A Google search for “death of the agency model” populates more than four million results.

Many people believe advertising and marketing agencies are on their way to becoming relics of the past, doomed to the same fate that befell travel agencies after massive adoption of self-service booking sites.

But the truth is the promise of the agency’s death is flawed. In the end, there remains a need for experts—trusted sources to provide advice, guidance, assistance, and reassurance.

The agency model is not dying, but it is changing.

The agency of the future will be smaller, specialized, and focused

Some of the more viral and notable marketing examples of recent years were spontaneous. 'Dunk in the dark' style spontaneity isn’t something that many major agencies are able to deliver on. Busy account managers and complex approval structures make large agencies slow to react, and it’s driving many businesses to replace long-time agency contracts with in-house marketing teams.

Other major brands—such as Pepsi—do the majority of their marketing work via an in-house agency, but they outsource certain tasks to smaller, more specialized agencies.

To combat these trends, the agency of the future will need to be smaller—able to accommodate swift change—and specialized enough to provide services to brands who can’t afford to have an in-house team of experts for all possible needs.

If a business needs three videos a year, it probably doesn’t make sense to have a full-time videographer on staff. Instead, that specific work can be outsourced to an agency that specializes in creating and marketing videos.

Additionally, subject-matter expertise will become critical to agency branding and success.

In a conversation I had with David Gilroy of Conscious Solutions earlier this year, he told me that the agency’s focus on the legal sector creates an instant value proposition over competitors who cater to multiple sectors, and it also helps with building trust with potential new clients:

“If someone says they do law—but also recruitment and some other professional services—it’s a lot easier decision to choose Conscious because that’s all we do: legal.”

If agencies are forced to take on too many clients to become and remain profitable, they’ll be forced to grow, which will impede their ability to react quickly.

Conversely, specialization enables agencies to charge higher rates, higher rates means fewer clients needed, and fewer clients enables agility.

pepsi ad

Pepsi is one company with an in-house agency, which took some stick in the wake of its pulled Kendall Jenner ad

Compensation will be tied to revenue generation

Metrics highlighting increases in traffic, leads, and engagement are no longer enough. 

A record number of CMOs were laid off in 2016, and one of the biggest reasons cited was a lack of ability to prove revenue impact.

According to Donovan Neale-May, Executive Director of the CMO Council: “CMOs now have to show they are impacting business growth right from the outset, or they are likely to be short-lived on the job.”

CMOs have to prove revenue impact, and so do agencies.

The ultimate goal of marketing is to increase sales and revenue. Traffic and engagement help with branding, and leads are potential sales. But neither increased brand recognition nor an influx of prospects can be directly tied to revenue.

To tie marketing activities directly to revenue, agencies will have to adopt the right technology—modern analytics and reporting tools that enable tracking interactions across the entire customer lifecycle.

When marketing agencies can provide reports showing that the revenue they’re generating for clients is much higher than the cost of working with the agency, the value of utilizing an agency over an in-house team will become clear.

Being able to prove the value they’re providing will enable agencies to charge higher prices, and it may even push marketing into a more commission-based model—similar to the system sales teams have been using for years—that ties compensation to outcomes.

The agency of the future may move away from hourly fees and retainers, migrating toward a commission-based model that highlights the value they’re bringing to clients and rewards excellent work.

Agencies can play the role of technology agent

A 2015 survey reported that marketers use an average of 12 tools to manage their campaigns and data. If a dozen tools seems like a lot, it’s nothing in comparison to the more than 31 that nearly 10% of marketers claimed to use.

And that was two years ago. There’s no telling how many new marketing technology products have been launched since then—hundreds, maybe thousands.

martech landscape

The Martech landscape in 2017

Businesses need expertise to find the right marketing technology. Which tools should they use? Which are the most intuitive? Which have the most comprehensive features?

Of course, decision-makers could conduct this research themselves, but most would rather just have a reputable third-party provide a recommendation. It would save time and help leaders avoid making the wrong decision.

There’s a huge opportunity for agencies to play the role of technology agent, providing personalized recommendations based on their in-depth knowledge of clients’ needs, and using their expertise with the tools to offer training and support.

As David Gilroy of Conscious Solutions told me: “It’s our job to find third-party products, tools, and services. We evaluate them on behalf of all of our clients. We have over 300 law firms who actively pay us money, and part of that agreement is to save them time by finding things that they can’t—and frankly shouldn’t—be finding for themselves.”

