The term “automation” brings to mind an image of robots in factories building cars or packing boxes while previously employed human workers sit sadly outside the factory wondering what just happened. But automation is affecting far more than just factory workers. Industries are being changed at an incredible rate, with digital advertising agencies arguably being affected as fast as any other. And while automation can sometimes bring great efficiency and better results, it could also bring an end to ad agencies as we know them.
Digital agencies have had a good run for the past 20 years or so. As digital advertising spend has boomed, so has the number of agencies. With all that competition, each agency is racing to develop the best systems and technologies to drive the best results. This has led to incredible technological advancements such as algorithms that determine the right spend levels, automated bid platforms to optimize media campaigns, even completely automating the process of writing ad copy.
We have come so far that if a company wanted to advertise on Google, it could use technology to automatically choose the keywords and landing pages, write the creative, set the budget and bids, launch the campaign, and have the entire endeavor more or less self-optimize while driving an effective result — in essence, completely automating the largest portion of digital advertising.
And therein lies the challenge.
Despite these many benefits of automation, if we take a step back, we might realize we are automating ourselves out of a job. Each digital agency will be affected by automation in its own way, but performance digital agencies seem to be in the crosshairs. These agencies traditionally make their money by using their people to actively manage campaigns — doing everything from suggesting the right mix of keywords, to constantly tweaking bids, to testing landing pages and other actions that are more easily automated.
In January, Google sent small-business advertisers an email: “We’ll focus on your campaigns, so you can focus on your business.” In other words, forget agency partners; Google (which accounts for the majority of all digital spending) will manage the campaigns. Not to be outdone, Facebook has begun taking more control of campaigns, too, changing the way campaign budgets are set and managed, and putting more control in the platform’s hands and less in the people’s hands.
Arguably, these automated systems are smarter, quicker and less expensive than what hands-on-keyboards agencies can often provide. This means platforms can not only improve results, thus driving more media spend; they can also replace the agency and convert dollars spent on agency fees into media dollars, further fueling the growth for the platforms, and further leaving agencies on the outside looking in.
While no singular move spells the end of agencies altogether, the combination of advancements like those above, along with several others, gradually takes control out of agencies’ hands and lessens their relevance. How exactly agencies combat this is still largely a work in progress.
While most agencies are still trying to figure out the right move forward, there seem to be two main approaches gaining steam. My agency has been testing into both over the past few years. We run a full consulting business and, at the same time, are developing more bespoke technologies that further client results and provide us a chance for a new revenue stream. Both have had their benefits and challenges, and I am not sure we have found a “winner” as much as we have seen each benefit the other:
1. Building tech, and/or
2. Leveling up to take a more consultative approach
First, building more automation technology and beginning to shift to a technology-based fee model can provide an alternative to a people-based fee model. This alleviates the reliance on individual people to execute campaigns while keeping agencies’ “neutral” perspective versus working with the platforms (which can be seen as skewing results in their favor). While building tech takes a bigger upfront investment, when done well, the results, margins and multipliers all improve.
Second, act more like a consulting firm while leveraging technology for execution. We have already seen the huge consulting firms trying to move into the agency space, but agencies have been slow to move into the consulting space. True strategic leadership/consulting can’t be automated (yet), but can add tremendous value to clients. Plus, it’s a much higher margin and can further position an agency as an “expert advisor,” which is a stronger position to be in than “media buyer.”
Which approach wins out is still very much to be determined, but it’s clear that no matter what route agencies take, the norms that have governed our world for decades are changing quickly. And if we don’t adapt quickly enough, we will all be sitting outside trying to figure out how things went so terribly wrong.