To help secure a successful future for your firm, consider where you fall on the innovation spectrum, inspired by the work ofClayton Christensen in The Innovator’s Dilemma.
Overdeveloped Services < ———————————————– > Underdeveloped Services
The vast majority of agencies are focused on delivering “overdeveloped services” – services that are widely available, offered by many providers. By definition, if you’re offering the same type of services that thousands of other agencies do, all across the world, you’ll be living in the world of low margins and intense price competition.
On the other hand, if you focus on “underdeveloped services” – services that address underserved markets and unsatisfied client needs – you’ll be positioning your firm for success in years to come. You’ll also have fewer competitors and higher margins, because you’ll be offering scarce services. And what is scarce is valuable
Not just ads, but inventions and innovations
By developing and selling “what’s next,” agencies can develop important new revenue streams they never had before. One hopeful sign that agencies are headed in this direction is the new crop of competitions based on inventions and innovations, like the new Project Isaac competition sponsored by Adweek.
Instead of the traditional award categories by medium, agencies are recognized in areas like:
- Marketing Invention
- Brand Performance Invention
- Design Invention
- Product Development Invention
- Retail Invention
- Editorial Invention
- Media Buying Invention
- Social Media Invention
- Mobile Invention
- Digital Publishing Invention
- App Development Invention
- Startup Invention
- Research Invention
- Human Resources Invention
- Partnership Invention
Even the Cannes Lions are moving in this direction with a new “Innovation” category this year, along with other newer categories like Branded Content and Cyber.
Other organizations like Digiday are now sponsoring “Agency Innovation Camps,” devoted to helping agencies get beyond mass messaging to solve marketing problems in new and different ways.
AGENCIES AS PRODUCT DEVELOPERS
One of the most interesting paradigm shifts in our business is the idea that agencies can play the role of product developers, not just product advertisers.
Several agencies – like Mother, CP+B, and others – now have their own liquor brands. (Hey, if you’re going to develop and market your own product, you might as well choose something most people enjoy.) None of these agencies expect to double their agency revenues in the short term with these new ventures. What they expect instead is to get some valuable on-the-ground experience with all four Ps of marketing (not just Promotion, but also Product, Price, and Place).
The Canadian agency Rethink developed an app that helps create presentation prototypes when developing iPhone and iPad apps. Again, this isn’t big money maker for the agency – especially since it’s free. Rethink just feels it’s important to be in the product development business, and this is one of the ways to get some valuable experience.
Amsterdam-based John Doe went so far as to develop a new, super-simple mobile phone, called, appropriately enough, “John’s Phone.” This is a pretty ambitious undertaking, as it required the agency to locate and source manufacturers, effectively price the product, etc. Imagine the credibility they have with their clients, who can’t really just view the agency as the “advertising guys.”
Talking about the L.A. office of Deutsch, USA Today recently said “There are many reasons why ad creators are embracing new ventures. Some are frustrated with providing ideas in exchange for a set fee and want to reap revenue from product sales. Some agencies hope the initiatives will engage employees in fresh ways.”
A new meaning for the word “agency”
R/GA’s Robert Greenberg observes “Agencies will transform into broad ranging companies that provide business transformation consulting, product innovation, technology innovation, brand development and a myriad of production capabilities. The ‘agency’ part of these new companies will just be a piece of the whole, not the entire business.”
The point is that agencies can apply the same creativity to revenue generation as they do to solving client business problems. Stop and consider whether you are just an “agent” acting on a client’s behalf, or should you also invest in products and services that can start laying the groundwork for new sources of revenue.
As CP+B’s Neil Ridell believes, “Doing these types of projects really keeps us evolving as a creative entity. We’re able to evolve our compensation with new revenue streams and equity deals and evolve what we can be, which I think is far more than an advertising agency.”
Finally, remember the genius of Peter Drucker, who simply said “All profit is derived from risk.” If you want to make more money, take more risk. Risk is actually an economic positive. If you eliminated risk, you would eliminate profits. And today, the biggest profit drain in your firm is not risk, but the cost of not taking a risk.