December 13th, 2009 § 2 Comments
Aside from scale, the production work performed by most large agencies, is similar enough to be meaningless. Larger agencies must sell creative, and deliver and capitalize production.
To some degree this is true of Digital Advertising agencies, venus Digital Marketing agencies. (A digital advertising agency produces ads. Ads that attempt to get the consumer’s attention. This is simply a traditional business model extended to another publication platform. Digital Marketing agencies produce content. By definition, all of it is long-form advertising. If it’s really good, it entertains a consumer who is seeking it.
While we would like to say that we do, by and large, sell creative, clients buy us for execution. And that’s helpful to us, because Digital Marketing agencies can directly capitalize technology services: we can make money with JUST the technology component. Companies buy us for our execution ability. We can charge for our execution ability. And we can do so because it is frankly, more scarce than the production capability of ad building and distributing. (Note: in our business, we have a separate office that handles Digital Ads. It’s a specialty.
This difference in capitalization means that a Digital Marketing Agency can serve a larger number of accounts at lower risk, because they can afford to be hired, and to compete, purely on execution, as well as on ideas. It is, by nature, more ‘comfortable’ for a Digital Marketing Agency to participate as a peer in a large account, because we can compete on execution, because execution is simply HARD.
Technology is a wonderful deliverable, because the quality of delivery is objective.
Technology organizations must deal with risk mitigation.
Differentiation between deliverables is rarely subtle. It is the scarcity of content in the short form ad, and the impulsive emotional result that it must evoke at a very low cost in money and attention, and the subjective ‘approval’ that must be given by the client for that ad, that makes the iterative production cycle risky to the traditional agency. The Digital Marketing agency has less of this kind of risk. It has execution risk. Execution requires, usually, a learning curve, coding and testing. In fact, the problem for technologists in Digital Marketing agencies is HARDER than it is for consultants in traditional technology consulting models because the need to work with leading edge technologies increases risk dramatically.
Writing code for Facebook for example, is an odd interface to program, although the universal authentication model that it embraces is so powerful for clients that it compensates for the difficulty in using it. Making a rich internet experience on Flash or Silverlight while making sure your content is visible to search engines is painful at times, not because of coding complexity, but of keeping unlinked bits of information in sync. Certain platforms (Disney’s) are extremely rich and complex. Others (Best Buy) must handle a great deal of volume and almost entirely utilitarian. Others (Amazon Stores) are incredibly powerful, but rich and complex and not for the inexperienced technologist.
For these reasons, firms like ours can have “A, B, C, and D relationships”. AOR, Digital AOR, Digital Partner, and Point Solution Provider. We do not need to be an AOR to make money in an account. We only need to be AOR if the cost of selling into the account requires that we capitalize on a creative investment. The traditional agency can only support a client if they can capture enough work to pay for the creative cost of maintaining marginally competitive talent on the account.
For this reason, it certainly appears, that small creative agencies who are thought leaders have a long runway, DIgital agencies are just getting their feet on the ground and are at lower risk, and traditional agencies are in for a long haul of partial displacement, and holding companies are well suited, as long as they are not overly leveraged, to continue their dominance, because there does not appear to be a means of coordinating enough capital to displace them or give rise to another competitor – like most things. Wealth concentration is largely a matter of timing.
From: www.puretheoryofmarketing.com (offline)
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