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Why advertising agencies are doomed . . . and why their brands need not
be
Version 1.1
This essay may be freely distributed if you quote the source.
Our advertising agencies are dead. Gone. Finished.
We can't save them, nor should we try. Instead, our task as advertising
people is to creatively destroy them before the market does.
Why? Because all the expertise, all the structures, all the practices
we've developed will soon be obsolete. This obsolescence will be driven by technology.
So by collecting some myths about what technology does, then exploding them
with examples, I hope to show you just how much creative destruction you'll
need to wreak as the world moves onto the web. You'll see that the ad agency
of 2008 will bear zero resemblance to the ad agency of today.
This essay's not negative. It's designed to make you think, not make
you mad. Although if it makes you both thoughtful and mad, I'll be happy. (Mad
people create great things.)
Here we go.
MYTH #1: Technology is just a tool to accomplish strategy.
Wrong. Technology is strategy. Your strategy will be defined by technology,
not merely enabled by it. Today's ad agencies fail to recognise this.
In Germany, the marketer British Petroleum had problems - shrinking market
share and an entrenched network of dealers who weren't selling anything. No
top-down 'sell more petrol' strategy worked. Lifting BP's sales took a bottom-up
creative idea: kiosks.
Germany's trading laws prohibited supermarkets opening on Sundays. So
BP set up e-commerce kiosks in petrol stations, which were allowed to open.
The kiosks sold it all: fuel oil and detergents, but also fruit and vegetables.
BP started growing again - by taking on the supermarkets.
That idea would never have come from top-down strategising. (Buying touch
n' sniff items like lettuce and pineapple from a screen, metres from smelly
petrol pumps? Nah.) It had to come from the bottom up - small-scale testing
and tweaking before mass rollout. And the only strategy was the technology itself.
Strategies are revolutionary, ideas imposed from above by a few. The
digital economy is evolutionary, ideas bubbling up from the masses below. So
top-down strategies, overresearched, overwritten, and topheavy with concessions
to factions and please-everyone homogenity, will fail. In the digital economy,
the only strategies that work are creative ideas that grow from the bottom up.
Advertising people with 'regional' or 'worldwide' in their titles are doomed.
MYTH #2: A `people business' needs people.
An ad agency boss once commented that his entire inventory went down
in the elevator every evening. The day when they won't come up again is near.
Twenty years ago there were 98,000 bank branches in the USA. Then the
first ATM machine was installed. Now the USA has fewer than 22,000 manned branches.
While the American economy (and hence the banking market) expanded tenfold,
the number of branches sank by 75%. Much to the banks' chagrin, their prided
'personal service' turned out not to be valued by customers at all. The convenience
of ATMs outsold a uniformed smile.
I asked 8 account handlers what percentage of time they spent on 'busy
work' - fetching and carrying, doing paperwork, co-ordinating tasks. The answers
averaged 81%. Is there a single client who wouldn't give up the free lunches
and friendly phone calls in exchange for an 81% cut in costs? In the digital
economy, the web can give personal service as good or better than any human
being - at far lower cost. Account service is doomed.
MYTH #3: Expertise can't be replaced by the web.
So: all the heavy lifters - all of management, much of account service
- in any large ad agency are gone. Let's say 3,000 people are left, down from
10,000. What's left are the core competencies that need specialists: creative,
media, planning, DM people, what's left of account service. Are the specialists
safe?
No. A major British retailer just merged its US customer database with
the database of a mailing list broker connected to two credit card company databases.
It now has scarily accurate information on 98% of households in the USA, detailed
down to what brands of clothes they bought and how often they eat out. This
information is for sale. More importantly, even today's data mining tools can
produce startlingly creative insights into who buys what and what motivates
them. You want males 18-34 who enjoy snowboarding, pepper steaks and pricey
European holidays? The Gstaad Alpine Steak House & Sports Bar can make itself
known to 30,000 people like you for under $1000 and falling. Do you know men
who buy 24-packs of beer tend to be recent fathers? Pampers does and puts its
products next to the beer section.
