In 2015, Eric Schmidt and Jonathan Rosenberg shared with the Economist that "the pace of change is accelerating". Given their roles at Google at the time, it may have been a little self-serving but fundamentally their argument is irrefutable. Most of us are familiar with the concept of exponential growth. When we apply it to your life and my life, in a way that allows us to see the forest from the trees, this "pace of change" manifests itself as a revolution in how we connect with the world around us in ways that we could not have imagined even ten years ago.
I work in an advertising business. Specifically, a sub-sect of the marketing services industry known as the media agency. Fundamentally, our job is to help organisations, brands, to communicate more efficiently and effectively with the consumers that they hope will buy their product or service. It’s a fascinating part of the world to live in.
And it’s changing, at pace. I’m cognizant that most of the readers of this piece will come from within the space, so I will spare you the insult of explaining our little space in the big bad world of business.
So let’s get to business
Why am I so interested? Over the last 18 months, when engaged to develop marketing strategy for said brands, I’ve received many pre-reads from our clients (some of the biggest brands in the world) written by the talking heads at Bain, Mckinsey, BCG, PWC, Deloitte, etc.
Regarded as the smartest folks in the world, I’ve been highly impressed with the depth and quality of the thinking. At the same time I’ve found it interesting and confounding that we have been relegated to a secondary pair of hands in the process.
For the purposes of transparency, in the past I’ve also been in an organisation that engaged consultants to walk in and tell us how to run the business. While it’s easy (and convenient) to dismiss the teachings as “telling one how to suck eggs”, the truth is that I found the insights and directional leadership of tremendous value. And we paid a handsome premium to learn these lessons.
What’s most important is that we, as the agency, have a legitimate concern that the consultant is stepping into the leadership position within a client relationship, extracting the highest yield from the engagement and subjecting us to the last position within the service value chain.
And this is how the story begins.
Ostensibly, it seems that the professional services firms, technology consultants and systems integrators are encroaching on an agency’s traditional sources of strength. Consultants and professional services firms have signalled their intent.
Deloitte’s acquisition of Heat and more recently Accenture's purchase of The Monkey’s in Australia, PWC’s high profile acqui-hire of Howcroft and subsequently a raft of media agency executives serve as a clear war-cry. Accenture has been banging their drum, with aspirations to help companies to build their own media buying capabilities in-house.
But it’s been bubbling away for some time. IBM has quietly been amassing assets and building the world’s (arguably) largest digital agency. This trend has been building momentum and is now reaching a tipping point.
How are agencies reacting?
Despite this, agencies aren’t simply lying down and conceding. As the pace of change accelerates and the world becomes more data driven, agencies are fighting back with data led services, advertising/marketing technology integration, technology implementation and the launch of bespoke “consulting” offerings.
We are witnessing a professionalisation of the advertising agency. Professor Mark Ritson has been yelling profanities at anyone who will listen about this for the last little while. In a very “Brave Heart” sort of way, Ritson can see that professionalisation is key to raising the credibility of the marketer in the boardroom and for agencies, this creates a sustainable source of growth.
What lies at the heart of convergence?
The consumer journey is changing. Brands are increasingly built on utility first. More and more, organisations are being asked to create environments that fit the needs of the normative human condition, rather than creating an artificial construct that they hope to then populate with humans. Investors, boards and organisations are seeing how quickly entire industries can be reinvented (think Uber, Airbnb, etc.) and thereby tasking CEO’s to create long term strategic advantage through engineering differentiation through providing experiences.
Success means connecting financial, organisational, creative and communications together into a seamless eco-system. Technology serves as an incredible enabler and leveler. And as a result, the traditional silos of CEO’s, CMO’s, CFO’s, CTO’s, CIO’s are rapidly blurring into a melting pot.
Let me introduce you to the concept of the “two way squeeze”.
Marketing agencies are experiencing downward pressure on margins for providing “outsourced operational capability”, incessantly asked to deliver a largely commoditized service quicker, cheaper and in a highly automated fashion.
At the same time, management consultants and professional service firms are experiencing the challenge of operationalising the deep thinking they have built a business on, offering an opportunity to generate revenue scale but on a shrinking margin profile. Not a particularly sexy sell to investors.
What’s the future?
All of this leads us to the inexorable rise and rise of the “consulting agency”: a hybrid business that offers a lucrative end-to-end (or vertically integrated) service delivery model.
Stop and imagine this. A management consultant from a technology background, flanked by a proven brand marketer from a consumer insights background, partnered with a data analyst from an engineering background, brought together by a professional project manager, a scrum-master. Powering this is an automated operating system to control workflow, pushing operational fulfilment to a slick outsourced, offshore operational outfit.
This is the model of the future. A reconstituted commercial construct that looks a lot like a professional services network (or LLP on a smaller scale), merged with a traditional advertising agency business and a BPO.
And who will win?
He/she of the largest balance sheet will win. The ability to drive commoditisation of the core (think media buying or mass creative production), to do it faster and cheaper, whilst paring this capability with world leading creative strategy, technology consulting, advanced data analytics and engineering. It will lead to a smaller number of players on the field, with the true ability to invest in a technology driven future, delivering to clients a perfect mix of human and machine.
Convergence is coming. You and I should embrace it, there is light and hope at the end of that tunnel.
Willie Pang was recently promoted to COO of MediaCom