In a recent issue of NMA Richard Huntington, Director of strategy, Saatchi & Saatchi, argued “if you're a digital shop, it's turning out to be anything but your time. Good news for digital, bad news for the rather quaint idea of the standalone digital agency…” If I were not worried about the next few years for the business as a whole, I might have been offended by Mr ’s understanding of the transition in the digital business.
In any real revolution, the new king rarely looks like the old king. A real revolution changes everything. In the music business, the record labels, who were the kings of music, look nothing like the new king: Apple’s iTunes. In the classified advertising business, the old kings – the newspapers – look nothing like the new king of classifieds: Google. Advertising will be no different. The new king will look nothing like what he calls an orthodox agency. The new king will not even look like what a current digital agency looks like.
Every revolution has its counter-revolutions, and it is no different for the digital revolution. In 1976, Zhou Enlai - Chinese Premier from 1949 until his death - was asked to give an assessment of the 1789 French Revolution. He said: it's too early to say! Mr could learn a thing or two from Zhou Enlai’s caution. We are just at the beginning of this revolution, and it is still unwinding, and filtering through the system.
Its also perhaps more appropriate to categorise advertising agencies that have hired digital people as hybrid agencies rather than orthodox, particularly when you recognise that there are digital agencies, becoming hybrids, by hiring former advertising people as well. Digital agencies want the keys to the brand and orthodox agencies want to find a door that takes them to the digital future, The new kings of advertising will look nothing like what he calls an ‘orthodox’ agency or even a standalone digital agency, for three key reasons:
1)Marginal players on the fringes of the digital business – The Internet is as wide as it is deep and continues to grow. Even the advertising agencies that have best transitioned to digital, Goodby SilverStein & Partners, and Crispin Porter Bogusky, are still only playing on the edges of this unfathomable space. They do superb banners, landing pages, micro-sites, and viral videos, but are not on the roster for real deep digital work like global ecommerce website redesigns, digital anthropology studies, implementation of content management systems, search engine optimization projects, blogger outreach programs, and website analytics.
2) Subsiding digital growth – To play in the deep digital space, orthodox agencies still need to hire people from disciplines beyond the programmers Mr. Partington mentioned in his article. They will also need to resolve a problem that every digital agency is struggling to resolve: how do you resource, and cover such an unfathomable space, whilst still keeping those timesheets full. This is not a question orthodox agencies have worried about so far, as they have subsidised their digital forays with TV-scale budgets. As they cross the rubicon between the orthodox and digital worlds they will need to balance finances for both of these worlds. In a recent interview, Rich Silverstein, co-founder of Goodby Silverstein & Partners said” The internet is so deep its like drilling for oil. So far, I don’t think we’ve charged for all the time we’ve put into it”.
3) The New Peter Principle – I recently read an argument put forward by John Kay of the FT to explain the financial crisis. The original Peter Principle holds that individuals find their own level of incompetence, and eventually rise to a job they are not good at. Organisations, similarly, frequently find themselves diversifying to their level of incompetence. They extend their businesses into areas that trip them up.
Orthodox agencies have a shiny new bike they want to learn to ride, but they are making the same mistakes that digital agencies made when learning to ride their bikes. Many orthodox agencies are peddling like hell towards the digital future to substitute analogue for digital revenue, and staff up with digital people. Many do this without considering the strategic and financial implications.
The digital business is a deflationary force to the industry as a whole: digital has lower revenues than traditional media; and is more expensive to service. For orthodox agencies that do not understand the dynamics of this transition, they could be falling victim to the Peter Principle and diversifying to the point of incompetence. If Mr is right, this is an example of the winner’s curse. Ad agencies will be substituting high margin atl revenue with lower digital revenues that they do not really understand.
Its perfectly understandable for orthodox agencies to pursue digital, but its too early to say what the consequences of this race are going to be for both orthodox agencies and those quaint old digital agencies he refers to.