This Time, It’s Different

I’ve managed a company for 32 years and seen my share of economic downturns. Each one was a painful experience that ultimately forced change, which in turn allowed for new growth and opportunities. But this recession feels different to me (and many others). I believe we’re in the middle of the perfect storm for the agency business and the landscape won’t look remotely the same on the other side.

The velocity of change in our business has been picking up pace for the past three years. But more has changed in the past six months than in the prior six years. When iconic brands disappear from the landscape (from Washington Mutual and Circuit City to, perhaps, Pontiac), there’s no doubt that the storm is indeed very powerful.

Agencies are just slightly downstream from the center of the storm. When an agency loses a major brand because it ceases to exist (or when a major marketer drastically cuts the advertising budget), the first step is layoffs, like those we are seeing in droves. These rounds of layoffs reflect how agencies have always dealt with prior economic downturns. The staff comes roaring back, according to conventional wisdom, when the economy does. And that’s how it’s always been, right?

This time, I don’t think so. The convergence of the downturn and the rapid changes in consumers’ lives will have a drastic effect on the agency landscape. We’re beyond the point where agencies can “cut” their way back to profitability.

Similar to what is happening on the brand side, some agencies will not survive. Just as venerable agency brands like Bates and DMB&B did not survive the prior “dot-bomb” downturn, we’re equally likely to see further consolidation in agencies this time around. It’s slowly happening as we speak, like the announcement of the merger of Proximity and Atmosphere.

So what’s an agency to do in order to survive this perfect storm? The best advice I can give is to quickly align with consumers. This is really what the agency business is about. Somewhere along the way, agencies forgot that simple fact and instead became specialists in the craft of making ads. The annual Super Bowl advertising extravaganza highlights the very problem: it’s a veritable orgy of self-indulgent spots costing millions of dollars to create and millions more to run — and then only once. A couple of weeks later, few consumers will even remember a single one. And no one can even remotely measure their effectiveness at driving business.

It’s time to realign. Amid the flurry of waste generated by ad agencies, consumers are noisily living digital lives rich with connections and meaning and active participation — much of which can be tapped with zero dollars of media investment. The world of “bought” media that drove the ad industry for more than 50 years is yielding to a universe of digital media channels that clients either own themselves (e.g., Web sites or other digital platforms they create), or that they can earn their way into through word-of-mouth exchange (e.g., social networks or other user-generated forums where clients can participate). While newspapers and magazines teeter on the brink, consumers are adopting meaningful digital connections. Facebook now has more than 200 million users. Digital campaigns can generate millions of participants with barely any paid media, and cost a fraction of the media outlay of a single 30-second spot on the Super Bowl broadcast. The misalignment of agencies and consumers is at the very heart of the present storm.

Meanwhile, the empire is striking back, in a manner of speaking. Traditional ad agencies know deep down that they need to transform their models and put digital in the center to survive and move forward. And they’re currently able to leverage their more senior client relationships to win digital assignments even while they lack true capabilities. In these cases, the client will pay the cost of agency transformation and a learning curve, rather than immediately reaping the benefit of the power of digital.

Still, agencies know what they need to do and many are on their way to doing it. On the other side of the storm will be some amazing agencies equally adept at building digital platforms as well as the ways in which to communicate about these platforms. David Ogilvy’s vision of 360-degree branding is beginning to come true, yet in a way quite different from how he originally envisioned it. I believe we’re headed back in the direction of one-stop shops that integrate a slew of marketing services — they’ll just be doing most of the work in the digital channel, as venues for traditional paid media continue to contract and digital venues continue to expand.

No doubt, it’s a truly scary time. The rounds of layoffs are far more than statistics and numbers — they represent real suffering of people who have dedicated their lives to helping clients market their products and services. But it’s still an exciting time, as the pace of technology keeps us all on our toes to see where consumers go next.

Bob Greenberg is chairman, CEO and global CCO at R/GA. He can be reached at bobg@rga.com.

Related: “R/GA: Digital Agency of the Year 2008”