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How are agencies evolving their revenue streams with the emergence of new technologies?

Recent technological advancements within media and digital arenas have resulted in pressure on organisations to reassess their revenue models. Traditional models may no longer be relevant to a changing landscape; ‘clients want ideas – the questions are around how clients pay for ideas?’ Simon Carr, Account Director, M2M Media. As new platforms have emerged, agencies have experimented with the various ways to monetise opportunities in a way that best suits the needs of both the company and client. Going forward, there will be an emphasis on consolidating these options and finding new metrics to reflect performance. Agencies must be responsive to these advancements in order to be fully prepared for the future.

‘Agencies need to create value in different ways. We need to move past charging for time and start looking at charging for value.’ Paul Carvill, Mobile Accelerator Director, LBi. The commoditisation of the agency model i.e. the race to the bottom with ever-decreasing rates, is unsustainable and necessitates a new model of joint strategic partnership with clients. There is a need to marry the efficiency and measurability of digital media with the specialisms and culture that agencies have; this needs to be their USP.

‘Looking at social, search, mobile or technology in isolation limits thinking and growth…complete integration into a communication response is required.’ Karen Blackett, CEO, Mediacom. We must use learnings from all platforms to measure value. Agencies shouldn’t be afraid to invest in the unknown, even when they don’t have a clear idea of what the ROI will be. Having specialist departments that can explore and test emerging platforms, and then disseminate the most scalable ideas, means agencies can become a voice of authority. Fully integrating the learnings from across all channels and communicating with a coherent voice will provide the most effective cross-platform strategy. In order to successfully achieve this we must be brave and unafraid to fail.

For both clients and agencies, education in emerging technology is crucial to the evolution of revenue streams.  As the client is the source of the agencies’ revenue, educating and gaining buy-in from clients is key to the development of the industry as a whole. Within agencies, the gap between senior and junior revenue models needs to be bridged; one solution being to increase focus on internal training in emerging technologies and revenue models. Our research shows that while companies are considering new revenue streams, not many are actively pitching them. It seems that although the industry consensus is that client education is key, this is not reflected as much in practice. This education can play an important role in more honest, transparent and profitable relationships between agencies and clients.

Luke Bozeat, Joint Head of Client Services, MediaCom asserts that, ‘savvy clients i.e. ones that know exactly what’s going on [in the wider/marketing world] generally get the best deals and understand where everyone can win…a challenging, switched on client is preferable to work with’. This means that agencies have to distinguish between fads and trends in emerging technologies and have the knowledge to make relevant, timely and commercially viable choices on behalf of their clients.

There is a split amongst agencies as to whether technology should be developed in-house or outsourced. Those that choose outsourcing tend to do so due to the lack of internal capabilities, or they believe that independent technology houses are more specialised and can focus on a particular technology more efficiently. However, developing technology in-house allows for client licensing, intellectual property and a stable revenue stream with lower costs and higher profit margins.

Adaptability and creativity will be intrinsic to how agencies move with the fast pace of innovation. Setting up an agency model that recognises useful and innovative technology, has an effective test and learn structure, and can mould these learnings into a sustainable revenue stream, will prove fruitful in an environment that has never seen such a rapid pace of change.

Which technologies over the next twelve months will affect the business and how are we prepared for this?

From the data gathered, three key themes emerged: agency-focused technology; consumer-facing technology; and the challenges faced by agencies in responding to rapid technological change.

Firstly, for agencies data was a recurring theme within 60% of those surveyed.  More specifically regarding the increase in the prevalence of data and how to maximise the availability of it to target consumers. Sources of data are currently fragmented, so developments in technology to aggregate these and maximise their potential will be significant over the next 12 months.

Real time bidding (RTB) technology is also a key focus for media agencies, enabling increased efficiency in the buying process. The key benefit is when it is combined with data targeting – this gives incredible control over audience reach; ‘you can actually buy specific people when they are behaving in a certain way’ notes Steve Hobbs, Director of Media Operations, Aegis.

Data-driven media targeting, bought through an RTB model, is arguably seen as the ultimate goal for all media – traditional and online.

Secondly, from the consumer perspective, there is a huge disparity between the time consumers spend on mobile and the advertising money spent on mobile. The industry has replicated the online display model for mobile, but this does not yet nurture the level of personalisation consumers expect.

