old school meets new era
There's a lot of talk around these days about 'new business models' and 'alternative sources of revenue'.
This week's Marketing Week has a big article about 'Remodelling the agency relationship for the 3.0 age' The article draws distinctions between 'network agencies' and 'boutique agencies' but seems unclear as to what the differences between such shops might be. (I have to admit, I'm not sure which term covers W+K these days – it could go either way.) On the one hand, MW quotes Sam Reid, a 'boutique agency' principal as saying “The traditional agency model has so many superfluous layers which were
relevant to the time when there were three types of media." On the other hand it says, "Marketers not only need their agencies to work to a continuous
engagement strategy, but they are gravitating more towards
full-service network agencies to deliver this." (Hmmm – are only 'network' agencies 'full service'?)
In fact, the piece might best be summarised in this brief extract: "Marketers have split opinions when it comes to deciding what type of
agency is best equipped to deal with new media… The choice may well come down to the
merits of each agency, and (is) not dictated by size and price." That about sums it up, I think.
Personally, I think definitions such as 'network', 'full service', 'boutique' or 'traditional' are becoming increasingly meaningless. There are good agencies, most of which have particular areas of expertise, specific super-powers, and then there is the mass of all the other not-so-good, undifferentiated agencies, who may have specialisms but no superpowers.
Clearly, changes in media, technology and the economic situation are
breaking down the old order and this is having a direct impact on anyone
involved in the media value chain – TV channels, newspapers, record
labels and ad agencies. Arguably it's the 'network' agencies, burdened
by old-world structures, entrenched silos, hierarchies and systems that
should find it hardest to adapt to all this rapid change. But we're
seeing collapse and consolidation across all sectors, from the big to
the bijou, which again suggests that it's not about how big or small you
are, it's about how smart and flexible you are. (And Google and Sky are
pretty big, and they seem to be doing all right.)
The article goes on to say: "There are also calls for a shake-up of client-agency remuneration
models… Of the marketers GyroHSR surveyed,
90% say agencies should be more accountable for the commercial success
of their work, through remuneration models such as “payment by results”.
More
than half (55%) disagree that agency fees should be based purely on
time and output, meaning that retainer models could be phased out in
favour of performance models."
This isn't exactly new news. Most clients and most agencies agree that shared accountability is desirable, and most major agency contracts include at least an element of PBR already.
But clients aren't the only ones talking about 'new models' of remuneration. Agencies are doing it too. Of course, clients are hoping that these new models will save them money, while agencies are hoping that they can find new ways of making money. Because if clients want to pay us less, we have to find revenue from somewhere other than clients. And of course, I should disclose, we're doing it at W+K too, with ventures like Plot, platform and our product range.
The funny thing is, some agency managers are talking this game – new era, declining margins, need for whole new business model – while still living as if their companies were making the kind of margins they used to do back in the nineties: company drivers lined up outside private members' clubs, business class flights, the regular table somewhere swanky for top level management discussions about how many staff we need to make redundant, etc. No wonder margins are going down if you're still running a Mad Men approach on a 21st century income basis.
I think some of the reasons for all this are similar to the observation made by David Hepworth on his blog about why people in London take cabs when there are much quicker ways to get round town:
The impulse that causes people to raise their arms to the noonday
traffic and take a cab is the heart-pounding, almost erotic feeling that
they are far too important to be transported any other way. The fact
that their employers are happy to refund cab expenses in certain jobs
confirms them in this feeling that their work is of an order that
demands they be moved about separately from the rest of us, that they be
not impeded in any way and that, wherever possible, they be given the
solitude to think about their next move. They're about status, not
transport.
Similarly, eating lunch at The Ivy is not about staving off hunger.
Maybe, as the recession continues to bite, we should be thinking as an industry about other ways to save costs rather than getting rid of people. (No orchids on reception?) And maybe we should remember that the best growth strategy is till creating amazing work that delivers real bottom line value for our clients, so that we can then negotiate better terms with them, and attract new clients who want to enjoy similar success.
Of course, being a miserable old jock git who's happiest with a sandwich at my desk, I would say all this.