The advantage for agencies is their expertise with the tools. By taking on the role of technical support with recommended marketing technology platforms, agencies become invaluable.

For Conscious Solutions, recommending technologies has helped with client retention. As clients become reliant on the recommended technologies, they’re less likely to be willing to end a partnership with the expert on those technologies—the agency who recommended them.

The agency of the future will be distributed

For agencies to become more specialized and focused—and for the revenue-based compensation model to work in their favor—they’re going to need to hire the right talent: specialized marketers who are excellent at what they do.

Requiring employees to work in one physical location isn’t conducive to finding ideal talent to fill open positions. The right person for the job may be in the neighborhood, or he/she may be across an ocean.

The agencies that succeed in the future will take a different approach. They’ll utilize technological advances to work with the right people all over the world. They’ll conduct video calls when collaboration is needed, eliminate time zone problems with email, and resolve issues quickly over instant messaging.

A large and luxurious main office may impress potential clients who visit for in-person meetings, but it also puts a significant dent in operating costs and limits choices for talent to a specific geographic region.

Instead of hefty rent and utility payments, the agency of the future will conduct in-person meetings with clients in temporary offices rented through a service like Regus. They’ll take advantage of the growing gig economy to find people with the perfect skillsets, and they’ll avoid hefty new-hire relocation fees by adopting a remote work policy.

Reduced costs will lead to increased profitability, which will be increased even further by having the right team members to deliver value to clients.

karmarama offices

Fancy offices a waste of money?

Agencies aren’t dying—they’re evolving

In every industry, there’s a need for experts—trusted sources to provide advice, guidance, assistance, and reassurance. In marketing and advertising, agencies are those experts. The business is changing, but the people are the same.

Additionally, for marketers and advertisers, major changes feel like just another day of work. They’ve built their careers on adapting to changes: overcoming algorithm updates, learning what works on a growing social platform, dealing with ad-blocking software and the rise of streaming services.

In the world of marketing and advertising, things evolve on a daily basis, and the industry keeps going.

The evolving agency model is no exception. 

Sure, the way agencies operate may change in the years to come, but those who can do what marketers do best—predict the need for change and adapt accordingly—will glide over these temporary speed bumps and come out stronger on the other side.

Further reading:

Ian Leadbetter

Published 23 August, 2017 by Ian Leadbetter

Ian Leadbetter is the co-founder Ruler Analytics. He is based in Liverpool and you can connect with him on LinkedIn.

1 more post from this author

Comments (3)

Pete Austin

Pete Austin, CINO at Fresh Relevance

Timely article. The author describes advertising and marketing agencies facing change driven by disruptive technological innovation.

Dying? Of course not. But if evidence were needed to show the threat (and the opportunities!) are real, from today's news...

"WPP shares crash 12% as world’s biggest advertising company issues growth warning"
http://www.independent.co.uk/news/business/news/wpp-shares-latest-updates-news-crash-12-per-cent-advertising-company-giant-warning-unilever-a7907766.html

"WPP warns of dangerous price cutting by ad agencies ... The advertising industry may be in “danger of losing the plot” as growing competition forces the big global agencies to slash prices to retain and win new business, WPP has warned."
https://www.ft.com/content/f3711ba2-2b28-11e7-9ec8-168383da43b7

about 1 month ago

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David Hefendehl, Head of Online Marketing at netzkern AG

I'm not convinced to be honest. Time and time again we have seen that staff do like to have a desk, do like to come to an office, do like to share a cuppa or coffee with each other. Of course technology allows us to conduct video conference daily stand-ups, remote working. However just the temptation of the fridge, kids running around etc is enough for many to come to the office. If you then have a great workplace (Google invests a hefty sum into a new HQ and they do make use of remote working tech a lot for example) its even better.

As for the revenue rather than being completely result driven I see the rise of "shared-risk" where the client covers the cost of the agency and pays a bonus for better/faster work coming in. As an agency I have overheads and salaries to pay. People do do the work so only being compensated for success isn't going to work.

about 1 month ago

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James Gill, Head Of Content Marketing at Further Digital Marketing

As a marketing professional I want to ask all MDs and CEOs. If it was not possible to directly measure ROI of specific marketing activities, would you just not do it?

It seems to me that people who don't understand marketing (esp. audiences and how they engage with content) are missing an opportunities to build relationships with audiences and boost brand awareness simply because we can't say, 'that piece of content increased revenue by £X'.

about 1 month ago

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