Big Agencies In A Digital Media World – Know about the agencies

There has been much talk in the past couple of years about how (or if) the big traditional ad agencies can continue to thrive (or even survive) in the emerging digital media and marketing environment. An excellent digital marketing blog called Convince & Convert just posted on this very subject. Below is my comment on that post.

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I would be interested to hear other views on this topic. It certain is a timely and very relevant subject in the marketing agency industry these days, particularly with the expected downturn in advertising budgets in the face of the world’s financial and economic crisis.

My Comment On The Convince & Convert Post:

Good post with excellent points. Digital media and related marketing-communications technologies have indeed leveled the playing field for smaller firms (including purely digital firms) to compete and win against the larger brand-focused ad agencies.

However, as the founder and CEO of an integrated digital marketing firm myself (www.thunderfactory.com), I am less concerned about the competition of big agencies as they scramble to shift their operating focus to digital. And, it’s not because they can’t learn it…they can and have done so already. If you think the big agencies are not loading up on digital talent left and right, you are kidding yourself.

The fundamental problem for the big, traditional ad agencies successfully making this shift is in their business models. Those business models were built on the backs of big media campaigns — principally TV. Walk into the NY offices of BBDO, Y&R, TBWA or O&M (or the massive media buying firms like OMD or StarCom), and it will become immediate apparent to you that they cannot sustain themselves based on the very different (and frankly smaller) revenue opportunities afforded by the new age of digital media and marketing.

The democratization of information, entertainment and communication enabled by digtial media is an historic boon to consumers and marketers, but anathema to the big agencies and their massive overheads. My long held belief is that as major marketers shift more and more of their media and marketing budgets to digital, there won’t be a 1:1 shift for the agencies and their account budgets and related revenue streams.

If P&G shifts $100M to digital from traditional TV and print, that does not mean the big P&G agencies will now get $100M to spend on the web. And, that $100M in advertising is certainly not being shifted directly to display advertising online. Far from it. The true power of digital is that so much of the impact happens interactively and virally, without the need for the massive media firepower (and huge budgets) of the traditional marketing industry.

For example: How much did OfficeMax spend on the now famous “Dancing Elves” viral microsite? I would estimate no more than $150K or less. It certainly did not cost what it takes to produce a typical TV ad. And, the media buy was probably minuscule (perhaps a limited banner campaign to drive people to the site). Once the viral effect took over, who needed a media buy? The campaign was a huge success. It was and is totally emblematic of the challenges facing traditional agencies in this new media environment. The dollars are not the same.

I do think the big agencies will get their fair share of the new digital media work, just as digital shops (like R/GA and my firm) will get plenty of branding work. But, digital media has transformed the basic operating model for the agency business, and that is really unsustainable for the traditional agencies that made their bones in the days of MadMen.