Incredibly, 1% of mortgages in the US are now completed entirely online,
from a standing start just a year ago. And 14% of motor vehicle sales. And 21%
of all insurance sales. The USA now has only 18,000 human insurance agents,
down from over 60,000 in the 80s. All these industries - where traditionally
the customer needed an expert to hold his hand - just don't need humans any
more.
Even those figures are nothing. A Harvard economist recently estimated
that in the digital economy, a car company with the output of today's General
Motors could consist of under 100 professionals, watching over thousands of
small subcontractors tied into the web. Gurmit in Delhi builds valves to fit
Pierre's engine housing in Paris while Ralph in Michigan designs fixings to
attach them together, software calculating how it all works together. Big results
don't need a big company in the digital economy. So another vast swath of agencydom
gets dragged n' dropped into the great Recycle Bin of life.
But media specialists are safe, surely? All those strategic media people,
strategically strategising on strategic media strategies every day. That's not
something a machine can do. Media specialists can sleep easy.
Wrong again. Media departments are middlemen. They turn information about
reach and target audiences into optimised packages for customers. With the digital
economy's friction-free access to information, that advantage disappears. When
information's easy to come by and easy to work with, you can't charge much for
it.
Creative departments aren't immune either. That 19% of advertising left
after you take out the 81% of busy work is the creative department. And truly
great creative work may never come out of intelligent agents, search engines
and data mining. But 90% of creative thought is just putting together old thoughts,
existing ideas, in new ways. This cuts out about 75% of work produced by creative
departments. Ideas produced by even today's artificial intelligences can be
surprisingly insightful. Creative departments, therefore, are doomed too.
With friction-free information resources, the whole of a company is no
more than the sum of its parts. Therefore those parts have no reason to stay
together. Specialists will instead resign to sell their skills to the highest
bidder, letting sellbots find buybots over the web. In the digital economy,
expertise can be bought as needed. In-house specialists are doomed.
MYTH #4: Customers value stuff you can hold in your
hand.
So creatives and media experts have vamoosed; planners have an hourly
rate. Our ad agency is down to under 1,000 people. But what about the finished
products an agency produces? The DM pack, the x'd media plan, the final artwork?
After reading the beta of this essay, one top creative director was sure he'd
still need people to produce camera-ready film. Surely not everything will go
digital?
Yes, it will. In 1993 Microsoft approached Encyclopedia Britannica with
the idea of putting their 30-volume encyclopedia on a CD. Britannica refused;
they felt it cheapened the weightiness of their hallowed volumes. Microsoft
released Encarta (based on a cheaper encyclopedia) instead. By 1996 Microsoft's
CD was outselling the print Britannica two-to-one. The same year, Britannica
released a CD version on its own. but they were still stuck in the something-to-hold
paradigm, putting each volume on a separate CD, giving customers a clunky boxful
of jewel cases to take home. Today, Britannica's brand equity and balance sheet
are both deeply in the red and it's cut its sales force by 90%.
The same applies to bookstores. Barnes & Noble didn't see Amazon
as a threat; after all, don't people enjoy browsing real books on real shelves?
Amazon would be forever niche. Two years later, Amazon.com's market cap is over
US$2.5bn and founder Jeff Bezos is a paper billionaire. (Major publisher Bertelsmann
has just spent US$200m on 50% of Barnes & Noble's belated website, something
they could have got for $2m a year ago, to get in on the game.)
With abundant bandwidth, creative product will be zapped directly to
media owners; nothing you can hold in your hand will be worth selling. In the
digital economy, things are less important than the information they hold. Anyone
who sells thing value instead of information value is doomed.
MYTH #5: You can preserve your business structure by
stifling newcomers.
Let's suppose none of the above happens. Somehow all those 10,000 people
at a large agency stay gainfully employed. One smart guy notices a paradigm
shift that threatens the agency business. Can't we just crush the upstart like
a bug and keep on doing things the way we've always done them?
'Fraid not.
