Forrester's 2024 Predictions: AI Underpins Agencies' Shifting Business Models

If 2023 was the year agencies experimented with AI, Forrester principal analyst Jay Pattisall believes that in 2024, agencies will put their learnings into practice. The analyst's 2024 agency predictions report expects agencies will double down on a years-long shift away from traditional services toward selling productized marketing technology solutions. The largest agencies are already prepared to implement this model, having previously hired technology and engineering talent to build and maintain their audience targeting platforms and data storage assets. While this sounds very elaborate and fantastical, I've seen numerous examples of these being built in the marketplace.Jay Pattisall, principal analyst, Forrester Research AI, in its various forms, will be imperative to agencies' solution-oriented models. Pattisall envisions an impactful year ahead, characterized by AI innovation that decides new business moves; CMOs increasingly relying on cost-effective AI content solutions; and the end of the digital agency, as they either hone their offerings or risk folding into larger, integrated agencies. "The significance here is that the overall industry has been lurching forward toward its own transformation," Pattisall told Adweek. "One of the impediments has been the economics of it all, in getting paid for FTEs as opposed to getting paid for the technology." Brand-specific AI platforms will decide reviews Generative AI, as well as predictive AI like machine learning, robotic process automation and experience development, will make up the majority of agencies' new practice areas. Large agencies will build bespoke AI platforms for their clients, Pattisall said, and these new systems will decide new business moves. "Each brand [will have] its own bespoke algorithm trained by the presence of a foundational model layered on top of that [algorithm]," Pattisall said. The analyst refers to these offerings as "brand language models," and expects the top 10 agencies will collectively spend $50 million erecting partnerships with technology providers like Adobe, Anthropic, AWS, Google, IBM, Meta, Microsoft, Nvidia and OpenAI, to support their creations. "While this sounds very elaborate and fantastical, I've seen numerous examples of these being built in the marketplace," Pattisall said, "This is starting to happen, and it will come to fruition in 2024." Adobe Is Not Done With Its Generative AI Offerings Agencies 'shift to solutions' Encouraged by AI's cost savings potential, Pattisall believes CMOs will lean on external agencies—especially those equipped to create and scale content faster. To meet this shifting demand, more media agencies will launch creative practices or introduce partnerships with creative counterparts. Crossmedia and Joan Creative recently announced one such partnership. Every kind of agency, the analyst wrote, will find some way to incorporate AI-based content practices into their organization. "It's no longer just the media business that is using machine learning. It's all four quarters of [agencies'] business using machine learning and predictive AI and generative AI. I characterize that as the shift from services to solutions," Pattisall said. This is significant as third-party cookie deprecation bears down on the industry. The brand language models Pattisall referenced will preserve aspects of personalization, allowing agencies to improve their dynamic creative optimization, the technology that creates several iterations of a single ad and serves the most appropriate version to a particular individual or demographic. As a result of agencies' AI investments, Forrester expects in-house agency work will wane. In-house agencies are trailing brand marketers in some AI applications. Just 17% of in-house shops use generative AI now, compared to 56% of U.S. B2C marketing executives, according to Forrester data. Though agencies are moving quickly to establish dominance in AI-based technology offerings, they must consider how they'll manage these systems in the long run. Because governments aren't expected to roll out AI legislation until 2026, agencies will self-govern their AI reliance in the interim. It leaves questions about if or when agencies will need to walk back strategies. Regulation will eventually impact the category, but according to Pattisall, marketers may want concerns addressed faster. A majority (61%) of AI decision makers are worried about privacy and data collection. Given this, and the absence of any official guidance, Pattisall expects AI management concerns will catalyze as many as 20 agency reviews next year, and that agency reviews will increase in volume by 10%. Forrester’s Agency Predictions Report Forecasts 2023 Culture Upheaval Integrated agencies absorb so-called digital shops The phrase "digital agency" is now so commonly used that it might refer to performance-savvy shops, social media or SEO specialists, web development vendors or just your average media agency. Digital media investments have for years made up the bulk of advertising spend, rendering the moniker out of date. "The convergence of channels and marketing experience negates all those convenient labels that we used to have," Pattisall said. Integrated agencies, Pattisall said, will absorb smaller digital shops and their offerings. The analyst cited Code and Theory's recent YML acquisition as one example. "The opposite example would be Merkle," he said, "where Merkle is moving some of its media and creative capabilities out into other parts of Dentsu and sharpening Merkle's position as a data and CX consulting provider." IPG agencies Huge and R/GA may have a similar fate, Pattisall wrote in the report. Those examples reveal the path of digital agencies, according to Pattisall. "They're destined either to grow like VML or shrink and sharpen their offering, like Merkle," he said.