The best thing, without a doubt, of my current madcap adventure with stamp London is that it is giving me good reason to go and spend time talking with loads of fascinating people. Last week I was lucky to grab a coffee with Andy Law, something of an ad land legend, and a terribly nice chap to boot.
We were talking about the challenges facing marketing and advertising agencies, and in the conversation Andy drew the diagram above that sums up the core of the challenge as he sees it. The top line is the number of agencies. The middle line is the number of media upon which clients and their agencies can spend their cash. The bottom line is the amount of money being spent. In short, clients of marketing agencies have more choices on who they can spend their money with, and the channels on which their money can be spent, whilst overall they are spending a smaller pot of money.
It’s difficult to get a good handle on the number of agencies in the UK – but there are some trends that I’ve witnessed in the past couple of years that would seem to make an increase in the number of business competing for a client’s brief very credible.
First of all, that anyone can set up an agency these days, with little or no investment up front. I’ve kind of done it (stamp isn’t an agency, but has similar business models) for a few hundred quid. That the barrier to entry is now so low would lead one to think that there is an expansion in people trying to set new agencies up.
Secondly, that many organisations in other areas are trying to muscle into the agency world – particularly the traditional IT/business consulting firms like IBM and Accenture (and others one would wager motivated by the 2017 Meme like EMC). As Digital Agencies enter into a world close to where Systems Integrators have trodden in the past (often with lower price points as they employ cheaper staff), a fight back from Big Blue and her competitors was inevitable.
Finally, the general disruption in the agency world, itself stemming from the disruption in the media world, means that different parts of the traditional agency hierarchy, once clearly separated, are now in competition. Digital agencies encroach into more traditional ad land; media agencies (those who traditionally have bought ad space wholesale and sold it on at a margin) are trying to broaden their businesses as their margins get squeezed; I even know of a few PR agencies who now have fully staffed digital and mobile teams.
So, overall it seems quite likely that the are more potential bidders for pieces of work put by clients out to the market.
In terms of the options for where clients might spend their money, the choices continue to expand. In traditional media, the number of TV channels in the UK, for example, increased by 13% in the years from 2007-2012 according to the 2013 Ofcom Communications Market Report from 470 to 529. And that’s in a time of economic disaster.
The options available as a result of new digital activities are now even greater: from internet advertising through apps, to new types of digital engagement in traditional media (from newspapers to digital outdoor hoardings). Overall, there are more places where a client can spend their marketing pounds and pence.
Unfortunately, the numbers of pounds and pence is getting smaller; As you can see in the chart above (click to make bigger), whilst there has been significant shifts in which media are spent on (Internet – yellow – now being the biggest single category with press, tv and direct mail in significant decline between 2005-2011 (source: Ofcom CMR 2012)), overall the spend on advertising across all media as of 2011 was lower than six years previously.
Now there is no doubt that the general economic malaise is a key cause to the decline, but as with government spending one wonders if today’s more constrained rates of spend (even more so when you factor in inflation) are the new normal.
Advertising spend isn’t all marketing spend, but it’s a good yardstick. What do we learn through all of this? Well, for the agency world, margins are being squeezed both on the client side (because there is more competition for work from potentially lower-cost new entrants to the market) and on the supplier side (because agencies in general seem to be having to deliver across more media with less resource, not reaping benefits from their being more ad inventory). That’s not a great story.
What might agencies do? Well, it strikes me that breaking out of some of the conventional thinking about how organisations communicate might be a start. Why do most organisations make a strict divide between internal and external comms, and have different suppliers in place as a result? Why is there a rich man/poor man view held about B2C versus B2B marketing when most organisations are business to business?
What if agencies were to capitalise on their expertise in communicating, and expand out their client base from marketing to anywhere in a client where communication is necessary (read: anywhere)? It’s what digital agencies are increasingly doing, and might be the way in which the squeeze on margins that the traditional models seem to be experiencing can be avoided.
The three lines dilemma seems to be a good starting point for the Agency Evolution work I’ve been developing.