your agency in particular. I might be. But everyone else reading this is thinking the same thing. I really want to see everyone succeed, especially in Houston. What I don’t see is advertising agencies making material changes to fix their businesses in a web marketing centric world. And that will end badly my friends. Or with an acquisition from a web marketing firm in a few years.

Filed under Web Marketing, .

11 Comments on “Prediction: Ad Agencies will be Purchased by Web Marketing Firms”

  1. Michelle Greer says:

    Ed,

    How would you, the internet marketer, accommodate a brand like Coca-Cola, who has a market that extends into the remotest areas of the globe and is one of the most recognized brands in the world? Would there be perhaps a ripple effect?

    Posted on April 7, 2008 at 11:31 am.

  2. eschipul says:

    It’s interesting you chose Coca-Cola. I believe they use agencies for media buying, but conduct strategy internally. I think media buying will continue to do just fine if they overcome the conflict-of-interest-with-auctions issue through fixed services pricing.

    And I strongly believe in advertising. It is just the execution by agencies that seems so gothically misdirected.

    Posted on April 7, 2008 at 11:36 am.

  3. Michelle Greer says:

    What, you don’t think paying millions of dollars to have Naomi Campbell prance around with lizards is money worth spending? I can’t even tell you the company that shelled out for that commercial.

    Now if they paid Naomi Campbell to throw a cell phone at someone’s head in an ad (a dummy phone so no one gets hurt of course), THAT I would remember.

    Posted on April 7, 2008 at 12:11 pm.

  4. Dan Keeney, APR says:

    Ed: Interesting post. As you stated, the recurring revenue model of an ad agency isn’t the greatest, so when you say something like, “They can buy the client base…” you reveal that your premise may not be on solid ground. You see, the ONLY asset an ad agency has it its personnel. And the fancy printer. It does not own the client relationship. So if an ad agency faulters, the first thing to go are the clients and the last thing to go, typically, are the employees. So the real question I have is why WOULD an Web marketing firm be at all interested in a wounded ad agency? The other issue I have with your POV is that there really is value to delivering marketing messages a variety of ways. Online delivery is one, but there is value to offline channels as well. Brands (including Coke) use highly sophisticated techniques to determine how best to motivate people to buy and they continue to find that ads in the real world can deliver. BTW, most media buying is not done on commission any longer. Even as long ago as 1990, the New York Times reported that “surveys for the Association of National Advertisers showed that the proportion of advertisers paying agencies the 15 percent commission declined to 35 percent last year from 52 percent in 1983.” My experience is that very few agencies are compensated this way now. They instead like to have more transparency into the costs of creative, account management and media placement services.

    Posted on April 7, 2008 at 1:06 pm.

  5. eschipul says:

    Dan – thanks for the comment.

    To your points – I do think the agency “owns” the client relationship and there is REAL value there. So while YES the primary value of an agency is the TALENT, there is also something to be said for relationships.

    To put it another way “the current creative talent, with more web aware management and significant training, can do more for the clients for less.”

    That is real value creation for the ad agency and therefore means they are worth something perhaps greater than their balance sheet reflects in a recession.

    Last thought – 35% is still a HUGE number. You are talking about 7 out of 20 people. If you are in that group of 7, well, that would suck.

    Posted on April 7, 2008 at 2:40 pm.

  6. Dan Keeney, APR says:

    Ed: I get it. Note that the 35% referenced from the NYT was from 19 YEARS ago. Since then the commission model has pretty much become obsolete, especially for companies of any size for the reasons you stated: it creates a disincentive to negotiate better rates and guide ad dollars to more efficent uses. It’s the same complaint I have about realtors when buying a home, but that’s off topic…unless you think that Web marketing firms will buy real estate companies too!

    Posted on April 7, 2008 at 4:34 pm.

  7. Tom Kirkham says:

    What a great post. Whenever we get a chance to explain the real purpose of a web site and the right way to build one, we invariably get the job over an ad agency, or at the least we build it for the ad agency. Design IS secondary to the purpose of a website.

    Posted on April 8, 2008 at 9:23 am.

  8. matt loftiss says:

    I can see your point about traditional media agencies not keep up on web trends. But, if agencies billings went down significantly, or web marketing companies billings went up significantly, then traditional agencies have the cash advantage. This is obviously an extreme example, but if you consider Omnicom – the holding company for a lot of traditional agencies – it’s billings are $10 billion+ and they have 60,000+ employees. I’d imagine that they’d probably purchase the web marketing company, not the other way around.

    Posted on April 8, 2008 at 12:00 pm.

  9. Jessica says:

    Great article. Love #6. Been there, had to have a “talk” with an agency to ask them to speak with one another about my account.

    Submitted article to Digg.

    Posted on April 8, 2008 at 6:44 pm.

  10. eschipul says:

    I received this by email from an ad professional I greatly respect.
    ———————-
    DREAM ON ED. AGENCIES WILL FIGURE IT ALL OUT. THEY ALWAYS HAVE.
    ———————-
    Thought this was a view point worth sharing. I could be wrong. It happens.a.lot. – Ed

    Posted on April 14, 2008 at 4:47 pm.

  11. Christine says:

    Michelle: It was Sobe that did the Thrillicious ad at the Superbowl for millions of dollars. A brand I had never paid attention to before, but was probably my most favorite commercial of the games. (Which I only watch for the ads, really.) So the ad stuck with some people, even if it didn’t stick with you. Every time we pass it at the store, my whole family talks about the lizard dancing ad.

    Ed: Before I went “below the fold” to read the rest of this post, my first thoughts were that cutting advertising in a recession is completely the wrong choice. Glad to see you agree, and I agree with you that many agencies get it wrong. Then again, I’m all about the Personal Brand.

    Thank you, again, for quite an insightful post.

    Posted on April 16, 2008 at 11:00 am.