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Agency Symposium - Progressive Agency Models, Tim Williams
 

Agency Symposium - Progressive Agency Models, Tim Williams

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  • Have you heard of the world’s fastest agency? It’s for real, based in the U.S.(READ SLIDE)Now there’s probably a lot you don’t like about this agency. But stop and think for a moment how this business model actually reflects many of the disruptive dynamics at play in our business right now: the need for speed, the focus for brevity, the use of social networks, and an alternative compensation model. Granted, it’s a rather extreme response to these dynamics, but you’ve got to give these guys credit for thinking creatively about their business.
  • Another experimental model is the pop-up agency.(READ SLIDE)An extreme response to the increasingly project-oriented nature of client relationships? Perhaps. But again, it’s an incredibly interesting example of disrupting our own business model.
  • And there’s a pretty good reason why we do indeed need to disrupt our own business. In the U.S. – and I expect the numbers would be similar for Australia – my friend Michael Farmer reports that avertising agency income “per unit of work” has fallen 40% during a steady 20-year decline.  Agency staffs are being squeezed to deliver increasing workloads at a time when agency fees are declining faster than agency costs.
  • Part of the problem is that the immense brainpower and creativity in agencies is wasted on the increasingly routine and somewhat mundane production work that now accounts for a majority of a typical agency’s revenues.  Many agencies have been pushed so far downstream that they now sometimes compete directly with printers, publishers, and production companies for work that is seen by clients as increasingly commoditized. *In fact, my own firm’s research shows that on average, 80% of an average agency’s revenues are derived from this type of low-margin work. So as a result, iIn the U.S., average agency profitability hovers right around 10%. In the days of Don Draper, that number was 30%...
  • ..It’s clear that we need a new Agency OS – a new Operating System. We need new structures, new solution sets, and new revenue streams.
  • You know, there is just as much money being spent in marketing as there ever was. It’s just that these dollars are being spent in new and different ways, and the budgets that were usually allocated to traditional agencies are being reallocated to initiatives and channels that have to do with “marketing” but not necessarily “advertising.”
  • It’s an unfortunate fact that the term “marketing” has become associated almost exclusively with only one of the four P’s of marketing: “Promotion.”  But of course, marketing is also made up of Product, Place and Price.  Agencies and client marketing organizations alike are becoming increasingly marginalized in the business world by allowing themselves to be boxed into just the Promotion business. In the earlier days of marketing, which emphasized all four Ps, marketing was a board-level function in corporations.  Today that’s often not the case.  Marketing professionals are usually seen as the “advertising people.” Marketing as a profession has allowed itself to be moved downstream, and “business consultants” have come in to fill the void.
  • t’s an unfortunate fact that the term “marketing” has become associated almost exclusively with only one of the four P’s of marketing: “Promotion.”  But of course, marketing is also made up of Product, Place and Price.  Agencies and client marketing organizations alike are becoming increasingly marginalized in the business world by allowing themselves to be boxed into just the Promotion business. In the earlier days of marketing, which emphasized all four Ps, marketing was a board-level function in corporations.  Today that’s often not the case.  Marketing professionals are usually seen as the “advertising people.” Marketing as a profession has allowed itself to be moved downstream, and “business consultants” have come in to fill the void.
  • Each of the other overlooked P’s of marketing – Product, Place, and Price – represent an area where agencies can create tremendous value for their clients.  Organizations like IDEO are already playing in this space, applying “design thinking” * to marketing issues ranging from the optimal design for a bicycle * to the experience patients have coming to an emergency room.
  • This is, in effect, the “full service ….
  • On the other hand, if you focus on “underdeveloped services” – services that address underserved markets and unsatisfied client needs – you’ll be positioning your firm for success in years to come.  You’ll also have fewer competitors and higher margins, because you’ll be offering scare services.  And what is scarce is valuable. Staying to the left of this spectrum will keep your agency trapped in a vicious cycle.  The only way out is to consciously move your firm to the right of the spectrum. 
  • The natural tendency is to count on “sustaining innovation” to get you there, but it’s more likely you’ll succeed with “disruptive innovation.”  Sustaining innovation is about getting better and better at what you already do.  That’s important.  Our industry is notorious for underinvesting in training and professional development. 
  • The natural tendency is to count on “sustaining innovation” to get you there, but it’s more likely you’ll succeed with “disruptive innovation.”  Sustaining innovation is about getting better and better at what you already do.  That’s important.  Our industry is notorious for underinvesting in training and professional development. 
