Monday 16 July 2018

John McGee: Time may be running out for traditional ad agencies

'Anyone working in the advertising industry will get the dead parrot analogy.'
'Anyone working in the advertising industry will get the dead parrot analogy.'

John McGee

Fans of Monty Python will remember the famous so-called Dead Parrot Sketch, where a somewhat distraught parrot owner (played by John Cleese) returns to a pet-shop to complain that the feathered friend he had just acquired had snuffed it and its metabolic processes were history.

The pet-shop owner, played by Michael Palin, assured the customer that he was mistaken because this was not just any parrot; it was a special Norwegian Blue parrot and it was merely taking a nap. Any apparent signs of rigor mortis should not be confused with the Norwegian Blue's penchant for a snooze.

Anyone working in the advertising industry will get the dead parrot analogy. Depending on who you talk to in adland, the advertising agency model as we know it has shuffled off its mortal coil, is bereft of life, has run down the curtain and is no longer fit for purpose.

On the other side of the counter, however, there's agency folk who still cling valiantly to the notion that the model is not dead but merely taking a breather before it wakes up and struts its stuff and hollers Pretty Polly in Norwegian.

Like the Monty Python sketch, you kind of want to believe both camps - if only for their comedic value - but you know John Cleese is on to something.

While traditional agencies - both media and creative - continue to figure out their future in an environment that is changing faster than they can keep up with, their clients are not pausing for breath. Driven by enormous financial challenges, shareholder expectations and a marketplace that is constantly changing, they are looking to alternative solutions to their business challenges. Many of them know that the old way of doing things is no longer good enough. In the past it may have served them well, but times have changed.

Consultancy firms like Accenture, Deloitte, and IBM, which have traditionally enjoyed a position higher up the value-chain within organisations than ad agencies have, are shoving agencies out of the way with their own marketing, digital and creative offerings.

Meanwhile, companies are also taking greater ownership of some of the marketing services that have been historically provided by agencies by bringing them in-house. While sometimes this takes the form of an in-house agency, where all the staff are employees of the company, more and more companies are looking at establishing on-site agencies made up of a team of professionals who in turn work for a third-party agency.

These professionals effectively embed themselves within the company's marketing team, often performing important day-to-day design, digital and creative tasks as they arise. While they are still employed by a third-party agency, their proximity to their clients and the transparent nature of the arrangement makes for a compelling alternative.

Although not an entirely new development, it is one which is gaining considerable traction and one which might provide some answers to that perennial question about what the agency of the future might look like.

Agencies like Oliver, which set up in Ireland three years ago and the San Francisco-based Firewood Marketing, which also opened up an Irish office recently, specialise in providing a wide range of on-site marketing communications expertise to their clients.

In the case of Oliver, which is part of the UK-headquartered Inside Ideas Group, it has embedded professional teams into a number of companies including the likes of Ryanair, Bank of Ireland and Britvic. With Ryanair, Oliver has even created the airline's recent TV campaigns, something which would possibly have been unthinkable in adland five years ago.

Outside of Ireland, Oliver is also working with Unilever around the world in the roll-out of 21 dedicated in-house content studios - called U-Studios - in 17 different markets and currently has 220 people working in these content hubs around the world.

Unilever, the second-largest advertiser in the world, is not the only company that has embraced this model. Companies like Pepsico, Intel, Chobani, Starbucks, BMW, Adidas and Barclays Bank are all tapping into it. While many of them still use external agencies for bigger above-the-line campaigns, its entirely conceivable that at some point in the future, large chunks of the above-the-line campaigns can be created internally.

A recent study by the Incorporated Society of British Advertisers (ISBA) found that the on-site agency model is emerging as a viable alternative to the standalone agency and that some 33pc of brands surveyed had an on-site agency. Speed and agility, cost-savings and brand expertise were cited as the key factors behind their decisions to embrace this model.

Time may be running out for many agencies. It's already clear from the latest batch of financials from the multinational agency groups that they are under huge pressure and organic growth is at best sluggish. But change will come. And if it doesn't they will almost certainly experience the same fate as the Norwegian Blue.

Sunday Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business