Martin Sorrell and the Philosopher’s stone…the transformation of the agency model.

Last week Publicis announced that Vivaki would be hived off as a separate business unit. What should we call Vivaki? In the publicity material they say ‘’VivaKi has already initiated and expanded the power of partnerships with Google, Facebook, Microsoft, AOL and many other players for Publicis Groupe, and it has delivered innovative products and services including The Pool and Audience on Demand (AOD).’’ A separate business unit now described on their website as an ‘enabling framework’’.

 

Last year WPP launched Xaxis. What shall we call Xaxis? WPP described it as a ‘’ global audience buying company that combines all of the demand-side data and technology resources of WPP  and the trading leverage of the Group M agencies into a single comprehensive resource’’

 

A few weeks ago the FT referred to Xaxis a global advertising company. It’s somewhat confusing but does it really matter as long as they are doing good for advertisers?

 

I don’t think it matters as long as it is transparent to the end customer (the advertiser) as to what the model is. And I also think that it is vital that our industry’s body, the IPA, endorse the practices of these new agencies and are able to justify their model to the advertiser community. Things are moving very fast and the clear demarcations between media owner, agent and advertiser are becoming dangerously blurred.

 

The evolution of the agency marketplace has been well chronicled up to the point where the media function was separated. The separation is still lamented by the more traditional creative types and seen as a source of some frustration by many account handlers. And account planners, the secret weapon of a great creative agency, have allowed the media strategist to steal some of their skills, without much of a fight.

 

But the growing maturity of the media specialist has been warmly welcomed and supported by the advertiser. And whilst many creative agencies might wonder if it has been a good thing their Holding Company bosses are in no doubt as to the positive impact on their bottom lines.

 

Longer term we can speculate whether media agencies served to prolong the life of the traditional creative agency ( by contributing superior margins to their parent company) or actually accelerated their demise by undermining their hitherto central role in the advertisers supply chain. Time will tell.

 

In the meantime I have a more fundamental question to ask than which agency type will thrive in the future.

 

And it is this.

 

What is the definition of an agency and has the client/agency model changed without us realising it?

 

For those of you too young to know or too old to remember let’s remind ourselves of the historic model.

Media owners granted agencies a 15% commission for representing their interests to advertisers. Agencies negotiated with the media owner on behalf of a nominated advertiser.

When I started in the industry trading in any other way was impossible and dealing on behalf of the agency itself was effectively outlawed.

If you think about the word ‘agent’ in most instances this is what we expect. A theatrical agent may have a number of clients but they represent their clients individually. They know which roles will suit which client and any other way would be a casting director’s nightmare. I think that most advertisers would still think of their media agencies as agents and believe that they are representing their specific and best interests acting as an intermediary between them and the media owners.

The development of group buying functions like WPP’s Group M or Omnicom’s Opera legitimised the notion of the agency deal. Advertisers have in the large part accepted that their media agency pools their aggregate volume to extract ‘value’ from the media owner. As long as their activity is audited and the media bought delivers to the plan what’s the problem? After all, the audits are by and large positive and they have been able to nail down commissions and extract greater discount promises.

I am not now going to rant about the commoditisation of media and the role of the procurement departments you will be relieved to hear. Nor do I intend to debate the merits of ‘line by line’ trading against agency dealing. And I will leave the discussion of how auditors measure an effective media rate to another time too.

Although my offer to debate it publicly with any or all of the agency traders still stands (spookily no one has ever agreed to go head to head with me on the subject).

My purpose here is to reflect on the unravelling of the traditional agency model.

Some will say that agency deals have been around for at least 25 years so why am I even bringing the subject up now?

The answer to that is that the emergence of agency deals was the first step towards media agencies becoming media owners. In effect the media agency that operates a deal on behalf of their agency is broking space (or at least discount) amongst their client list at their instruction and the media owner has in effect become a wholesaler.

In the early days of agency deals there was less ownership fragmentation and the big media companies could keep a handle on the client (which is what we all called the advertiser!) to ensure that the deal wasn’t abused by the agent, and they would have a pretty good idea about how each advertiser was being managed.

This is harder to do now.

My experience is that many of the newer media owners (in the digital space) have little respect or understanding for the 15% commission model and are very happy to take the money from anyone who offers it to them. And they tend to see the agent as the client.

Why bother with Advertiser Sales Teams when the advertiser is too busy to see them and the agent is guaranteeing the spend anyway?

And the older media companies have acknowledged that they have in large part lost control of their inventory and it’s pricing. Some have tried to reverse the process but the ‘new clients’ (the agency buying warehouses) represent too much cash in the short term.

So this is stage one of a new model. Agency as wholesale buyer and broker of discount to the advertiser. I say ’broker of discount’ because, in most instances, the first generation agency deals did not see the media buyer taking a primary position with the inventory. The deals were based on share and volume commitments but the invoicing still involved the advertisers.

 This stage has paved the way to something quite new and more dramatic.

 We are now in the era of Media Agency as Media Owner.

 How many advertisers can actually explain what a Demand Side Platform is?

 A DSP transforms very cheap digital impressions into more expensive ‘tailored’ audience packages. And in that process the media agency DSP is actually operating as a media owner as they have bought the unpolished inventory that goes into the DSP!

Whilst this can be presented as in the best interests of the Advertiser it does in my view require full disclosure of the mark up between rough and polished impressions.

A DSP optimises media inventory and should be paid for doing so but we have always had optimisation systems so this is not new and doesn’t give licence to the agent to dramatically mark up. If we took ITV space at £1m, optimised it and sold it on for £5m someone would have a point of view. Most immediately ITV would stop it happening.

The trouble online is that the owners of the digital impressions are infinite and just grateful to find someone to buy something that hitherto had no value. So DSP’s have matured into a means of turning base metal into gold through the application of data-

- The modern day ‘philosopher’s stone’. This begs a further question as to who owns the data?

The blurring of the line between agent and owner is also highlighted in the Vivaki press release. I don’t doubt the good intention of Publicis to offer the services of Vivaki to their clients as a means of offering greater value and cutting edge techniques to drive response and engagement. But I think we need to reflect as an industry on what the model is and if as I believe the founding principles of the Agency/Client/Media model are now effectively destroyed whether we need to revisit how the industry is represented and remunerated. And importantly how it gets audited and evaluated.

And it’s not just digital inventory being marked up that bothers me.

Agencies are now taking primary positions with content.

 Martin Sorrell in a Q&A after his speech ‘Kiss and Punch’ at NATPE 2012 in Miami, is reported as saying

 ‘’….. I do think there are some big opportunities that we have to explore with media owners where we can buy, as principles, positions in assets, in rights, in programs, in content, and work with media owners to see how we can syndicate that and distribute it in an effective way. That is the big opportunity’’

 Some may doubt what I am saying, but who is going to argue with Martin Sorrell?

 

 

  • dan mcafree

    Does the large advertising holding company make any sense at all?

    Most companies benefit from size and scale but I would argue that the exact opposite is true in advertising, PR and similar marketing services businesses.

    We know that synergies across the various holding company businesses never materialize. That’s just BS for the pitch and clients are getting wise to the game. 

    So we’re left with hundreds of 7 figure salaries at WPP and the others for a large group of senior executives who are essentially investment bankers and contribute nothing to the individual agencies.

    Furthermore, their byzantine corporate rules stifle the nimbleness and creativity that fuel independent agencies. 

    I’ve worked in both independent shops and holding company shops and know the difference. If the clients knew….

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