The Worst Mistake Agencies Ever Made (Brands Are Still Paying For It) – Forbes

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When the ad holding companies had launched their acquisition spree in the 1980s, they acquired full-service agencies, those with both creative and media functions under the same roof. The holding companies kept their roster separate. Each agency had its own P&L and maintain its own culture. This complex structure soon disintegrated and became unmanageable when the holding companies split creative from media buying services and created the stand alone media agencies.
The unbundling was a response to the change in how advertisers compensate agencies. Historically, it consisted almost entirely of commissions related to the amounts clients were billed for purchases of media space and time. However, reliance on media commissions has declined in the 1980’s in favor of fee-for-service system based on labor charges for agency personnel working on clients’ accounts. This was far less lucrative for agencies.
Under the commissions system, the more a client spent on media, the higher the agency’s income, which resulted in unusually high windfalls. Media inflation which require ever growing advertising outlays, inflated the agencies’ income disproportionally to their workload. The switch to the fee-for-service approach came about because advertisers decided that agency income was excessive and needs to be more proportional.
The holding companies reacted by unbundling, pulling the media department out of the full-service agency and creating media buying agencies. These were independent of the creative agencies. The holding companies were seeking to create new revue streams to compensate for the loss of income, primarily by convincing their clients to relax the conflict restrictions that didn’t allow servicing two competing companies from the same agency. The idea was to service one from the creative agency and the other from the media agency, and gain access to additional income.
It came with a price. In the marketing and advertising landscape today, specialization has been embraced to such a degree that consistent brand strategy is hard to come by. The customer journey is fragmented, awkward and often confusing. It leads to work that is slow, expensive, and complex. The problem with specialized agencies is, that if all you have is a hammer, everything looks like a nail. And that’s not creating a brand strategy. They usually offer a selling tactic.
Separating media from creative was the single worst blow the agency business has ever sustained. Instead of a comprehensive view of the brand, the marketplace, and, most importantly, how to best reach the consumer, agencies stopped acting as seamless brand stewards and became pigeonholed as functional specialists.
Creative agencies began billing for creative services, thus, essentially making the creative a contracted service, and themselves a vendor. Media agencies lack strategic chops and tend to predominantly take a tactical, cost driven view of buys, rather than taking a unified long-term view of brand building and the broader brand narrative. As agencies became more transactional they created a vacuum in high-level strategy that allowed the consulting firms like Accenture and Deloitte seize a critical and lucrative area that the full-service agencies used to own.
Madison Avenue continues the repeat the mistake of splitting the full-service agency, by erecting silos with any new emerging vertical. Social media, search, data, Interactive — you name it. Only recently WPP and Publicis added eCommerce silos. At the end of the day, all these silos lead to one thing – a loss in the quality of ideas.
Clients are bewildered. It is not at all uncommon for large global companies to have several hundred agencies of all types. The cost and inefficiencies are huge and the management, impossible. No campaign can span all these verticals and touchpoints with consistency. Astonishingly, despite the chaos, over 70% of marketers lack a fully integrated marketing strategy.
The holding companies argue that they offer a holistic solutions, but these tend to be restricted to large global businesses and, even then, the structures required to administer the collective outputs can prove unwieldy, time consuming, and costly.
Never before has it been so crucial for agencies to look inside themselves and try to recognize the changing nature of the business. Collaboration is the ultimate name of the game in this new world, where great creative and inventive ideas must come from anywhere. This goes for creative agencies and media shops, and even clients.
Technology, and culture are significantly altering the environment in which consumers experience brand messages. Advertising is ubiquitous and absorbed instantly by consumers. Yet, for most brands, significant chasms between disciplines remain.
It all boils down to this: We must not forget that in any form of communication, the way you say something is as important as what you say. To truly achieve this, we must tear the various disciplines walls down, and eliminate the silos. It is possible to service a client through a range of different suppliers, or even disparate units of a holding company. However, this is time consuming and complex, as usually agencies on the same client roster tend to compete with each other rather than collaborate.
It is much easier to have a unified agency partner that is skilled across platforms. While the holding companies resist integration more and more advertisers seek midsize agency partners that have full-service offerings.

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