The advent of web-enabled products, such as connected TVs, presents new opportunities for advertisers to teach consumers how to use these emerging technologies, and provides more innovative ways for consumers to interact with new media (e.g. mobile wallets creating new advertising opportunities for e-commerce in outdoor environments).

The social landscape is changing rapidly, and people can now easily connect to other friends and people with similar interests. Brands and agencies are still searching for the best way to monetise these social relationships,  however 20% of business owners are still doubtful of the potential for a return on their social media marketing spend [1].

‘I think social media faces a significant challenge. They’ve connected brands with people, people with people, people with interests – but this has happened now; how to monetise these relationships in future is a question no-one has fully answered yet.’ Jim Gyngell, Co-Head of Digital, Arena.

Finally, there are so many new technologies – both for the consumer and within agencies. This challenges agencies to be adaptable and agile. Technological changes won’t just affect digital functions. Entire agencies need to be primed for them. Acquiring the tools to adapt to these changes is not actually about technology; it is about people’s mindsets. For any agency to capitalise on technological development, attitudinal learning will be just as, if not more, important than technical learning.

‘The question…is what can you do with uncertainty – and the only thing you can do with uncertainty is manage it and be in it.’ Bridget Angear and Craig Mawdsley, Heads of Planning, AMV.

                                                                                                                                                  

1 Mashable, May 2012, http://www.mashable.com/2012/05/23/social-marketing-infographic

What structure do you think agencies will have to adapt to in order to succeed in the future?

‘A rigid structure leads to process, and process can lead to ordinary ideas.’ David Killick, Planning Director, Crayon.

Historically, silos, hierarchy and fixed departments have hindered flexibility but as consumer behaviours continue to converge, agencies need to reflect this. Although one structure is not necessarily the key to success, agencies should be open to adapting and working more collaboratively. As an industry, the general consensus is that change is inevitable; the big question is how can agencies drive change while maintaining revenue and reputation?

Agencies need to encourage employees to take an interest in the breadth of the business and the industry. This will help mould T-shaped individuals that have a holistic understanding and knowledge of marketing while still having specialist skills that can adapt to the evolving industry, client needs, consumer journey and revenue streams.  As such, Ed Beard, Planning Director, LBi states that, ‘to create truly blended agencies we need to think of blended and blending individuals, not just putting departments together’.

Adopting a more fluid organisational structure will enable agencies to more effectively respond to real-time data, briefs, bidding, and the emergence of future technological trends. Agencies should strive to continuously create bespoke teams based on a set of specialised skills required to fulfil client needs and specific consumer journeys. This creates a more open organism. As in Darwin’s evolutionary theory: we (individuals, agencies, industry) need to be able to adapt well to our environment in order to survive.

One suggestion is to think of agencies as a football team: players and managers come and go; lineups change on a weekly basis, but the fans are always there. Agencies need to think of clients as fans. They  need to maintain loyalty whilst change occurs. In the same way, employees need to be seen as players, and agencies as coaches, that need to change their strategy and tactics as the match evolves.

There has traditionally been an emphasis on incubating specialisms, but as agencies become more integrated and collaborative, a move back to full-service agencies could be the solution. As Lauren Nuttall, Account Manager, MBA states, ‘it seems as if agencies are increasingly moving toward an all-under-the-same-roof approach. However, I worry about the great smaller agencies being absorbed by bigger ones…it seems clear that the agency of the future will have a raft of capabilities’.  This in itself has implications for smaller agencies as they may lose their identity, and clients lose competitive advantage and choice.  No one knows the exact direction of the industry but based on consumer behaviour the industry needs to ensure they can adapt and take on an integrated approach. There is not one set structure that every agency should adhere to, especially as no-one knows what the future will bring. Agencies must be open to change and ensure they are adaptable when it comes.

How can the industry best capitalise on youth and give opportunities to young talent in the industry?

According to the IPA Census 2011 the average age of those working in member agencies is 33 years old. Additionally, a 19.2% increase, year on year, in first-year trainees suggests that the industry is getting younger. We need to ensure that age is not valued higher than contribution in order to level the playing field between enthusiasm and experience. The industry is providing a wealth of experience for young talent, however, we have outlined three areas to better provide the right opportunities to attract and retain the right candidates to the advertising and media industry.

