Do you remember the nursery rhyme 'Humpty Dumpty'?
Well there been something similar going on in agency land for the past decade or so, as such they really are struggling to put 'Humpty back together again'.
The agency model that's been around for decades has been in decline since the birth of the internet, in the early days they simply added the digital media inventory into the roster of services to sell into existing clients, and utilise it as a way of attracting new ones.
Forgive me if this is old news but many people I've spoken to don't really understand the real media agency model;
Typically, an agency’s business model is one that is based on a client paying an agency a fee for its services. The fee is based on the number of full-time employees working on that business as well as the scope of the business that the agency handles. The scope of a piece of business will vary by client and by agency, but it will likely be based on the number of campaigns as well as the number of assets and deliverables for those campaigns. An agency will figure out the hourly fee to charge a client based on the number of full-time employees across its various disciplines needed to fulfill the scope of the assignment. That number will factor in the cost of the employee plus the agency’s profit margin.
The ‘interactive marketing services’ industry is still relatively immature. It was characterised by a number of entrants, who saw a massive growth opportunity as a result of the dot-com ‘boom’ back in 1998 – 2000.
Companies from various industry sectors sought to develop a range of services to become a one-stop shop for clients. This occurred as follows:
- IT companies moving into Internet technologies, hosting and later acquiring a creative capability;
- Business consulting companies writing ‘dot-com’ business plans to secure funding and later acquiring both creative and technical capabilities to extend their revenue opportunities into the implementation of the business plans;
- New start ‘Interactive agencies’, which were designed to provide a balance of strategy, design, build and hosting.
Rationalisation within the industry has now led to significant staff reductions and a return to a more narrow range of services, this is also being impacted with companies taking control of a lot of those digital services in-house.
Furthermore, very few, if any have a ‘business focus’ based on practical ‘client-side’ experience of developing and delivering marketing strategies within a multi-channel organisation.
We often see the same thing with organisations that have an outsourced approach to social media, this is because the strategic value is yet to be unlocked and understood by the leadership team.
So it's still just another channel to 'advertise and promote' our products and services in the same way we've always done.
It's a good job your competitor isn't thinking that way.
Agencies’ fee-based business model hasn’t evolved in decades — and that may be a significant factor in the industry’s struggle to manage costs. With clients suppressing fees, asking for longer payment windows and seeking more project work, rather than long-term relationships, agencies may need to reimagine their business model.