  • One telling sign that agencies are now actively developing alternate sources of revenue is the new crop of competitions based on inventions and innovations, like the new Project Isaac competition sponsored by Adweek.*Instead of categories my medium, the categories are called such things as … (READ LIST)
  • Weiden + Kennedy, New York
  • Alma DDB, Miami
  • Modern Climate, Minneapolis
  • Mayo DraftFCB, Lima.To attract engineering students to attend UTEC (university)
  • Even the Cannes Lions are moving in this direction with a new “innovation” category this year, along with other newer categories like Branded Content and Cyber.
  • This year’s winner of the new Innovation award is The Barbarian Group, who developed a software-development platform for creative coders called Cinder, which provides a toolbox for programming graphics, audio, and video – some agencies actually used this to prepare their Cannes entries.
  • Other organizations like Digitday are now sponsoring Agency Innovation Camps, devoted to helping agencies get beyond mass messaging to solve marketing problems in new and different ways.
  • As Dare’s Will Nicholls says, *(READ)
  • The point here is that we have an important new role: creating value for marketers in ways that have nothing to do with a “message.” We all know that mass media messaging is an increasingly ineffective way to get traction for a brand. So by thinking creatively about brand marketing is not only a way to earn revenues outside of advertising, it’s increasingly a strategic imperative.
  • The very innovative John Winsor puts it this way … *(READ)
  • Visit the sites of some progressive firms like Rock Fish and you’ll see some pretty different service offerings that are indicative of how agencies are creating important new revenue streams.
  • So today I’d like to look at several different dimensions of how agencies are reinventing their business models. One of the most interesting is the idea that agencies can play the role of product developers, not just product advertisers.
  • You have no doubt been reading that several agencies – like Mother, Crispin, and others – now have their own liquor brands. Obviously, if you’re going to develop and market your own product, you might as well choose something that most people enjoy. None of these agencies expect to double their agency revenues with these new ventures. What they expect instead is to get some valuable on-the-ground experience getting involved with all four of the Ps of marketing.
  • The Canadian agency Rethink developed an app that helps create presentation prototypes when developing iPhone and iPad apps. Again, this isn’t big money maker for the agency – especially since its free. Rethink just feels its important to be in the product development business, and this is one of the ways to get some valuable experience.
  • An innovative agency in Amsterdam, John Doe, went so far as to develop a new, super-simple mobile phone, called – appropriately enough – John’s phone. This is a pretty ambitious undertaking, as it required the agency to locate and source manufacturers, effectively price the product, etc. Imagine the credibility they have with their clients, who can’t really just view the agency as the “advertising guys.”
  • On related note, let’s talk about the concept of agencies as IP owners.
  • Crispin’s Jeff Hicks once said (READ)
  • In other words, we’re really not – or at least shouldn’t be – just in the work for hire business.  I think we all sense that the “work for hire” model that has persisted for the last half-century is becoming a less and less profitable way to make a living.
  • Look at an agency contract and you’ll likely find language like this:  “All rights, title, and interest in the Work Product (“work made for hire”) is hereby assigned by Agency to Client.”  In other words, everything the agency creates the client owns.  While this kind of approach might make sense for some other professional services – accounting and law, for example – it actually makes little sense for a creative services business that creates valuable, long-lasting intellectual property. A new crop of agencies seeks to make the majority of their revenues from the intellectual property they create instead of the hours they work.
  • Consider that most of the creative services that agencies themselves hire – actors, musicians, voice talent, illustrators, photographers, etc. – are paid based on usage, and retain actual ownership of their work.  There’s no reason why agencies can be paid in a similar way. The only thing stopping is is ourselves – our outmoded conceptions of what business we’re in.
  • Anomaly, named by Adweek last year as agency of the year, has built it entire business based on this way of thinking. *Says Adweek (READ QUOTE)*Advertising, in fact, equals only about 25% of the agency’s revenues.
  • For example, Anomaly helped create the EOS cosmetic line (as well as the marketing) which is a completely custom effort exclusive to the EOS brand wherein Anomaly has an ownership stake.
  • Another example is their joint venture with super-star chef Eric Ripert involving television shows, website, ecommerce, restaurants, and publications. The agency doesn’t just do this work, they own a large stake in the venture.
