What’s the problem with traditional ad agencies?

Just Do It! Nike just did, ditching its running shoe advertising agency of twenty five years not because it was unhappy with creative or because of costs, but because Wieden & Kennedy just didn't have the digital media passion or expertise needed to adequately engage the new consumer.

While Nike moving its running shoe business after so long and successful a partnership is news in itself, what is really making waves in the agency world is the reason for the move. Agencies worldwide are generally still doing a half-hearted job of leveraging the internet and related technologies for brand building, and most of them know it. When a manufacturer as intimately in touch with its consumer as Nike is sees the need to do more and do it better, and is willing to just do it, the agency world looks over its shoulder to see who is next to go.

Wieden & Kennedy are not a minor agency – they have long been a creative powerhouse doing work for companies like Procter & Gamble and Coca-Cola. They must have seen this coming, and probably had plenty of warning from Nike, but were simply unable to change fast enough to keep the account.

In February, Mark Parker, Nike's CEO, told investors

The Nike brand will always be our strongest asset, but consumers are looking for new relevance and connections. We're fundamentally changing the way we're organized as a company. It's really all about going deeper to get deeper connections and deeper insights, to get more innovation and more relevance, and to make us ultimately more competitive in each of the discrete pieces of our business. This allows us to be more informed and more surgical in creating products and optimizing our go-to-market strategies within each category.

Nike gets it. The consumer – particularly in Nike’s demographic – is now calling the shots, and companies who insist on pursuing a 1980’s-style mass-market broadcast approach to communicating risk being marginalized or, worse, becoming irrelevant.

As the New York Times put it,

The message is clear: No matter how talented an agency's creative team or how well the client's management likes the firm's executives, the agency is of limited value unless it embraces digital media.

That means, just as the web has permeated the lives of consumers, agencies must permeate digital culture throughout their organisations, instead of regarding “internet stuff” as an afterthought, add-on, or external business. For many markets, digital thinking needs to be a foundation of advertising strategy. And while it makes sense to start digital operations as a separate entity (thus bypassing all of the legacy resistance), there has to be a plan to reintegrate online operations as soon as the “interactive agency” is up and running.

But advertising agencies the world over are still dragging their heels. Given that the internet attracts more advertising money than radio worldwide, and was second only to TV in the UK last year, it's hard to keep on regarding online as something that is still not important.

Last week at the Online Media Marketing & Advertising (OMMA) conference in Hollywood, a panel of industry insiders agreed that most ad agencies are simply not ready for the digital era. Tim Hanlon, from Publicis, was adamant that the traditional structure of ad agencies is an obstacle, and that de-siloing brand advertising and response advertising is essential to create the flexibility and spontaneity necessary to get to the online consumer.

Bant Breen of Interpublic was of the opinion that acquiring so-called interactive agencies is easy, but integrating them into existing agencies is not, and that’s the thing which is necessary for a more powerful approach to advertising which can do things like build customer relationships and enable transactions.

What’s the problem with traditional ad agencies?

Firstly, the whole structure within agencies (and the communication structures between agencies and clients) makes change a painfully slow process. Not good when rapid and disruptive change is a key characteristic of online consumer environments. How long does it take to brief, pitch, create and roll out a campaign? Given the aversion to risk within agencies and clients, it can take months. Online, you need to be able to do this stuff in days if not hours. The risk of not operating quickly vastly outweighs the risk of moving so slowly you are effectively doing nothing. Agencies need to be given more latitude to act almost spontaneously, but it is unlikely clients would allow that, and even less likely that agencies would want it.

Secondly, agencies and their clients are way too precious about protecting brand identity. Remember when the primary role of a brand manager was to police the “brand bible” and ensure the eternal purity of the proposition? In a web 2.0 world, consumers want to talk about products. And, in the words of the Cluetrain Manifesto, whether the news is good or bad, they tell everybody.

Trying to protect a brand from consumer comment, being afraid that customer opinion may pollute or hijack your carefully crafted identity, is no longer a valid marketing activity. But encouraging discussion and being ready to respond to it, and making sure you are structurally able to maximize net advocacy, are alien concepts to many marketers and their ad agencies.

Thirdly, the traditional approach to broadcasting generic messages to largely mass markets is inappropriate for digital media, which is all about sharply focused messages for niche audiences who are discerning, informed and impatient. When your medium is newspapers or television, you have to communicate across the broad mix of audiences that they reach, and being too focused in your message risks completely missing important components of those audiences. True, satellite TV and niche publications do allow for a more narrowcast approach, but it is nothing compared with the laser-focused nanocasting and individual consumer conversations that the web allows – and requires. But the broadcast mentality of traditional agencies results in nothing more imaginative online than generic corporate banners on mass traffic sites like directories and online newspapers.

Fourthly, the online business model does not work well for agencies. If a major part of your income originates in placement commissions paid by traditional media, it is very hard to look at online opportunities as anything but financially retrograde. So the only real financial incentives to pursue digital strategies are macro incentives: you’ll pull in big accounts if you are seen to be on top of this web thing, or you’ll lose big accounts if you are not. Ad agencies need to reinvent their business models for the 21st century, because their old models are a significant handicap to progress.