Tim-Williams---Photo-1January 7, 2013 | By Tim Williams

Referring to the now-familiar “burning platform” allegory, a friend of mine recently asked, “How long can we survive on the old agency model platform before we die … or maybe jump?”

One thing is for sure: the business model that has been in practice at many agencies for almost half a century simply doesn’t scale anymore.  It was built for the mass markets that emerged at the end of the Industrial Revolution.  The Industrial Revolution was all about creating scale.  The Digital Revolution has decimated scale, adding new layers of complexity to our business model.

Most agencies are unfortunately having a hard time keeping up.  Writing in Forbes about a recent study he conducted, Avi Dan reports “The vast majority of clients feel that agencies are struggling to change their business model.  Clients simply do not see traditional agencies as adjusting well in an era of rapid technological changes.”

A new agency OS

A few of the progressive thinkers in our business propose that we are at a point where we actually need a new agency OS — a new operating system – characterized by such things as real-time optimization, media trading, and effectiveness modeling.  Martin Baille of Glue Isobar believes that two different new agency types are emerging:

  1. Outcomes agencies, who will be convergence consultants focused on effectiveness, delivering ideas, innovation and intelligence to grow client profit over time.
  2. Outputs agencies, who will continue to generate big ideas and create fame for clients but will also develop new revenue streams for those ideas from direct to consumer products and services, thereby beating their addiction to short term client cash.

No one type of agency is perfect for everything

As agencies have scrambled to organize effectively for a newly disaggregated environment, several major agency types have emerged.  In a recent paper, Forrester opined that of all the major varieties of agencies, “No type of agency is perfect for the new era.” Instead, the paper says, a new breed of agency is morphing together creativity, media and technology to form a new kind of “connected agency.”

This movement can be seen in the new agencies of the last few years that de-emphasize the concept of “advertising”.  They purposefully use terms like “communications agency,” and are coming from virtually every corner of the business.  We now see media agencies establishing the capabilities of creative agencies.  Production companies are now pitching themselves with the same creative capabilities as agencies.  And consulting firms, which for the last several decades have nibbled away at the strategy side of our the agency business, are now acquiring actual agencies and setting up agency-like divisions, like Accenture’s new Accenture Interactive unit.

Perhaps most notable is the move by digital agencies to be seen as “full service.”  Just in the past few years there have been several notable examples of marketers awarding “agency of record” assignments to digital firms who are now diversifying into other types of communications channels.  R/GA famously calls itself not a digital agency, but “The Agency for the Digital Age.”

PR firms have called themselves “agencies” pretty much since their inception, but now they use the word in a much broader sense.  They aim to be seen not just as the earned media experts, but also as a central resource for paid, shared, and owned media.  Visit the websites of firms like GolinHarris and you’ll have to go several pages deep to find the words “public relations.”  SS+K has been following this strategy for years now, calling itself “a marketing plus communications agency specializing in creative social engagement.”

Convergence or divergence?

All of this creates the illusion than the agency business is destined to converge.  But marketers have adopted the practice of hiring “best-in-class specialists”, not generalists who attempt to do everything.  At least among large marketers, the one-stop-shop concept was abandoned years ago after the agency industry unbundled itself and the marketing universe exploded in complexity.

So while the lines between paid, earned, and owned may continue to blur, marketers will continue to look for specific kinds of expertise to solve specific kinds of problems.  The world-flattening forces Tom Friedman writes about (fueled largely by the internet) have spawned vast new forms of competition for agencies.  The marketplace for agency-like services is bigger than it’s ever been, which is all the more reason individual agencies must focus on a business strategy that capitalizes on what they do best.  Saying you do everything isn’t a strategy, but rather the absence of one.

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