Revolutions are about hope (even ones in Advertising and Marketing).
There is a lot of speculation about the future of the ad industry. Nervous discussions focus on consolidation, hostile and friendly takeovers, significant new competitors, continuing challenges with the existing business model and an industry wide failure to develop a sustainable new approach for the future. These conversations are particularly energised as new acquisitions hit the headlines. Bain Capital, accenture and Deloitte have been very active recently. Over the last few years, I’ve been lucky enough to be involved in a number of significant projects looking at this area.
I thought it was a good opportunity to take a step back and review at the landscape.
Consider a blank piece of paper. One of the best creatives I ever worked with thought that a blank piece of paper was, at the same time, the most scary and most exciting thing in the world. Scary, because it could become the worst work of your life, exciting because it could be the best.
This is the very essence of good marketing and advertising. Potential. The potential of the growth to come. How much do we believe in the potential of our brand, team, idea, business model? Markets price on it and people are hired against it. Agencies, on the whole are great at celebrating and building potential. However, it’s now time to fulfil that potential with significant change in the engagement and renumeration model, assuming greater responsibility, risk and reward.
Clarence Crane Brinton was an American historian of ideas. He wrote The Anatomy of Revolution and commented that “Revolutions are born of hope.”
We are in the midst of a revolution and its time to create hope.
The current state of play
The current market for agency services is around $150bn out of the $1trn industry. BNP Paribas notes the “traditional ad and marketing” market will be around $65bn- $75bn by 2020. The market for digital marketing and IT consulting is c $400bn- (including SMACS — social, mobile, analytics, cloud & security). The battleground is the $25bn — $41bn 2020 converged market where only a few players can compete. For reference this market was worth around $15bn — $19bn in 2015 so growing quickly. One analyst estimates that 25% of Publicis revenues will come from sectors with large competitive overlap with the consultancies (up from 10% in 2013).
We know from Gartner that CMO spending on Technology (3.2% of client revenue) is set to exceed CTO spending on technology (currently 3.4%) on current trends. And we know that 27% of the marketing budget is now invested into Technology. *Interesting for your IPSOS engagement.
By some measures the IT consulting groups own four of the top ten digital networks (Accenture, IBM, Deloitte & PWC) with combined 2015 revenues of $7.7bn — it is worth noting that these figures are now doubt inflated with non-agency services but the trend is important.
Of the big four, Publicis is somewhat sheltered from encroachment by the consultancies by high exposure to the food and beverage sector who have been slower to invest in and adopt technology. But this is changing quickly and is a risk factor.
While the consulting industry is bigger than the agency market, the agency market is more consolidated across leading players — an opportunity to leverage more touch points within the client organisation for business development.
Of all the holding companies, Publicis, and WPP (and accenture) are currently well placed (despite recent impairments) to benefit from this significant market shift. It is important to understand the competitive threats from Omnicom with data (e.g. McDonald’s), WPP with an a la carte and accenture with converged approaches so as to work out how to competitively structure and position the offer. Finding talent with a broad based set of skills drawing on digital expertise, strategic and entrepreneurial approaches will be key to knitting your agency and consulting services together into a simple, unified, coherent and converged client offer.
A new departure?
We all know that massive new opportunities are being created because the industry is being completely disrupted by technology, new working practices and aggressive new competitors. The result? A fundamental re-orientation of the business model and market dynamics. But today agency groups are trailing competitors and headwinds seem to be growing.
These changes drastically shift the way that brand and media owners conduct business and how creative, media and technology agencies fulfil changing requirements. Main areas for disruption are the continued growth of digital investment, mobile computing, marketing and location based services, real-time serving for media and creative, crowd-sourcing of strategy, creative and production services, payment by results and corporate accelerators and incubators.
Within these shifting sands many global players are restructuring its client deliverables and seeking to evolve it’s business and service model.
Agency teams want to re-establish their position at the client leadership table, embrace and develop new ways of working, deliver new services and new commercial thinking. More control must be sought along with commensurate risk and reward.
The answer is not to double down.
The answer is to revolt.
A path to growth:-
1/ Benchmarking & competitive set
Really who are your competitors? We know from Gartner’s CMO spend study (NA and UK marketeers with budgets in excess of $250mm) that 12% of company revenue is invested into marketing. How do you measure up?
Of this budget — 27% goes on technology more that the 22% that goes on paid media — the remainder on labour and services
Of your top clients what proportion of their technology, labour and services budget do you currently manage?
2/ Service Offering Formulation
How many brand owners are experimenting with agile ways of working, performance contracts, crowdsourcing creative, outsourced production, using platforms like catalant and co-creating with startups?
Co-crete pilots. It’s agile smart and the route forward. Align the incentive structure, strong thoughtful incentives will drive necessary changes.
Brenton likened the stages of revolution to the spread of a sickness. It starts small. We are certainly in the early stages flu season.