I don't watch alot of TV, so I'm usually a late adopter when it comes to great television shows. Mad Men is no exception. Although the show is entering its fourth season, I'm just getting around to watching Season 1 and I am falling in love with the show. It reminds me of the Sopranos – flawed characters that you at times root for, at times despise, interlocked in an entertaining drama that centers on the fundamental search for happiness and respect.
So while I'm in the midst of enjoying Mad Men, it was with great amusement that I hosted a dinner with a dozen or so CEOs of advertising agencies and advertising technology start-ups the other night. Last year, I blogged about how Madison Avenue was going tech ("Revenge of the Nerds", I called it). At the time, I thought there was hope that the big ad agencies would evolve to become techno-savvy nerds and help lead the innovation charge. This year, it's a foregone conclusion in my mind that Madison Ave's Mad Men are doomed.
With the rampant digitization of advertising and the explosive growth of performance-based marketing, the nerds are taking over advertising. Advertising innovation is coming from technology-driven giants – like Google, Microsoft and now even Apple – as well as start-up companies that are nibbling away at the value-chain, including many of our own portfolio companies (e.g., DataXu, BzzAgent and digital Arbor).
Although many of these technology-driven companies are partnering with the major advertising agencies today, the agency CEOs at my dinner with very bearish on what the future held for the agencies and whether they would survive the New World Order. In their view, there are four reasons for this:
- Wall Street Pressure. In talking to advertising agency executives, you can't help but be struck by how much their EPS targets affect their behavior – and hamstrings their ability to invest. So long as they are slaves to Wall Street, the major advertising holding companies will be unable to undergo the necessary, wholesale transformation required to thrive in the digital age. It reminded me of James Carville's famous quip that in another life, he hoped to be reincarnated as a bond trader so that he could wield some real power. Agency CEOs seem to wish they were Wall St analysts or venture-backed CEOs rather than trapped as holding company leaders.
- CFO/Procurement. Each of the agency CEOs at our dinner bemoaned the fact that "above the line" advertising budgets were now in the hands of the procurement officer and that the power pecking order has become CEO, CFO, CMO. One of the CEOs at the dinner, Wayne Townsend of Click Squared, noted wryly that below-the-line marketing budgets has always been in the hands of the procurement officer. Welcome to the club! The problem for the agencies is that this trend means great creative (the Big Idea) and great relationships (three martini lunch) aren't important to the procurement officer, only hard ROI.
- Lack of Pay for Performance. One agency CEO pointed out that if you look at the revenue per employee at the major agency holding companies, it's a fraction of what it is for premiere management consulting shops, like BCG and McKinsey. In the absence of a pay for performance paradigm (akin to performance-based marketers like Google, who get paid per click or per acquisition), the agencies are forced to operate like a glorified body shop, whether their campaigns move the needle on the business or not. This caps the upside and results in odd incentives, such as worrying more about getting fired than about delivering great work.
- Talent. The best technology and business development talent is not flocking to advertising agencies. They are flocking to advertising technology start-ups and Google, Microsoft and Apple. Over time, the best talent wins in any industry. By this reckoning, the advertising agencies are doomed.
The advertising agencies are thus in a structural box, a classic case of Innovator's Dilemma. Meanwhile, venture capitalists and entrepreneurs smell blood. Young companies are going directly to CMOs to mine their marketing budgets. And marketers are more aggressive about experimenting with new media, socu has Twitter and Facebook, with the help of niche consultants and technology providers.
The only saving grace for the industry may be that their remains great power in the Big Idea. Great creative can still move the needle and provides the direction for all that whiz bang, targeted, performance-based execution. The success of creative boutiques like McGarry and Bowen suggests that niche is still a lucrative one.
As for me, I'll keep enjoying "Mad Men" and continue to invest in nerdy, little technology companies to make them obsolete, historical relics.
SEEING BOTH SIDES 
What everyone needs is a procurement officer with a marketing and management major – I have both and am an attorney to boot, plus I know what business is about. I am also a tech procurement guy and it still requires the “vision.” P.S. I am fabulous at lunch too
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Bill – I agree – and love the focus on "media-neutral, measurable engagement strategies".
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Jeff,
While I completely agree with you that the boutiques are chipping-away at Madison Avenue, there is still power in the Big Idea that will drive all of the metrics the nerds are expousing (sp?). However, the Procurement folks may not allow “traditional” agencies and their strategic thinking to even see the light of day if the numbers don’t align on some spreadsheet.
All of us at the larger shops need to get-out of our comfort zones and push media-neutral, measurable engagement strategies whenever the opportunity arises; lest we keep losing business to the metric-driven boutiques that may not fully be able to bring the Big Idea to life, but do provide Procurement with the right ROI.
Let’s hope the Mad Men return for Season 5 and beyond!
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If you mean what accounts for the bill rate gap between McKinsey and McCann-Erickson, I’d say it’s 5 decades of marketing folks being little more than pretty picture people. And pretty picture people just aren’t worth as much as Big Picture People.
I say this with sadness, Jeff… your average marketing guy is a sales guy who’s never been accountable for anything. The plain truth is that most marketing people are worthless. If that weren’t true, marketing spend would go up in a tough economy, not down.