There is a clear gap in progression from entry level to more senior level; people are becoming disconnected as the hierarchical structure becomes harder to navigate. Employees do not necessarily want to job-hop, but in order to avoid the best talent getting enticed by higher pay and more satisfying roles elsewhere, agencies need to make roles more engaging and more of an enriching experience. Arena Media recognise that new starters should be exposed to the business much more broadly and can build relationships across the agency as they progress. This will also avoid young people developing a myopic view of the business. Taking this a step further, Jody Shilliday, Associate Director of Social Ads, Starcom MediaVest Group says that ‘agencies need to be willing to invest in youth, not just financially, but with time and trust’. From PHD’s perspective, Anjali Ramachandran, Head of Innovation suggests that this can be achieved by allocating  ‘mentors who take the time to sit down and chat with them regularly…providing feedback on their work so they can learn and grow’.

Beyond creating an immediately engaging environment to hold onto their talent, there is a disconnect between how the industry values entrepreneurial responsibility and how youthful freedom is regarded. Agencies have an opportunity to encourage the spirit of entrepreneurship that naturally attracts talent beyond only those that are appealing to bloated grad schemes. Squared student, Sandra Canrom, International Account Executive, OMD International, explains that ‘entrepreneurship is the motivation for the young generation, maybe if scope was given to young people to do this within their role, a sense of ownership and responsibility would follow’. Giving young people a degree of freedom to develop their ideas and feel comfortable in failure is key for learning and necessary to drive innovation forward.  Mark Runacus, Senior Partner, Crayon supports this in saying ‘we should all embrace failure, but in a risk-managed way’. Using the agency environment to structure rather than reject this youthful enthusiasm and passionate curiosity would push young talent in agencies to build creative confidence. Squared students at MEC suggest that there ‘should be a 70-20-10 split of their time, 70% to your core role, 20% to related tasks, 10% to play and innovate’. This structure for closing the disconnect between the industry values and the innovative mindset should be regarded in order to best capitalise on youth.

It is clear that agencies agree with the notion that they are better off working together to promote the industry rather than simply promoting the individual agencies. If collaboration to raise awareness amongst prime candidates is agreed upon, where can they be found? Agencies currently mine for talent in traditional places, often hiring in their own shadow – an uncreative way to enhance the younger element of the business. Many agencies agree that targeting school leavers with apprenticeship schemes is an appropriate way to reach out to a broader pool of candidates.  It is the budding entrepreneurs and digital natives who would rather start a business than pursue higher education  that the industry is yearning for. Agency heads may look at the over subscription for graduate jobs and think awareness is not the issue, but there is work to be done to reach out to the graduates who have studied in fields of academia outside of Marketing Communications, let alone a new generation of hungry, young Zuckerbergs.

Collaboration is a buzzword in the industry at the moment. How do you see this operating in, and between, agencies on a daily basis?

Collaboration is not just a buzzword: the notion of businesses working together to achieve a common objective is not a new phenomenon fuelled by digital media. However, 90% of people surveyed in one agency believe it  has a positive impact on the work produced. Whilst many agencies speak of the wonderful potential of collaboration, they continue to provide themselves with significant hurdles and show reluctance to truly engage in collaborative processes.

One of the pegs holding the collaborative balloon firmly on the ground is that the parties involved in the advertising process serially refuse to take responsibility for the origination and management of a collaborative process. From our research, we found that many agencies lay this task firmly at the feet of their clients, who they believe should be the maypole around which collaborating agencies should dance. With so many marketing teams having shrunk since 2008, this could be an issue. Bearing this in mind, agencies must take the lead in this process. Of course, there are other restraints as agencies must protect their respective revenue streams. It is easy to forget, as agencies boast about their creative and innovative thinking, that it is the bottom-line which drives their work. As the recession continues to place strains upon marketing budgets, agencies will forever be scrapping for the morsels of budget their client is able to offer. Collaboration, the sharing of work and responsibility, insinuates a negative ‘sharing of fee’ mentality at agencies, and they shut the door firmly.

On top of this, the declining budgets mean that each party is clambering to increase their range of services in order to be able to satisfy the clients’ needs. This was an aspect of another issue found in agency collaboration: ownership of services and ideas. Social media is a prime example of a platform which every agency feels should fall under their remit, and tensions will continue to increase as long as this area remains grey. Similarly, the ideas that are forged within agencies are then kept under lock and key. Agencies’ main objectives are to be the lead agency, so external input has perceived negative  implications for total ownership of their work.

