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Three fundamental changes to the media business are threatening the current business model for digital media agencies.

These are: the ubiquity of platform technology, the shift back to premium placements as brand budgets return,  and the coming threat from social media. 

Here are the three major trends making media agencies less relevant every day.

On the surface, it would seem that running a modern digital media agency would be fun. Being on the cutting edge of media and technology, being in the “social media conversation,” helping clients understand and deploy groundbreaking new technologies…that is the stuff that has turned scores of English majors into media professionals.

Unfortunately, the reality of digital media is somewhat more mundane. At the end of the (long, thankless) day, the digital agency is more valued for reconciling ad serving numbers, collating performance reports, and swapping ad tags than delivering groundbreaking new marketing ideas.

The true standalone independent digital agencies (MediaSmith and MediaTwo being great examples) happen to manage both, for most traditional agencies that have added a digital practice struggle to make the technology—and, more importantly, margins—work.

If it wasn’t enough having to make a living on the slim margins digital media offers, the industry’s tendency to constantly and rapidly shift means there are major, fundamental challenges that require the digital operator to adjust their approach to the market.

Here are the three latest ones, and how they are impacting digital media shops:

Platform technology

For digital marketers, it’s all about the tools. Ad campaigns need to be researched, negotiated, served, tracked, analyzed, optimized, billed and reconciled.

Just five years ago, each of those tasks would require a separate, and often expensive, software tool. There were relatively few agencies willing to build and maintain the expertise to deliver digital media effectively, and fewer that had the scale to do it at a profit.

Companies like Operative were born out of the complicated nature of tools like DFA and Atlas, which were so frustrating to use that agencies were willing to pay others to manage it for them.

The sea change in the industry has been about SaaS model “platform” technology that is giving anyone willing to login the tools to effectively manage many different aspects of digital media, from guaranteed display advertising, to real-time bidded display, to search and even social.

This not only levels the playing field for smaller agencies, who now have nearly the same level of access as more deeply pocketed rivals, but once obscure DSP type technology is blowing the lid of the supply side’s hold on inventory, giving the local corner agency the ability to arbitrage media like a pro.

Not only that, but many of the platform technologies available are venture funded startups out for any revenue they can get, and more than eager to sacrifice some margin to win sales by offering service behind the product.

Most trading desks are pushing the buttons for agencies, and many platform technologies do the same. Ask yourself if your technology partner is looking to help you, or eventually displace you completely.

The challenge for digital media practioners these days is not how many digital tools they have access to, but how they are utilizing them to extract the best advertising performance, whether it is for branding or performance or even the nauseatingly titled, “branded response.”

There are only so many tools an agency can realistically use, and fewer that they can use effectively. Getting the mix correct, and choosing your partners wisely is the difference between being a digital media tools provider, and your client’s digital media expert.

Shift back to premium

Back at the Digital Publishing Summit, I heard Greg Rogers of Pictela say this: “Nielsen says people visit 2.9 sites a day, and one of them is Facebook.” I don’t care how many industry conferences you go to this year; you will not hear anything more significant than that statement.

Why does it matter? It matters because everything this industry is trying to do with audience targeting depends entirely on reaching consumers across a wide variety of sites.

The Holy Grail of advertising we have been chasing (well, venture capital has been chasing) is based on the notion that you can find me with a targeted ad, wherever I am on the web, and not have to pay some huge publisher gatekeeper a premium to get to me.

If those people are all on Facebook, that’s kind of a big problem.

It also means that all of the standardisation we have done with ad units and ad operations procedures that have been designed to make deploying three ad sizes all over the web was a terrible mistake.

If a consumer is visiting two sites a day that aren’t Facebook, and nobody is clicking on an ad (well, 0.03% of people are clicking on an ad, but it turns out they have no money anyway), then what?

It means that marketers have to engage consumers with ads that do things on the page, such as expand, or play video, or tell a story. The exact types of things you cannot do with a standard 300x250, 728x90, and 160x600 commoditised ad unit.

Sorry, but we made a big mistake. Flooding the web with cheap banner ads doesn’t work for performance (unless the media cost is so low that ROI is almost guaranteed), and it doesn’t work for branding either, thanks to “banner blindness” and a the general reluctance of consumers to drop everything they are doing online, only to be transported to someone’s really big ad (their website).

Coincidentally, nobody really wants to “like” your client’s brand, or be their “friend” either. That’s the modern version of the .03% click rate: the sub segment of consumers that will “like” a washing machine company are the same people that have been punching the monkey for the last ten years.