  • Southern California’s Palio+Ignite creates their own infotainment properties, such as a video game to help kids with juvenile diabetes learn how to use their insulin pump. The agency owns the IP and licenses it to their pharma clients.
  • By B-Reel. Sells for 99 cents in the Apple app store.
  • Talking about Deutch, Adweek recently said “There are many reasons why ad creators are embracing new ventures. Some are frustrated with providing ideas in exchange for a set fee and want to reap revenue from product sales. Some agencies hope the initiatives will engage employees in fresh ways. At Deutsch, for instance, the firm won't get a financial stake in the ventures it supports. Instead, the hope is that the employee-oriented program will help the firm recruit sharp workers and hang onto good ones they already have.”
  • If you analyze the value propositions of most professional service firms, you’ll find they are based mostly on widely available overdeveloped services; they are placing themselves on the wrong side of the value chain. By focusing on the underdeveloped services in your industry – largely unsatisfied client needs -- you are in effect positioning the brand not just for where the profits are, but for where the profits will be.
  • And lastly, let’s look at agencies as marketing labs.
  • Remote Palette is an app for iPhone and iPad that lets you use your iPhone as a color palette and your iPad as a drawing canvas.
  • Remote Palette is an app for iPhone and iPad that lets you use your iPhone as a color palette and your iPad as a drawing canvas.
  • Let me close with the genius of Peter Drucker, who simply said “All profit is derived from risk.” If you want to make more money, take more risk. Risk is actually an economic positive.  If you eliminated risk, you would eliminate profits.  And today, the biggest profit drain in your firm is not risk, but the cost of not taking a risk.

Agency Symposium - Progressive Agency Models, Tim Williams Agency Symposium - Progressive Agency Models, Tim Williams Presentation Transcript

  • Progressive Agency Business Models Presented by Tim Williams
  • We need to disrupt our own business Advertising agency income “per unit of work” has fallen 40% during a steady 20-year decline.
  • 80%
  • We need a new Agency OS
  • There is just as much money being spent in marketing. It’s just that less and less of it is spent in “advertising.”
  • OVERDEVELOPED SERVICES Satisfied client needs Overserved markets Many providers Low margins “A full-service, integrated agency offering a wide variety of services.”
  • OVERDEVELOPED SERVICES UNDERDEVELOPED SERVICES Satisfied client needs Overserved markets Unsatisfied client needs Underserved markets Many providers Low margins Few providers High margins
  • OVERDEVELOPED SERVICES UNDERDEVELOPED SERVICES Content Strategy
  • OVERDEVELOPED SERVICES UNDERDEVELOPED SERVICES Service Design
  • OVERDEVELOPED SERVICES UNDERDEVELOPED SERVICES Behavioral Economics
  • Sustaining Innovation Disruption Innovation OVERDEVELOPED SERVICES UNDERDEVELOPED SERVICES Satisfied client needs Overserved markets Unsatisfied client needs Underserved markets Many providers Low margins Few providers High margins
  • John Jay Weiden+Kennedy “Garage will be a strategic and entrepreneurial shop that will concept, create and invest in innovative products, experiences, content and technology that will help to redefine the idea of what a modern, global brand is.”
  • Marketing Invention Brand Performance Invention Design Invention Product Development Invention Retail Invention Editorial Invention Media Buying Invention Social Media Invention Mobile Invention Digital Publishing Invention App Development Invention Startup Invention Research Invention Human Resources Invention Partnership Invention
  • Marketing Invention
  • Product Development Invention
  • App Development Invention
  • Media Invention
  • Innovation Mobile Design Creative Effectiveness Branded Content Cyber
  • Innovation
  • “Traditionally, agencies have created value for their clients through better and different communications. But brand behavior can now come to life in digital products, services, and experiences.” Will Nicholls
  • New role for agencies Creating value for marketers in ways that have nothing to do with a “message.”
  • “Instead of being executors of communication campaigns, we must become inventors, architects and conductors. The brands we all love see themselves that way. Nike and Apple, for example, don't really make anything. They invent products but leave it to their vendors to build them. It's much better to be an Apple than a Foxconn.” John Winsor Chief Innovation Officer, Havas CEO, Victors & Spoils
  • Agencies as product developers
  • Agencies as intellectual property owners
  • “Advertising is not a service business. We’re a product business, like publishing and other businesses that deal with intellectual property.” Jeff Hicks Vice Chairman, Crispin Porter + Bogusky
  • Work for hire?
