First: The digital disruption.
Globally, Facebook and Google now dominate advertising dollars, not WPP or Publicis or other agency companies. (For comparison about the market muscle – Combined market cap of FB and G was $812Bn as of June 2016. How did WPP, Omnicom, IPG, Publicis stack up? The four combined were at $70 Bn. And the less said about the growth, the better.) So there’s that.
And now consultancies are entering the fray to steal the lunch from agencies. And agencies have largely been too busy in denial to notice their impending irrelevance and gutting of their margins.
Second: The value of ideas.
Adweek recently wrote about the trend of Global consultancy goliaths buying up small agencies to make inroads into the branding industry. And similarly, creative agencies have also been trying to make inroads into consultancy businesses.
Who is more likely to succeed? Which industry will prevail, which will shake-up?
To me the answer is obvious. Why? Here’s why –
- Relative Value: Consultancy’s service is typically valued at higher valuations than creative agencies. In another world, where creative agencies didn’t get too complacent early on and put more emphasis on effectiveness beyond awards, perhaps, creatives would have earned more, grew bigger by creatively solving newer and varied problems and given bigger business growth for brands. But we don’t live in that world. Consultancies are good at convincing with numbers how they affect businesses positively.
P.S. – There should be a research done in success rate of consultancies versus agencies in actually delivering growth.
- Positioning: Consulting is positioned as a house of experts. Consultancies typically house ‘domain experts’ that the CXO knows he can access. So, it is not a big stretch to imagine that consultancies house creative experts too. It is a stretch to imagine the chaotic agency to house a supply chain expert though.
So even if a CXO trusts a creative mind’s judgement in his/her field, I doubt he/she would extend the assumption of competency to other matters of business growth. As against a typical consultant – no matter how dumb/ smart he/she might be, the CXO trusts him/her to create access to competent people for most business needs.
- Ear of CXOs – Both agencies and consultants get to interact and influence CXOs. But, agencies only cater to propaganda need, while consultancies can affect change in almost all facets of a business – supply chain, production, legal etc. So consultancies have a better view of the business and what it needs, and hence better opportunity to offer more services.
- Plurality of ‘closed thinking’ projects – Pardon the generalization, but while consultants are masters of ‘closed’ thinking, creatives are masters of ‘open’ thinking. I estimate that there are more ‘closed thinking’ services that a company typically needs help with, than ‘open thinking’ services.
- When you can’t innovate, advertise!: Growth in 21st century is about innovations – consolidative tech innovations (FB and G consolidating the ad and comm tech market) or fragmenting tech innovations (innovations in CPG that is creating new breed of many niche players – online or offline.) There is no substitute for actual, real innovation to grow in 21st century.
While agencies are known for their ‘big ideas’, they are not known for path-breaking ideas that inform a business model or product development. Most of the time, the idea comes from within the company for it to be truly adopted with conviction. And to execute these ideas, they go to the consultancies for help, not to advertisers.
Can advertising agencies create new business ideas? sure they can. But the evidence is lacking as of now.
Advertising agencies instead are now becoming home to companies that fail to innovate and then want the advertising to push the ship stuck in the muck.
There have been attempts by agencies to get into consultancy shoes – most recently by R/GA. I wish them best of luck. I really hope someone cracks it and in the process, ‘pivots’ to a higher value service. But so far the trend has not been encouraging.
Here’s an idea for a better future for the industry – start putting your money where your ideas are.
Two strategies to improve agency prospects –