This is also an issue within agencies. Individuals and teams work in isolation and this induces competition within the agency. As Fern Miller, EMEA Head of Strategy & Planning, LBi says, ‘agencies are full of people…People are usually flawed, chippy, ambitious, nervous, and occasionally petty’ and with these characteristics rife amongst agencies, how can we expect real collaboration? Egos must be left at the door.

Agencies have their own motivations and there is a distinct lack of common goals for agencies working for the same client. If collaboration is to be a regular, efficient, and effective mode of work, the idea must be paramount and the clients’ need must be the crux of every stage of the process. There must also be a clear definition of where each agency starts and finishes work. Nick Cohen, Head of Mediacom Beyond Advertising, Mediacom, asserts that, ‘the most successful partnerships are those in which the ground-rules are really clear’; that clarity and definition are paramount when it comes to roles and responsibilities, and that it is vital to ensure that, ‘everyone is motivated to collaborate…rather than motivated to compete with one-another’ towards collective goals. Establishing barriers allows those parties with expertise in certain areas to take due prominence in particular areas of the campaign.

Responses from agencies suggest that media is a counter-culture to collaboration. Until ‘the work’ sits upon a pedestal currently occupied by revenue streams and creative ownership, real collaboration cannot succeed. The major flaw is that media agency business models do not value the creation of real ideas, but instead values the buying of media or creating ads for more expensive platforms, and pays on a commission based model. Fixing this will take more than a few award-winning plasters, but instead a significant operation to drive change on a wider scale. The evolution of relationships between agencies and media owners, which were formally tense, rates-related, and at arm’s length, now continually produce excellent work, notably in outdoor advertising. It is collaboration that has allowed the work in these areas to evolve as they have. The industry must hold outstanding collaborative work in a higher regard, as this will drive agencies to recognise its true value. The presence of a media-neutral party may allow the management of the collaborative process, but until the process is owned by one party and driven by a sole objective, collaboration in its truest sense cannot exist.

How do you prioritise agency needs and client needs?

This question examines the importance of the relationship between agency and client, and the balance that needs to be maintained in meeting both their needs. It is, however, a somewhat misleading question as it suggests a clear dichotomy between the two business’ aims. In actual fact, client and agency aims should be interlinked; not necessarily mutually exclusive, and move towards the same needs and goals. Without clients, there would be no agencies, and our findings show that the most successful agencies understand the balanced, collaborative nature of this relationship.

The most productive and respected agencies act as business partners to their clients. As such, their needs and goals should naturally converge: 80% of those questioned in one agency agreed that usually the client’s needs and agency’s needs are aligned. Their relationship is a symbiotic one; the agency adapts according to the client. In the long-term, agency and client objectives should, and are, often aligned to maintain a good, mutually beneficial partnership. In order to gain this ideal balance, communication should be an open and honest dialogue. Indeed, more transparency and openness is required in order to be able to objectively prioritise needs. Furthermore, agencies that invest in their people and the culture help provide clients with the best possible services. By creating a highly-skilled and client-focused workforce, an agency can continually add value to their clients and ensure their needs are fulfilled.

In reality, however, this can be somewhat thwarted by the pressure on agencies to gain new business and create revenue for themselves. Thus, a suggestion to make sure that this symbiotic relationship is met in reality is to realign certain business models to best serve these needs. Historically, agency and industry have obsessed about new business with success defined by the new business won. What about retention strategy? Payment by results, rather than commission? What if Campaign celebrated maintained clients with the same furore as New Business wins? We think this would allow agencies to focus more efforts on their current clients, allowing them to service their clients more effectively, while also being celebrated for their retention of valuable clients. Indeed, Henry Daglish, Deputy Managing Director, Arena Media claims that ‘the strength of the agency brand is only as good as the clients we have’ and this should be celebrated and maintained.

One way to navigate through this is to put the brand at the heart of everything an agency does. If you put the brand first, and work for the ethos of the brand, then you will meet both the agency and client needs. Furthering this, we believe that the consumer should also be at the heart of what we do. If the agencies and clients create brands that connect, engage and serve the public, then both will succeed in a profitable and mutually beneficial relationship.