The future of digital display advertising is about using highly premium ad units to engage consumers on the page, and provide them with a rich branded experience.

That is why concepts like Project Devil are coming back to the forefront. Your agency has to be an expert at understanding how to deliver customized ad experiences at scale, but also leverage the existing, commoditized tools for display to achieve reach.

That means that creative agencies, who increasingly have access to platform technology advertising tools, can put themselves in the driver’s seat by making the creative and deploying it too.

Social media

Now every Tom, Dick, and Harry has access to platform technology, and creative is once again coming back into the forefront. What’s the next challenge for the digital media agency? The coming threat from social media.

If you thought the increasing dependence on social media for marketers would be a boon to the digital media agency, you may want to think again.

Much of the social media focus for big brands is within their PR firms, who are challenged to build and maintain a brand’s “social media presence” on Facebook, Twitter, and LinkedIn. I recently met with a few PR firms who were charged with attracting “friends,” getting tweets, and “likes.”

They are going to do that with media money, and some of them want to keep that money in house, rather than partnering with media agencies to do it for them.

A few years ago, this would have been unthinkable, as the cost of hiring a media team would erode much of the margins. Now, with ubiquitous access to platform technology, PR agencies are looking at building small in-house media teams to leverage social budgets, and make deploying social marketing campaigns a core expertise.

The successful digital media agency’s greatest expertise has always been adaptability. The best ones are already building the tools and expertise to help marketers navigate through these times, and partnering with technology companies that can evolve alongside them.

Chris O'Hara

Published 12 July, 2011 by Chris O'Hara

Chris O'Hara handles strategic accounts at Krux, and is and a contributor to Econsultancy

10 more posts from this author

Comments (19)

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Sebastian Mysko

A good read. Second last line; "adaptability". That has to be the key word for everyone who's serious about successful marketing. We started out four years ago as a social media and WOM consultancy... now we're more like digital marketers, covering nearly every aspect based on industry experience. It hasn't always been easy, but adapting has allowed us the ability to still massively love what we do. Good luck to all those others going through the motions!

about 5 years ago

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Richard Gregory, COO at Latitude

Surely it's about perspective Chris? Everything you've listed in your article smacks of "opportunity" to me.

I think the challenge is more about the speed of "adaptability" since some digital media agencies can move fast to embrace new channels and tech. I have a lot of respect for agencies like Essence, who have followed this path. Other will move slowly...and we know what happens to those.

Richard

about 5 years ago

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dom sumners

lovely piece - digital media agencies that just operate like a trad agency but in our space - i agree are not in a happy place. But you need to be a pretty crap agency not to be exploiting/trying to own some of the trends you highlight above. (but then again there are a lot of not great businesses in every sector)

dom

about 5 years ago

Chris O'Hara

Chris O'Hara, VP, Strategic Accounts at Krux

Richard: 100% YES. Smart agencies are leveraging cheap, easy-to-use technology to provide their clients with a data-driven approach to marketing. They are swelling their margins by becoming efficient, while others are mired in process management. Essence is a great example.

about 5 years ago

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David Verchere

Great insight Chris!

I think the big unsolved question is how to measure all this social activity. The digital agencies live and die by their ability to quantify their activity and social just doesn't do that very well just yet. Sure I have to pay a premium but if I can't even tell why I'm paying extra then I'm just another wizard selling magic potions.

about 5 years ago

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Seth Hargrave

Good article Chris, and thanks for the shout-out. Speaking of adaptability, I actually just participated in an agency roundtable that touched on most of your points here. Not only is success in this space reliant on the ability to adapt, more importantly it's about the agency's ability to adapt correctly (which should go without saying). Clients love shiny new objects, and a lot of agencies are willing to be yes men. It can be a struggle sometimes to guide clients towards those tools which truly do create measurable success. That's where efficiency becomes more achievable too since we as media strategist aren't chasing every new shiny object blindly and can act more as thought-leaders rather than reactionaries.

about 5 years ago

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Andrew Shebbeare, Partner at EssenceEnterprise

Thanks Richard and Chris - Appreciate the kind words, and couldn't agree more with the above.

We definitely see more opportunity than threat here - There is more data, more scope to act on it and better platforms to crunch it. Being behind is also punished faster than ever before. Those are challenges our business was built for.

