Agencies: earn your keep or lose it

In 1517, Martin Luther nailed his theses to the door of Wittenburg church, disputing the claim of the Pope to be the sole intercessor between God and man. Five hundred years later, the Internet is empowering attempts by the public and the commercial sector to circumvent value-less simonists  and to scrutinise where their investment awctually goes, to easily compare and search for the best value for money. The times of an agency consisting of a telephone and a few jealously guarded numbers in a rolodex are long past, and many companies are deciding that they want to take responsibility for their own campaigns; the time and technology are now arguably ripe for them to do just that.

Let’s get one thing straight. There will always be a need for creatives at the upper end of the market, and, indeed, handling long complicated multi-channel campaigns. The Internet, for this tranche of the market, is both meat and poison. That SUV may look sexy and appealing in the dramatically lit advert with high-octane music and the pretty girls, but, the canny consumer will consult reviews, pick up on any bad press and run direct comparisons which easily block out the attempted bedazzling of the consumer. However, something as prosaic as those three sponsored lines in Adwords can also provide a link to a fully immersive experience of music, video, sexy people and overall brand seduction for a fraction of the cost of almost any other medium, giving the brand both a right to reply and an almost unlimited expanse of space and time in which to weave their spell on the consumer. If that was all Google could supply then they would still be more than a formidable threat to traditional media, but in the last few weeks they’ve capitalised on the possibilities of Google Earth by providing a click to play experience for Saturn. When the potential customer clicks on a generic banner ad, they’ll be pointed to their nearest dealership and a video clip where the manager will give them his best spiel. Afterwards, they can get 360 views of the car, maps and everything short of a complimentary cup of coffee.

But this is the Internet as a complementary part of a larger campaign, not a replacement. National TV advertising has always been the ivory tower, and will always be an important part of any advertising strategy. Besides, even those self-same search ads have seen a healthy growth, of 37% from $2.3bn in the first half of last year to $3.2bn in the first half of 2006 and even Microsoft has been tempted from its cave by the juicy meat on offer, offering its adCentre package to all advertisers in May. Even accepting the reported figure of 14.6% of click-through costs being fraudulent, online search advertising is still far more cost-efficient and targeted than any other medium, even for the biggest campaigns.

And it’s at that end where the cream is starting to curdle. After pitching against Google, Ebay finally won the rights to host the proposed TV ad-based stock exchange ASDAQ. It’s still in trial mode, but if proved to be successful, would be intended to complement the sweeps-led auctions in May and June with a year round exchange. Naturally, the networks aren’t too happy about this, and are concerned about commoditising their advertising inventories, but with big guns such as Toyota and Wal-Mart being some of the biggest advocates of this system, and the Association of National Advertisers looking likely to stick $50m into setting it up, it looks like it has the potential to change the advertising landscape.

When News Corp bought out MySpace, amid a cloud of cynicism, they may have gained an enviable access to teenage diaries equivalent to writing “Watch Fox” on the front of 100,000,000 exercise books, but that barely touches the potential offered by this opportunity. Recently, it was announced that three shows which performed less well than expected on TV were to be released on MySpace  with only three key sponsors, with Yahoo and Showtime providing a similar service, another attempt to bypass (and in some cases undercut) the traditional Sweeps method.

Although the industry’s vastly inflated head is relatively well protected, the Internet is certainly hacking away at the shins of the media industry, squeezing the gap between consumer and product wafer-thin, and sending waves of unease through companies who rely on account management of those low to medium size companies. Services like Spotrunner enable local advertising to harness their local TV networks by dropping their details into a variety of templates, and Dmarc offers a similar service for radio. And who owns Dmarc? Why, as of the beginning of the year, Google.
It’s not hard to imagine how either of these proposals, particularly the latter with Google’s strong positioning in this market, could expand into a more versatile format, using royalty-free stock video footage and throwing in a few captions to create an adequate enough presence to compete with other small businesses still focusing on traditional media. Indeed, users were recently encouraged to use Chevy’s website to do exactly that – until it was misappropriated by (often surprisingly foul-mouthed) detractors.

All this is symptomatic of a greater empowerment of the advertiser. Companies are no longer content to hand over control to agencies and trust that they’re spending their money and time man behind the curtain. They want to see how they’re earning their keep, and whether they could be cut out altogether. WPP, the advertising agency originally stood for Wire and Plastic Products. They made, primarily, shopping baskets. There’s a whole metaphor there about getting the goods from the shop to the consumer, but what’s more telling is that this was a value-free service. It was something that anyone with the right equipment could do, to a certain extent, and here is where the paradigm is in danger of shifting.

