Garden or Factory? Two Very Different Agency Business Models

LinkedIn Article by Tim Williams 
April 22, 2013

Advertising agencies are facing competition from every dimension and direction. Upstream, they now complete with marketing consultancies and brand strategy firms who seek to provide planning and strategy services to marketers. Downstream are production companies, independent freelancers, and even media companies who now aim to not just sell media but produce content.

Traditional agencies are arguably in the worst place of all – right in the middle. On the one hand, they’re expected to be high-value conceptual problem solvers and on the other hand offer low-cost production services. The cost structures of these two extremes are vastly different, yet most agencies attempt to continue to support an “under one roof” operation.

Imagine a restaurant attempting to serve both high-end cuisine and low-cost fast food. Such an enterprise would need very different talent, different “production” systems, different pricing, and different processes.

Two emergent models

So today we see the emergence of two distinctly different types of agencies. One cultivates conceptual, strategic problem solving: a garden. The other offers cost-effective production, execution, and distribution: a factory.

This model is playing out on both a global stage. In large agency networks like Ogilvy, their new unit called Red is built on the garden model. A completely separate company called Redworks is the factory (in fact, Redworks actually refers to themselves as “The Beautiful Factory”). TWBA/Chiat/Day has created Disruption Works to work at the high-value problem solving level. EGraphics Worldwide provides global production, adaptation and distribution services. Other “factory” models include McCann’s WorldgroupEXPTag WorldwideHogarth, and ICP, which calls itself “the first-ever company to offer global brand owners the opportunity to de-couple advertising production from creative agencies.”

Is a garden better than a factory? That’s actually a bit of a ridiculous question. Both have different reasons for being and both are equally important. In fact, the “factories” referred to here are astoundingly good at what they do. You’ve no doubt heard the old adage about telling a customer “You can have this good, fast, or cheap: pick any two.” Companies like Redworks actually give you all three.

Production services company or professional knowledge firm?

If you staff and manage your agency as a though you’re a professional knowledge firm but your revenues come from mostly from production services, you have a recipe for a low-to-no margin business. The solution is not raising prices on your production/distribution business. In a mature market like production services, you have to have the cost structure, staffing, systems, and technology to deliver these services faster and less expensively than the traditional agency. This is the business model of the factory, and it’s why the companies who are optimized for production, translation, and distribution are so good at what they do.

This practice of decoupling ideation from production has the potential to transform the global advertising marketplace. Industry consultant Avi Dan calls it “The most powerful force in advertising is the past 60 years.”

It’s easy to see why marketers feel this benefits them, but can it benefit agencies? The answer is undeniably yes, because now even a small “garden” agency can work for global brands, given that many of these brands now have a separate relationship with a “factory.” This seemingly dark cloud has a silver lining, but it requires agencies to make some very conscious decisions about their business model.

Most agencies still have a foot in both camps. But sooner or later, they'll be forced to choose. Just don't let the choice be made for you.