In business, the cycle is almost always the same. Over time, profitable companies with focused business models diversify themselves into unprofitability and irrelevance.
History should be a better teacher here, because the results are predictable: companies that attempt to assemble too many products and services under one roof always reach a point where they realize they must shed their excess baggage and refocus on fewer things, usually accompanied by a press release about how “We’re returning to our roots.”
The advertising agency industry has followed this cycle. Up until the late 1980’s ad agencies were in convergence mode, typified by Young & Rubicam’s “The Whole Egg” concept – the idea that you could find every possible service under one roof.
Then the holding companies entered the scene and began unbundling agency functions and agency brands. Agencies like Y&R, Ogilvy and JWT lost their media departments when their new parent company, WPP, created Mindshare and MediaCom. The 1990’s and early 2000’s were periods of dissaggregation in the advertising world.
True, a handful of very large holding companies (such as WPP, Omnicom, IPG, Havas) went on a buying spree and gained controlling interest in almost 85 percent of all the
world’s advertising activities, but within those holding companies blossomed a broad variety of specialist agencies: advertising creative, media, digital, PR, design, experiential marketing, direct, CRM, strategy, etc.
Agency Competition Redefined
Against this backdrop, a completely new set of competitors have entered the scene. Media companies like Viacom, NBCUniversal, Meredith and Conde Nast are establishing their own agencies in order to provide creative services to their clients. Google and Facebook have agency-like units who have direct relationships with marketers.
Production companies like Radical Media and B Reel are no longer just producing someone else’s concepts; they’re squarely in the business of concepting and creating their own branded content, from television programs to websites to mobile apps. Even consultancies like Accenture now have agency operations as well, especially in digital.
The entire agency universe is blurring as a new form of convergence is taking hold. PR firms like Edelman and Golin describe themselves not as “public relations” firms, but as
communications and marketing problem solvers. Most of the big PR firms now handle some paid advertising business as well, employing creative directors and sometimes entire creative departments.
Agencies with a digital heritage like RG/A, Razorfish and SapientNitro are competing neck-to-neck with more traditional agencies for accounts and assignments. The traditional agencies are morphing in the opposite direction, trying to cash in on the surge in digital spending and new realities of the digital marketplace.
The Best of Everything?
Of course the problem is that marketers don’t hire an agency because it can do everything, but because it can do something well. No profitable agency business model claims excellence in all forms of all media and in every industry.
Further, today’s marketers aren’t looking for a single source relationship, but rather a federation of partners who deliver best-in-class capabilities in specific areas. By definition, no organization can be best-in-class in everything.
The urge to offer up “full service” is both understandable and predictable. It’s the same knee-jerk reaction that leads most companies down “the long road to unfocus,” a phrase coined by Al Ries, co-author of the seminal work Positioning: The Battle for Your Mind.
But just because a client has a need doesn’t mean you should be the one to fulfill it. Remember that the essence of strategy is deciding what not to do. Choosing to do “everything” is not a strategy; it’s the absence of a strategy.
Tim Williams leads Ignition Consulting Group (www.ignitiongroup.com), a U.S.-based consultancy that specializes in helping agencies create and capture more value.