In the 6 months to July 2006, 48% of all WPP’s revenue came from Advertising and Investment Media Management, which is also their most profitable division. That’s about the same proportion that Omnicom devotes to ‘general media’, a share that’s reduced from 73% in 1993 to 43%. Recently, we have seen that contrary to Yahoo’s bluster the giants of the advertising world have claimed more than their fair share of the online market, too. WPP’s Sorrell then bullishly says that the Internet is 15% of their business, and expects it to be 30% in ten years time. In fact, WPP is, they claim, Google's third biggest customer.

But hold on a moment, Sir Martin. Imagine what would happen if even a handful of clients suddenly took control of their own management, dealing directly with the media themselves. Not likely?
When MySpace signed up Google as their sole search supplier, there was no intermediary. $900 million at stake, and no agency used. Of course, WPP claim that the $900 million will be run past them, and it will, but their bite of the cherry will be far smaller than if they’d run things from scratch. In a different medium, but still empowered by the Internet, there’s Google Publications. Although still at a very early stage, this brings smaller and larger advertisers together to sell as a package to print publishers, as a complement to AdWords advertising, bypassing the publishers’ own sales teams.

The Googlebot is coming to empower businesses; an Iron Man prepared to bear the heat and fight a war for the little guy. And they might just make a heck of a load of cash for themselves, too. TV  isn’t safe, Press isn’t safe, Radio, isn’t safe, and even new media channels such as online video and mobile are swift becoming strings to the Google bow, now being galvanised into one holistic machine. Direct Mail, now that’s an interesting one. Although heavily threatened by email and Postal Preference services, direct mail is still considered a viable communication tool by Google themselves, who are using it to contact their own Adwords clients. Only when the agency owns their own frontage, such as in the case of Viacom, Maiden or JCDecaux, can they stave off an empowered advertiser, but, in a twisted kind of way, even the outdoors can become virtual. American Apparel, Duran Duran, Suzanne Vega, and even the BBC are amongst those who’ve signed up with the 600,000 strong Second Life virtual world, not to sell, but to market their brand among a younger generation. 

There are exceptions, however. Massive, for one, are an agency who specialise in in-game advertising, who have just signed up with Electronic Arts. Sign up with Massive, and they’ll put your product in EA’s latest shoot-em-up, platformer or driving game. Oh, and, of course, Massive have also recently been bought by Microsoft. Even though Massive is technically a different arm of the company, with the X-Box 360 producers being a large imposing elephant in the room, who would dare to stand up against Microsoft? Actually, WPP for one – at least to some degree – who’ve recently bought a 3.4% in WildTangent, a competitor to Massive with clients including Nickelodeon and Disney. For now, they seem to be pacing against their own walls, but it’s a small market, and eventually they’ll have to clash swords. And that’s where the future seems to lie, with landowners using their own labourers rather than outsourcing. Control the horizontal, the vertical, take every opportunity for a profit margin in-house.

In 2004, AOL purchased Advertising.com (a dream address if there was one) for $435 million, bringing in a leading media analysis and ad solution team, and enabling them to generate behavioural ads. Dead links are slowly being snipped out of the chain, and smaller companies bought to become part of a larger machine, with WPP making two hefty purchases themselves rather than developing internally; buying Liveworld to exploit their online communities and M80 for their Word of Mouth marketing skills.

Why should companies let their costs be negotiated, when they can control the input yourself? Indeed, one commentator even suggests, only partly tongue in cheek, that Google could afford to buy out Omnicom or WPP and still have change for a new server centre, becoming the key players in online and offline advertising although it’s hard to understand what they’d actually do with the purely offline components of either company.

Account management, as said earlier, accounts for 48% of WPP’s business. With smaller companies and campaigns, and even some pretty big ones, able to negotiate better rates by dealing directly with the media providers themselves, one has to be open to the possibility that one day the advertisers might decide they don’t need anyone else to manage their accounts. Without some understanding of the advertisers who are taking this leap, both in terms of their size, the markets they represent and the reasons for making that decision, the big agencies are fighting blind, and that blindness is going to lead to a potentially bloody Reformation of the industry.