There's a digital music format called mp3. What mp3 does is squash audio
recordings (ie songs on a CD) into compact digital files playable on a PC. This
means young bands don't need a recording contract to get their stuff into the
market. Unsigned bands release mp3'd songs on cheap floppy disks; the Artist
Formerly Known as Prince now sells his music only from his website, and one
Singapore-based writer has put his entire classical music collection onto his
hard disk. Meanwhile, manufacturers are coming up with mp3-capable CD players
to expand the market into the consumer space.
The big music publishers' reaction? They're trying to get mp3 banned,
with lawsuits flying like confetti. Yet for every website they kill, another
ten pop up. Instead of wreaking the creative destruction necessary to adapt
their businesses to the new paradigm, they've tried to deny the new paradigm's
validity. (Don't go thinking the cover art will differentiate your offering.
See #4.)
In the USA, AT&T values its copper-wire telephone network at US$18bn.
Yet the real value of this network today is zero! The fibre optics of Qwest
and Level 3, the cable networks of TCI, the world-girdling satellites of Iridium,
Globalstar, and Teledesic, the CDMA cellular operators - together their potential
capacity to carry information is over a billion times AT&T's. Former AT&T
CEO Bob Allen once announced a 'huge cost-cutting program' with great fanfare.
One observer remarked that it was like `asking the band on the Titanic to play
just a little faster.') AT&T has to bite the bullet and write off its $18bn
investment. (New CEO Mike Armstrong, who 'gets it', may well do just that.)
One to watch: Microsoft. In October '98 Intel agreed to support Linux.
Linux is an 'open source' operating system created by a bazaar of thousands
of hobby programmers worldwide. It's robust, easy to extend, and free - better
in almost all respects than Windows. And it's growing fast, spreading from IT
managers to power users and even to end-users, a market where most people think
Microsoft's grip is unbreakable. An easy solution - and one Microsoft will almost
certainly rather die than take - is to release Windows's source code, letting
that same bazaar of hobbyists take it further. In the digital economy, an established
infrastructure cannot save you, however much you've invested in it. Anyone who
clings to the old ways is doomed.
MYTH #6: Some jobs are too big for one person to do.
Stop dreaming: our hypothetical ad agency's back down to under 1000 people.
They must be safe, surely? We need a certain mass of people on the ground, people
to make new contacts and explore new business opportunities.
Wrong. Intelligent agents, or `bots', are software objects designed to
roam the web and collect information from it. The technology newsletter SNS
estimates that by 2005, 95% of the web won't be used directly by humans - the
HTML pages of today's web will become XML metapages, pages of information structured
for use by bots.
No-one at Microsoft answers a phone call from a salesman. All vendors
must use a section of Microsoft's website. There's already a thriving market
in 'salesbots', software that searches sites like Microsoft's for sales opportunities.
At such sites, salesbots can check out the competition, 'pitch' to Microsoft's
`buybots', and demonstrate their cost savings or benefits - all without human
involvement. These bots will eventually become more sophisticated and knowledgeable
than any human salesperson, exploring new business opportunities without needing
us around. (Oh, and software can't be persuaded by advertising. Not yet, anyway.)
Three years ago, two guys in a California garage started `streaming'
the output of a few radio stations onto the web. (See #8.) The stations appreciated
the extra exposure, but saw beyond - the nine or so corporations who own most
of the USA's radio stations were spending millions on networks of engineers
to run backup transmitters in case one failed. Today, much of that backup infrastructure
is handled over an intranet, the corporations `streaming' audio outputs over
telephone lines to stranded stations. Those two guys in a garage now handle
a business that took two hundred engineers to run in 1995.
Large advertising accounts consolidated at single agencies often take
hundreds of people to run across continents. Yet they're all following essentially
the same basic instructions: brand positioning, strategy and brief. Those basic
instructions can be uploaded to the web. One talented creative team can comfortably
service a billion-dollar client with a stream of fresh ideas, rolling out the
ones that work to the world via intelligent software bots.
