So should advertising agencies be more like start-ups and what would that mean exactly?

One from the archives: Circa 2011

David Armano has just written a piece called Maybe Agencies should be more like blue chip companies. The title is self-explanatory and it is in response to the popular idea that Ad agencies need to become more like start-ups.

I don’t want to spend too much time on the contents simply because I think it has fundamentally missed the point on what the whole Agency, Web, IT, Management Consulting convergence “thing” is all about. He appears to have confused the idea of advertising agencies generating, acquiring and securing the rights to their own IP with the simplistic idea of starting yet another garage band.

What interested me more is one of the sources he has quoted and one of the comments that has been made in reaction to the post.

First the quotation.

“But it turns out that thinking like a service company and thinking like a software company couldn’t be more different. The former is client focused, the latter has to be product focused. ” Edward Boches – An Ad Agency gets into the software business

Now for the comment.

“Well, agencies DO have their share of problems, don’t they… Might be because of the five-year decline of 32.7 percent in advertising and promotions manager jobs in the US today. Forbes identifies this as one of the 10 disappearing middle-class jobs nationwide, with 17,000 such jobs lost since 2006, claiming new technologies and the shift to internet advertising are the reason.” – Cindi - Copygrove blog

The data in the comment comes from a “Forbes: 10 Disappearing Middle-Class Jobs” slideshow that can found by following the link back to Cindi’s blog. Back on her blog Cindi also suggests that “The fact is, the cause for the decline has more to do with the food chain. If manufacturers and service providers are selling less due to economic problems beyond the “fix” of a great marketing campaign or killer app, the contraction can be more of a permanent atrophy.”

So there we have the context. Now the discussion.

We’ll begin with a bit of history.

The thought leaders in advertising – just as was the case in media – realised they had a problem with something called “disintermediation” back in the early to mid 1990′s. They all understood that the internet represented the great unbundling of their industry’s symbiotic value chain. The only question that remained to be answered was how would they respond to the challenge? Inevitably there was a period of experimentation. Lifeboats were built, floated and abandoned. To a certain extent by the end of the dot-com boom it became painfully apparent the advertising and media industry were struggling to come to terms with the brave new world of the internet.

It wasn’t through lack of trying. It wasn’t through lack of ideas. It was simply because they tried to frame the potential of the new media within the terms of reference of the old media. And that’s why I suspect a decade on when I talk to my old friends in Advertising they are telling me they would make more money farming out plumbers than they can get for a good creative director.

I have said before that the industry has evolved from Copywriters, Art Directors and Media Buyers to So.Me Gurus, UX Designers and Data Scientists. But in reality these changes are cosmetic. The industry still operates as old media challenged with reality of having to work with the new.

The first challenge is agency. Back in the mid-1990′s the assumption was the era of the middlemen or middlepeople was coming to an end. Disintermediation would kill them off one by one. Be they Real Estate Agents, Travel Agents, Recruitment Agents or Advertising Agents or any other kind of Agency the internet had your number and it would be calling you up soon.

15 years on and we see the results of disintermediation have been patchy. For example who uses a travel agent these days? It is easier to D.I.Y online. On the other hand why do we now have more Recruitment Agents than ever before? Surely Monster and LinkedIn should have been the death of the HR industry? The secret of course is disintermediation was not only impacting the Agents it was also having an impact on the customers they were servicing.

The internet was proving to be the great unbundler of the corporation. Thanks to the internet people no longer had to come together in the one place to reduce the organisations costs of doing business. The organism we call the corporation was now fragmenting rapidly into an ad-hoc amalgam of just in time and on-demand bits.

At the same time software industry was busy using the internet to automate the world’s best practice so that now everybody could benefit from access to automated and online services levels that mirrored, if not exceeded, the industry benchmarks. We called this the eBusiness revolution.

As we have seen some agencies have survived this wave. Others have not.

Why this is the case can be something of a puzzle. Could it be that Travel Agents had better practices than Real Estate Agents and there for proved more easier to disrupt through automating those practices? Or was it simply the fact that the Airlines and the Hotel Chains wanted more of the revenue pie and fast tracked the process? The same applies to HR. You would think that with between 15-30% of the contract wage bill on the table the corporations would have moved by now to “disintermediate” the recruitment agents out of the process.

If I have discovered one rule of thumb over the years it is this.

Disintermediation is most effective were there is a shortage of either supply or demand across the two-sided platform. In the case of travel the Airlines controlled the terms of supply and cut the agents out of the deal by providing the customers with the online tools to self-serve. While in Recruitment and Real Estate there is an abundance of buyers and sellers… and of course agents.

The same rule applies to media. Very few Telcos but lots of content providers wanting to join the Telco’s content distribution platforms (i.e. The Web and Mobile).

As we have seen before two-sided platforms must have an ignition strategy and that is a lot harder to achieve when the process of getting both sides of the market to the hub is something akin to herding cats.