Marketing needs to be about driving revenue, not just making advertising. It’s the only way back to a seat at the grown up table.
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Hey Jeff,
I just finished reading a good book that touches on aspects of this post- Adland by James P. Othmer. The first half deals with his travails working in large traditional agencies, struggling to understand the upheavals taking place in the industry, the second half interviewing new models of agencies that have created innovative, thriving, digital-centric “idea factories” that are re-inventing the industry, outside of ad industry holding companies. Since I am late reading this book (it’s been out about a year) It is interesting to note what’s transpired since he wrote the book, with the two companies that he profiled in most detail as examples of shops that were re-inventing the industry, Toy and Barbarian Group. Barbarian Group recently sold to Cheil Worldwide, and Toy closed shop last month, the founder choosing instead to re-join CPB in Miami (which is partially owned by MDC). The struggle for the innovative, digital-focused agencies is in growing and scaling in an mainly project-based industry. They can work with or join agencies that that AOR model, or become more “agency-like” in their service offerings, like RGA has done. In the meantime, you are correct in saying that the big ideas will still win the day, the difference is those big ideas now come from a much wider playing field of idea factories and value chain nibblers (i’d include my company Pod Design in that lot), as well as the big agencies. And those big ideas might not have anything to do with TV, print or radio, which is rough for a lot of agencies to adjust to.
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Thanks, Mike. The big "M" marketing paradigm is a good one. Why isn't that worth as much as BCG's big "S" strategy, in your view?
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Thanks for the props, Des.
I think the big agencies – all of whom stand on the crumbling pillars of highly paid media, cultures that value creativity over business impact, and a staff leverage model from the 1930’s – are all screwed.
At Holland-Mark we start with the observation that people – in both their business and personal lives – are only spending money on what they consider imperative. Meeting that standard isn’t about “small-m marketing.” The days when snappy print ads will move a sub-standard product off the shelves are gone. “Consumers,” as we used to call them, have too much power today.
Growing in the Imperative Economy will require “big-M Marketing,” meaning a willingness to tackle the substantive issues related to the relevance of your offering, the clarity of your message, the consistency of your communication, and your ability to drive engagement among a group of brand advocates large enough to support your business.
We help clients establish that cycle… to “corrupt” their vision with the external reality. In a nutshell, Holland-Mark helps businesses connect with, respond to, and benefit from the truth about their customers, products, and brand relationships.
That’s what we are today, and what we think agencies need to become to win.
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Agreed, Bill. Content/value-add is a huge factor in successful marketing.
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Good points, although I still believe great creative is valued. Think of Apple's Mac vs PC TV campaign, Dove's beauty campaign, Denny's free breakfast promotion – these represented great creative that drove positive results.
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Mike: I enjoyed your post and agree with much of what you said. Two comments /questions for you:
1) You note that people will spend more time in front of computers — do you include smartphones as computers in this view? I expect advertising will be significantly impacted by mobile devices and location tracking in the future…
2) Extended friend networks on social media sites are causing “friend” referrals to lose value, and can be annoying in excess. Any thoughts on how to filter the increasing noise so that you only get recommendations from true friends?
Thanks for the post and good luck with Shortbord!
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Thanks for the post, and appreciate your insight as this is an area that is very interesting and ripe for disruption.
I’m a believer in the “Big Idea” step for advertising. That is, not just moving from traditional models to PPC (or other action), but moving to something that more closely resembles inbound marketing. Give people a reason to find and pull your content — don’t trick them into clicking something or push it down their throat.
Build a great product, provide your customers the tools to evangelize it, and and then focus on SEO, customer service, and value-add content… even if it’s not specifically about your product.
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jeff – great post as always. the model of an ad agency as the creative core of a brand is what is changing dramatically.
ask yourself – what is the last thing you learned about first through advertising?
exactly – nothing.
gone are the days of ad-centric branding.
now its all about getting the fire started with digital, social, PR and other things that get conversations going. advertising can help fan the flames + help them grow, but its not the core that a brand’s communications are built around anymore.
so why would a brand – especially a new one – hire an ad agency to create their brand story if advertising is no longer the way that people learn about brands?
there will always be a need for great creative minds + ideas in branding. they just won’t be from ad agencies.
http://www.launchcontrolgroup.com
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Thanks, Mike. I'll check it out.
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I don't know Holland's work, but small shops that focus on great creative should survive.
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Jeff, how about Holland-Mark Digital under Mike Troiano? Do you see agencies like theirs successfully making the transition? Des
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Great post, would love to get your thoughts on our adtech company Shortbord. Here’s our farewell Madison Ave post from a few months ago: http://blog.shortbord.com/2010/02/18/the-madison-avenue-hangover-goodbye-broadcast/
Our thesis is that personal ad networks will enable brands to tap into the word-of-mouth environment of social media – where consumers are spending an increasing amount of their media time. Our ad unit is simply a brand icon that can be placed alongside any user-generated content. Each click of the brand icon traffics visitors back to Shortbord, where visitors can make a purchase or take some form of action. Our goal is to be the ad unit that enables brands to join ‘the conversation,’ websites to monetize their popularity, and people to earn the value they deserve for all of the value they create on the social web.
Apologies for the long-winded comment!
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