You already know media people are doomed. You might think media companies
aren't, since they produce big buying efficiencies by consolidating customers
together. But so can one guy with a website. Any reasonably formalised body
of knowledge can be put onto the web. (Software 'doctors' with bigger databases
of symptom/ disease/ treatment scenarios than any PhD have been curing real
patients since 1983. It's possible one's cured you if you saw a doctor reading
from his screen as he prescribed.)
'Offices in 99 countries' will soon be derogatory, a statement of how
bloated and clunky you are. Success has nothing to do with size. Merrill Lynch
just laid off 3400 people yet claims output will be higher because of it. In
the digital economy, the web enables the savvy individual to wield massive leverage.
Any human being between the client and the work is doomed.
MYTH #7: big agencies will persist because of better
economies of scale.
Agency old hands may be chuckling by now. You've known for years how
large agency networks can handle international clients and create buying economies
better than small shops. But these cherished advantages, like so many others,
will soon disappear.
A widely known but little understood area of economics is that of transaction
costs. Transaction costs are the only reason large companies exist. (It's cheaper
to get your paperclips from your secretary than to source them from Wong's Paperclip
Co.) But these advantages are dying.
One of the Big Three car manufacturers has cut US$1.5 billion (and counting)
from its budgets by moving transaction costs onto Lotus Notes. Suppliers compete
for contracts over the network. Extrapolated a few years, today's mammoth corporations
will be replaced with streamlined networks of thousands of self-contained units.
Such networks replace all the buying efficiencies and communications advantages
of large companies, because network effects cut the cost of transactions to
practically zero. In the digital economy, large companies have no advantage
over small ones. Support personnel - human resources, buyers, traffic clerks
- are doomed.
MYTH #8: advertising campaigns will always be needed.
OK. Our ad agency is down to a hundred guys in New York. Worldwide accounts
are handled by two smart guys and thousands of bots with no function except
to do their bidding. But let's think more about the work, creative ideas executed
and rolled out into media according to a worldwide plan. People will be needed
to do advertising, right?
Nope.
RealG2 (www.real.com) is a software technology for `streaming' - playing
media smoothly and continuously - over IP-based networks like the Internet.
(See #6.) Top analyst Mark Anderson recently described it as 'a gimmick today,
a hundred-billion dollar industry in five years.' If all RealPlayer did was
play media, it'd just be a brother to TV and radio. But because it plays media
in a digital format, consumers can do almost anything they want with it. Video-on-demand.
Online games. Build communities. Mix and match your own customised newscasts.
Let your software `listen' to a thousand RealPlaying radio stations and pick
your favourite artists out of the ebb and flow - a radio station built for you
in real time. Hold virtual karaoke sessions. Play DJ at online raves. And yes,
you can say no to ads.
Already broadcast.com vends pay-per-view movies on demand and over 1000
radio stations broadcast solely online. (No ads.) As I write I'm listening to
a speech by network pioneer Bob Metcalfe in my RealPlayer, and the sound quality's
better than FM radio - over a mere 28.8 modem. Ads are not part of the model.
Most media is supported by advertising. Your $3 magazine would cost $12
without it. (Upside magazine, May 1997.) Yet on the web the cost structure gets
squished. Printing and distribution is zero; all consumers need pay for is the
content.
Tomorrow's creative rollouts won't follow any specific plan. We'll just
throw the work out there and see what consumers and their intelligent agents
do with it. In a world of abundant bandwidth, `media plans' will be created
by the market itself, by our target audience and their intelligent software
agents hooking interesting stuff out of the clickstream.
So how do people pay for content? Pay-per-view isn't successful yet.
Software engineer Brad Cox invented the Superdistribution model. Essentially,
it involves taking advantage of finely-detailed buying preferences over the
web. Let's say you're an artist selling a new form of art called Glooism, involving
latex glue. While beautiful, it's new, and as yet only appeals to 10,000 people
worldwide, some in Britain, some in Hongkong, some in the jungles of Papua New
Guinea. (PNG will have broadband CDMA web links by satellite before long.) Today
you can't locate all those people.