Very much agree with Seth; if you're not continually innovating, re-evaluating what to make vs buy, what to throw away and what to invest in, challenging the norm with clients, tech providers and media owners then you're no more than a middleman. It can be tough (and even pretty unpopular) with some clients, and we tend to see those relationships fare better with other agencies. I won't claim our margins to be swollen but our clients choose use because they believe in what we do, not because we're cheap.

We're probably not very "agency" as agencies go; one client regularly bemoans the lack of biscuits in meetings. Our founding team had zero agency experience when we set out but lots of client-side time. Since then we've hired smart, analytical, brave thinkers who care first, media people second.

I do think one big advantage is a hygiene level of tech+data literacy across the organisation; enough to identify opportunities, make things happen and sort the real value from the sales fluff. That is still rare in many larger media agencies in my experience.

about 5 years ago

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Tom Sullivan

Really enjoyed the article and all the comments so far--thanks! I think speed, adaptability and the ability to leverage data will win out over time. In the short term there may be a lot of opportunity for everyone as companies scramble to figure out mobile, location, FB, twitter, Google+, video, new forms of display, etc.

about 5 years ago

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Aidan McCarthy

Great article, I can see some agency types looking to catch up for a chat with their PR contacts.

Adaptability is key of course, there may be less opportunity in social media management ahead at the big business end but there may well be more at the smaller end of town. It will be interesting to watch it all play out over the next 12-18 months.

about 5 years ago

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Adam Lee

Interesting that the PR agency is seen to have the upper-hand over the digital agency. I personally disagree Social Media, although largely communications focused also has a huge amount of data to analyse to develop the best campaigns and success metrics. I'm yet to see a PR company that has the ability to adapt to 'hard core' analytics that digital agencies use on a daily basis.
I think the decent digital agencies will adapt to Social Media quicker and easier than the PR agencies will.

about 5 years ago

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Neil Crump, Managing Director at Aurora Healthcare Communications

I couldn't agree more with this. The agency of the future that clients will need is not build focused. It is more about strategy, engagement and content.

about 5 years ago

Chris O'Hara

Chris O'Hara, VP, Strategic Accounts at Krux

Adam--thanks for your comment. I was actually saying that social agencies are threatening the relevance of media agencies, because more and more media dollars are flowing there--not because they have a particular advantage. Good media shops (correctly) recognize that social is just another media outlet, albeit a somewhat different animal with its own challenges and set of metrics. -- Chris

about 5 years ago

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Stuart Meyler, Co-Founder at Beeby Clark + Meyler

Any shop not focused on the creative use of media, is DOA.

The idea that in a digital media world that creative and media are two departments or even companies is the issue.

The best ideas are created with a full understanding of how consumers use new media forms, and seek to add value to these experiences.

Call it what you want - creative agency, media agency, traditional agency, digital agency. If you cannot come up with ideas that take advantage of consumer's shifting consumption habits, you are toast.

about 5 years ago

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Tony D'Andrea, PhD

Quite Interesting.

Indeed, digital oscillates between premium-priced innovation and race-to-the-bottom margins (once innovations are disseminated). In the meantime, perfect media placement is becoming possible by ubiquitous Big-Brother database systems.

The point then is, as usual, added-value services: creative, strategy and synergy (possibly from a full-service, or "maestro" agency?).

Humans win once again! Rule over the machine!

about 5 years ago

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Michael Hubbard

Thanks Chris! From all of us at Media Two, thanks for the shout-out for a digital media shop managing it right!

Michael Hubbard - CEO

about 5 years ago

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Francis Oghuma

Very insightful post,i totally agree with everything the author said.

almost 5 years ago

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Suresh chettiar

Hi,

Valuable article to read. Yes, adaptability and creativity are the core expertise for the agency to build on but also deep analysis of the spends and returns are to be made to be profitable.

Suresh

almost 5 years ago

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Saurabh

Good article Chris. However I wanted to ask as to how can agencies which today work on a retainer or 15% agency commissions, charge clients for the technology they use. Clients don't really care about what goes in the background. They care for end results. Doesn't then the usage of tools impact the agency bottom-line and hence the slow adaptability of any new tech?

almost 5 years ago

Chris O'Hara

Chris O'Hara, VP, Strategic Accounts at Krux

Saurabh, that's a great point. One of the biggest problems in our business is the amount of people putting their hand in between the advertiser and the publisher. If agencies need too much help delivering audience, then you might imagine that technology companies will take the 15% instead! Digital media agencies, therefore, need to continue to adapt into technically driven consultancies or risk being disintermediated completely.

almost 5 years ago

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