Where does the advertising agency go from here?

Advertising can be traced as far back as the ancient civilisations, when Egyptians used papyrus to pen sales messages. But it wasn’t until the 1800s that the advertising agency as we know it was created by Volney B. Palmer, and built upon by several others in subsequent years, including Albert D. Lasker, widely known as the father of modern advertising.

More than a century later, advertising agencies continue to flourish. As long as humans consume content, on the internet or elsewhere, we can assume that advertising will exist, and therefore so will agencies.

The future of the agency model, however, is being challenged by a changing industry and the increased use of technologies, including AI.

From competing in the attention economy to dealing with the impending cookieless world, as well as increasingly stringent privacy and data-usage regulations like GDPR, PDPA Thailand, and PDPA Singapore, the agencies of today are facing pressure to change.

This change is compounded when data becomes the main currency of exchange and is susceptible to new regulations and other market restrictions—meaning marketers who want that one-to-one connection with consumers will increasingly rely on their own first-party data to market their products directly. In fact, any industries that leverages data to gain insights to inform their business decisions will ultimately see sweeping changes to how they collect and leverage data in the future, if they haven’t already.

The rise of inhousing

With data playing such a vital role in the future of advertising, it’s only natural that brand marketers who want more control over their digital strategies start thinking about inhousing advertising.

The British advertising market for example, has already seen an increase in inhousing. Lloyds Banking Group, Marks & Spencer, and PepsiCo are among a growing number of brands that have brought some advertising or marketing services in-house.

Recently, Australia saw the debut of the In-House Agency Council, launched by a handful of Australia’s biggest brands—including Australia Post, Optus, Sportsbet, and more—to help marketers build this capability and share best practices across their in-house teams.

According to a recent report from the World Federation of Advertisers (WFA) and The Observatory International, a growth in digital opportunities has led to a global rise in in-house agencies, with 74% of in-house agency teams being established in the last five years. The report also revealed that marketers are pursuing in-housing for predictable reasons, such as cost efficiencies (30%), better integration (64%), and better brand knowledge (59%).

With the in-housing trend already becoming popular in Europe and Oceania, it’s only a matter of time before these new ways of working start to make inroads in Asia.

What does the future look like for agencies?

The bread and butter of an agency (advertising or otherwise creative) has always relied on its ability to service marketers well. Having worked at an agency previously, I’ve had first-hand experience with how hard an agency works for its clients, and how often the value exchange may not be equal.

Even the commercial model of the agency is being threatened; brands increasingly prefer a value-based pricing approach compared to being billed by the hour.

At present, Asia’s labour market is still relatively cost-efficient (compared to other regions in the world) and has a high percentage of a younger workforce, so the agency model can still survive, thrive, and evolve here. But how?

1) Agencies must value their value 

Agencies must understand the value they can provide, and hold marketers accountable to paying for it.

Demonstrating the value that an agency can offer today, given the data points needed, makes it a Herculean effort for many experienced agencies. Many marketers today operate in a world of austerity, with zero-based budgeting, so this is not always an easy conversation to have. And often, agencies are pressured to overdeliver and undercharge, just to keep a client on the books.

To that end, agencies must demonstrate what they can bring to the table and not be afraid to charge accordingly, or risk running a crippling, underappreciated and unprofitable business.

Procter & Gamble’s Marc Pritchard has championed for a fairer and more transparent media ecosystem, which would allow agencies to charge fairly for the value they bring to the table.

2) Agencies must connect media planning and buying

In programmatic advertising, businesses leverage data to identify the most relevant audiences, finding those audiences through the impressions available on an ad exchange. Given this environment, the legacy agency model—where planning sits separate from activation—is at risk. The closer these two processes are aligned, the better agencies can leverage real-time data at speed and make swift changes to a campaign, in order to better optimise it.

Agencies need to lean into platforms to build interactive tools that help them—as well as the marketers (clients) and their media planners—understand nuanced audiences and how to use the differences to help improve return on investment (ROI).

The deprecation of third-party cookies only accelerates this need for agencies to use the right platforms. There is also much disruption happening with the proliferation of data, the acceleration of computing technology, and algorithms to harness that data and connectivity, all of which are converging in adtech today.

By using adtech platforms that can build data that connects media planning to activation, agencies can power real-time ROI benefits for clients, help secure more client relationships, and navigate the rapidly changing consumer landscape.

Where do agencies go from here?

From my point of view, there is little replacement for agencies in the new digital world. But to stay relevant and add value to tomorrow’s digital marketers, they will need to build more robust processes and frameworks as well as figure out how to utilise data to drive better engagement with their client’s audiences. This can either be done organically at a cost to the agency, or through partnerships with adtech companies that can provide the innovation they need.

Agencies with multiple partnerships can offer a richer perspective on tech, data utilisation, and best practices than an in-house agency, and this is something marketers need to remind themselves of when seeking the best outcome for their advertising investment.

Sonal Patel is managing director for Southeast Asia at Quantcast.