Bring on the bots again. The Firefly Passport (www.firefly,com) is an
ultra-personalised `buying profile' that watches what you buy and recommends
stuff you'll like. Ask your searchbot to look for their Passports and soon you'll
have the names of those 10,000 human beings most likely to adore your work.
With zero wastage and at zero cost, you can send every one of them an email
gallery of your Glooey output. Everyone likes it, some buy it, and you get rich.
This 'ultragranular' marketing model is Superdistribution - ultra-competitive
prices enabled by perfect information. And it doesn't involve advertising.
Ok, but what about branding? Branding's still more important than ever.
To peek into the future of branding, visit ShockRave (www.shockrave.com)
and play one of the games sponsored by Coke. In one game, visitors control an
animated 'surfer' through shark-infested waters, over ramps, around bouys, and
so on. The boat has a big Coca-Cola logo on it; your surfboard's red and white;
ramps are branded too. Consumers absorb your brand while enjoying the game,
not accept it as the price of consuming media. Branding will change in delivery,
but perhaps it's the one facet of advertising that won't change in importance.
In the digital economy, 'advertising' will be branded content, not ads. Anyone
thinking in terms of ads is doomed.
MYTH #9: The above means your ad agency is doomed.
So we're down to maybe twenty people carrying a digital business card
at our agency in 2008. But where'd everyone else go?
Everywhere.
Perhaps only twenty people will work for the company. But the brand of
our ad agency will be vastly larger: a constantly shifting mass of tiny specialists,
average size one person. (There may be many more people involved with our agency
than ever worked at it.)
This trend has already started. Anywhere there are networks, there's
a rise in the number of individual businesses. By 1994 the USA had 7.3 businesses
for every 10 households. Even assuming a linear rather than exponential trend,
there'll be a small business in every household before 2010. (And growth in
web-based enterprises is exponential, already three times the growth in any
other area of enterprise.) It seems the natural tendency of human beings is
to go it alone the moment they can earn an income from it. And as the basic
costs of living go ever down as a proportion of average income, the barrier
to working for yourself also falls. Soon everyone will be a creative, working
for themselves doing something they're good at.
Of course, this applies to all industries, not just the bits n' bytes
stuff. (Growth in technology stocks may even slow, given that technology and
software will be simple enough for anyone to get real value from without climbing
a steep learning curve.) As futurist thinktank The Next 20 Years puts it, the
most important tools will fade into the background, letting human talent shine
through.
Will the natural human need for companionship keep work a group venture?
Doubtful. Not one of these billions of creatives will be alone. On the contrary,
workers in 2008 have webs of friendships far richer than any of today.
These creatives - in a million industries - work and create for the sheer
joy of it. They send their work out onto the web at random, where it gets found
by intelligent bots trawling for ideas. For each brief, millions of ideas get
rejected; thousands work; hundreds work great. And a few are perfect. The teeming
oceans of the web contain vast shoals of solutions in search of problems, an
ecosystem rich with possibilities.
Quality marketing creatives can, if they wish, associate themselves with
a quality marketing brand, much as websites link themselves into WebRings today.
The web smooths their disparate creative work into a single branded offering.
The client knows only that the creative work delivered into a billion RealPlayers
and Shocked sites came from our tiny-yet-vast agency, paying through superdistribution.
And the agency brand thrives.
That's if we succeed.
Therefore, our job for the next decade is ensuring the brands of our
ad agencies survive as the companies themselves wither.
In the digital economy, brands are the only things worth building.
But that's another essay.
Chris Worth (chris@chrisworth.com) is a user experience
architect and creative director.
This essay, which won WPP Group's Atticus award in 1999, was written
in October 1998, but many
of its principles still hold. The original byline read: 'To everyone
I badgered for opinions on the beta of this essay, my thanks. Some were intrigued,
some were shocked, and some thought me outrageously speculative. To this last
group: your belief - that the world's going to stay the same - is surely the
most outrageous speculation of all.
Onward.'
Chris Worth, October 2000