  • All campaigns, trademarks, service marks, slogans, artwork, written materials, drawings, photographs, graphic materials, film, music, transcriptions, or other materials that are subject to copyright, trademark, patent, or similar protection (collectively the “Work Product”), developed or prepared by Agency or its employees, agents, contractors, or subcontractors under this Agreement, are the property of the Client, provided: such Work Product is accepted by the Client within twelve months of being proposed by Agency and Client pays all fees and costs associated with creating, and, where applicable, producing such Work Product. Subject only to the two aforesaid Conditions (the “Conditions”), all title and interest to Work Product shall vest in Client as “works made-for-hire” within the meaning of the United States Copyright Act. To the extent that the title to any such Work Product may not, by operation of law or otherwise, vest in Client as a work made-for-hire, or any such Work Product may not be considered a work made-for-hire, all right, title, and interest therein is hereby irrevocably assigned by Agency to Client. In order to assure that its employees, agents, contractors, and subcontractors do not possess proprietary rights in the Work Product that are inconsistent with Client’s possession of such rights, Agency will, as necessary, obtain the assignment and conveyance to Client, or to Agency for the benefit of Client, of any proprietary rights that such persons or entities may have or may have in the future to such Work Product. Work for hire?
  • Intellectual property ownership is standard in other industries Music Motion pictures Television Publishing Photography Illustration
  • “The bulk of Anomaly’s work for the likes of Procter & Gamble, Sony, Virgin, AnheuserBusch, and PepsiCo revolves around new product development, brand strategy, design, branded content and technology.” ADVERTISING = ONLY 25% OF REVENUES
  • “There are many reasons why ad creators are embracing new ventures. Some are frustrated with providing ideas in exchange for a set fee and want to reap revenue from product sales. Some agencies hope the initiatives will engage employees in fresh ways. Deutsch, for instance, hopes these kinds of ventures will help the firm recruit sharp workers and hang onto good ones they already have.”
  • Making money while you sleep
  • Agencies as talent networks
  • “With technology, it is now possible for networks to create value in a much more powerful way than organizations can. The expertise that drives organizational value now resides in a network of relationships outside the organization itself.”
  • Agencies as talent networks
  • Agencies as talent networks
  • Agencies as talent networks
  • Agencies as talent networks
  • Agencies as talent networks
  • THE OLD HOLLYWOOD MODEL .VS THE NEW HOLLYWOOD MODEL
  • Agencies as studios
  • Agencies as Studios
  • Agencies as Studios
  • Agencies decoupled
  • “Decoupling is the most powerful force in advertising is the past 60 years.” Avi Dan Forbes columnist IDEATION EXECUTION
  • IDEATION EXECUTION
  • LUMBERYARD
  • LUMBERYARD
  • Agencies as marketing labs
  • “Innovation doesn’t look like traditional advertising. Agencies have to stop looking for ad-shaped answers to business challenges.” Renny Gleason, Weiden+Kennedy’s Portland Incubator Experiment (PIE)
  • Labs
  • Labs
  • Labs
  • “Be 20% more selective in chasing new business, and invest the cost savings in agency R&D and developing intellectual property.” Tom Finneran 4As
  • As part of the brief: “What is the marketing invention that will deliver the desired behavior?”
  • “What do you already to that you can productize? Spend a day to catalog what you’ve already done and figure out how to make money from it in some other way.” Laurie Coots Former CMO, TBWA/Chiat/Day
  • You are not just in the service business Apply the same creativity to revenue generation as you do to solving client business problems.
  • The typical agency income portfolio Low-Risk Low-Reward
  • The innovative agency income portfolio Medium-Risk Medium-Reward Low-Risk Low-Reward High-Risk High-Reward
  • “Doing these types of projects really keeps us evolving as a creative entity. We're able to evolve our compensation with new revenue streams and evolve what we can be, which I think is far more than an advertising agency.” Neil Riddell Executive Director of Product Innovation
  • “Agencies that can’t find ways to generate value in today’s emerging value ecosystems will find themselves marginalized by the innovators who do.” Renny Gleeson Weiden + Kennedy
  • “All profit is derived from risk.” Peter Drucker
  • Thanks and stay in touch twilliams@ignitiongroup.com @TimWilliamsICG www.linkedin.com/in/TimWilliamsICG www.IgnitionGroup.com
  • www.ignitiongroup.com