For all the talk and excitement about creativity the business of advertising was and still is largely about brokering media. Creativity was just the hook to get the media buying budget. The problem of course is the forces that drive disintermediation tend to focus on the dollars rather than the ideas. The technology comes into play to drive down the costs. Disintermediation only works if it saves money for all the players operating on the platform.

This essentially is the wake up call that Google sent through the advertising industry. Come play with us and your advertising will not only be more effective it will also be cheaper.

All of which leads me to the point made by Edward Boches. “Thinking like a service company and thinking like a software company couldn’t be more different. The former is client focused, the latter has to be product focused.”

Actually he is wrong. Fundamentally wrong.

It is also an assumption that is at the core of why most web start-ups fail.

Today software and services are one of the same thing. Software is the automation of best business practice. If your best practice is service and that process can be written down as a policy and procedures document that is then used to train your staff to provide the service at levels that comply or exceed industry best practice then chances are that service process can be automated and represented to your customers as a self-service option using information technology and software.

Now some of those best practice services you may not want to impose on your customer (e.g. How to make their hotel bed the next morning or how to make a burger or fried chicken) so you will try to find the lowest paid “human” option to undertake the task… at least until some robotic alternative proves more cost-effective. But in the case of booking an airline ticket or making an insurance claim or paying a gas bill. If the customer can be convinced to D.I.Y online or via the mobile. Well say no more that’s money in the bank for the service supplier.

It’s all about doing more, much more with much, much less.

Think I’m wrong? Then ask yourself what is the more time-consuming experience. Walking into a bank or doing the banking online or over the mobile phone? Banking online provides you with world’s best practice service levels (almost) every time you log in. When you get to the counter your chances of dealing with the best teller in the organisation are very remote. They are probably working alongside the software developer suggesting ways to improve your online banking experience.

Now back to the challenges facing the advertising agencies.

As I have said before the relationship between media and advertising is symbiotic. If either dies so does the other.

The challenge is two-fold. Firstly the creative challenge.

Today there are probably more people working on advertising messages than ever before. The problem is most of them aren’t working in advertising agencies they are working for the agency’s customers or SME’s doing the So.Me DIY thing. The reason for that is the software tools (i.e. the products) like Photoshop, Final Cut Pro and WordPress have made it so much easier to create content that it has got well past the point where any idiot can do this. The truth is today most do.

So the industry has no market differentiator. Just like the rest of the media industry it has no oxygen because of the sheer volume of content and messages being generated. When your best creatives are up against an online market pool of 2 Billion free creatives then the odds are against you winning on creative. If anything the best you can do is seed ideas into the hive mind that start the thread towards discover the most creative idea. Secondly the media brokerage model is broken and like humpty dumpty it isn’t going to be mended again. Google created the blueprint that demonstrated just how easy it was to automate and aggregate the industry’s brokerage service model.

Moving the forward the industry appears to have a few options. The first two revolve around embracing the opportunities that disintermediation represent.

For example

It can adopt the Finder, Minder and Grinder come Magic Mushroom model of the management consultants (i.e. Get teams of highly paid bums on seats inside the organisation creating insight reports and insourcing the work).

It can adopt the match the global price point model of the world’s leading outsources by putting Project Managers inside the offices of the client and then shunting the work off-shore to locals that can provide creative for a $1 per day.

The problem the agencies face with these models of course is historically they have held a policy where by an agency couldn’t work for two clients in the same industry sector at the same time for fear of a conflict of interest.

This of course has never been a problem in the management consulting or software development game where the idea is to take the policies, procedures and processes you have created (i.e. Discovered?) with the market leader and then repackage them as best practice benchmarks for the rest of the market to adopt.

This of course takes us to the heart of the challenge we encounter with the simplistic idea of the Advertising Agency thinking like a start-up.

Unlike management consulting, where the ideas and practices you create for one client have the potential for universal appeal, in advertising you simply cannot take somebody else’s logo, slogan or TV commercial and repackage it for use by everybody else in the market.

I have often heard it said in the advertising circles that the mistake the industry made was it gave away its IP.

I would argue that it gave away the IP simply because the IP it generated was of no value outside the context of the campaign in which it was created. It is a bit like digging a hole in somebody’s back yard. Once you have dug it you can’t take it with you and sell it to the neighbours… unless of course you know of somebody who is looking for land fill.

This then is the challenge the industry faces. Yes it needs to be thinking like a start-up. Yes it needs to be generating and retaining IP. But also needs to realise there is no residual value in the IP within the products and services it generates today.

How does that slogan go? You can feel the difference? or is it ” You can experience the difference?”.

The simple reality is IP in the service game is all about securing the commercial rights to processes and technologies that enable process replication on a global scale, not slogans and logos.

The question then arises how does an industry of slogans, logos and images rethink itself into an industry that is in the business of creating innovative new processes and technologies?

It won’t be easy and many, if not the majority, will fail but the challenge, as it always was, is to reinvent the future… because if it can do that then it will not only save itself it may also save the rest of the media industry alongside with it.