The Ad Agency Model: What’s Broken?

Don’t get me wrong. Mad Men is great television. And there was a time when that kind of powerful, monolithic agency structure served a purpose as part of a greater business construction. Part of me cannot imagine a world without Madison Avenue and all it embodies. But outside of the super-corporate world, advertising agencies are struggling. Just last week I learned that another iconic Charlotte agency had closed. And it apparently didn’t even make a ripple in the news.

So, what’s wrong with the ad agency model? Well, a lot. But here are just a few things that jump out at me from my vantage point of being in the agency business for the last 20 or so years:

  1. The media paradigm is gone. There was a time when making the case for retaining an ad agency could be made just on the basis of buying media. Buying media was confusing, time consuming and expensive. An agency could do the planning, negotiating and bring a client a streamlined execution. And for that they took 15% of the total as a fee. And since that was usually negotiated off of discounted rates, the client didn’t even actually pay that. What a deal, right? But when the media becomes more expensive but less valuable, that’s a tough sell. And fees drop. And drop. And suddenly the agency structure needed to sustain the expertise is too expensive to maintain. Consequently, the largest profit center becomes a liability. Now it’s an accounts receivable nightmare. And many agencies aren’t well capitalized enough to withstand that kind of cash flow challenge. And they collapse.
  2. The value of good creative has been degraded. There was a time when a single, superlative creative idea could translate to a wonderfully vertical execution on television or in print. And that idea could touch the customer base of a business and make a difference. But somewhere along the line, this model stopped being attractive. Markets are so fragmented these days that where to place your great idea is as uncertain as what execution will work. Businesses are also not generally content to allow an idea to develop. If there is immediate success, then you live to fight another day. If not…NEXT! Profits are too hard to come by to risk uncertainty. And that kind of pressure leads to reliance on “safe” ideas, leading to a cycle of predictable executions and underperformance.
  3. Anybody can do tactics. There was a time when advertising agencies concentrated on larger strategic goals. And their plans advanced those goals. These days I see more agencies relying on tactics just to pay the bills. You say you need a brochure? We can design one for you. You want 5,000 people on your Facebook page? We have a brand new department set up to deliver that. What’s missing is the “why.” Just like businesses gutting marketing departments because they see them as all expense, agencies find it easier to jump on a stated need than to consider larger strategic goals. The problem is that, once the agency becomes a tactic execution machine, they are easy to marginalize or even eliminate once the tactical raison d’etre no longer exists. You need a brochure? Here’s a brochure. Bye! Instead of showing real value in doing something the company cannot do by itself, the agency has become an execution tool. And when you’re done with a tool, all you have to do it put it away. It doesn’t have value until you need it again.
  4. Social media killed the agency star. I’ve avoided talking about social media as it relates to these other points (though I believe it does) because the argument by itself is so compelling. Agencies vilified social media in its infancy to such a degree that it’s hard for them to talk about it with a straight face now. And it’s not unlike the web was 15 years ago. “Real” ad agencies didn’t deal with websites, thinking that they were either a fad or just beneath them to deal with them. This attitude gave rise to the online specialty firms then, just as it has spawned the social engagement firms of today. Couple that with many businesses’ belief that social media is the replacement for traditional media and agencies look like relics from another age. And any effort to catch up with the prevailing trade winds looks like desperation, even if it’s not.
  5. Hubris is the agency killer. The same smug certainty that makes Mad Men an engaging story makes the old agency model easy to throw stones at today. It has always been an “us” and “them” model. As long as that works, agencies have been viewed by many as necessary evils. Arrogant bastards who made magic. So businesses put up with them, their astronomical fees and their mercurial ways. Because they thought they needed the agencies. Now many businesses don’t see that need. And if they do see a need, it’s more about execution than strategy. More about filling a specific skill set then finding a marketing partnership.

Are these points universal truths? Absolutely not. Are advertising agencies dead? No. But the days of Mad Men are definitely gone. I believe that there is tremendous value in a highly strategic, reasonably-priced, highly transparent and well connected marketing partner for businesses. This kind of firm would need to be more responsive and less reactive. More willing to take an unpopular position and less willing to cave to tactical pressure. More consultative and less preachy. And more willing to reach out to specialized firms for help and less egocentric.

I believe this is happening now, in some settings. And I hope that, for the sake of good marketers everywhere, it takes hold. Because the traditional agency looks out of place in today’s business climate. Maybe when Mad Men is playing on The History Channel, we’ll know we’ve finally gotten it right.



Filed under Advertising & Marketing, Marketing best practices

7 responses to “The Ad Agency Model: What’s Broken?

  1. Pingback: Scholars and Rogues » Mad Men no longer stride the Earth

  2. Pingback: Tweets that mention The Ad Agency Model: What’s Broken? « The Tap, Tap, Tap --

  3. John,
    Great post. Well said. There are firms that are adjusting to the new paradigm and one guy who has been leading the way is @michaelgass.

    My firm has had to completely revisit who we are and what we do well as a result of the challenges of the last couple of years. I too, loved the old style advertising industry. However, as we saw in the printing business a few years ago, everything can change and we must keep up.

    Because of our investment in the new digital marketplace, our business is significantly increased after two bad years. We had to change all that we thought was sacred to get there.

    • For those of you who are unfamiliar with Chuck’s company, ARO, he is one of the rare people I know of who came up in the traditional structure but still “gets it.” What he has in common with @michaelgass is that they both saw the value of social media (and conversations in general) and made it work. As opposed to those who saw it as a threat, they embraced it. That may not be the only path, but it’s a proven one.

  4. Louis Louna

    Clever thoughts John. You got a great article here. I’ll definitively take a deeper look to your posts, thank you.

  5. Pingback: Mad Men no longer stride the Earth | Scholars and Rogues

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