These are the 5 forces that are rapidly killing advertising agencies

Disney/Lucafilm

• Ad agencies are facing several existential threats,
  according to a new Forrester report.
• This includes everything from CMOs taking more media
  and creative in-house to consulting firms coming after
  high-margin agency services.

The Chief
Marketing Officer’s purview is expanding beyond building
brands to driving sales and business transformation. As a result
the
future of ad agencies has never been more in doubt.

Indeed, ad agencies are facing an increasing number of severe
external threats, confirms a
new report by market research firm Forrester. And the
traditional agency business model just won’t cut it. 

Here are the five forces that are causing chaos in ad land:

CMOs are increasingly bringing agency work in house

A growing roster of marketers such as Booking.com and
Chobani are taking ad buying and ad production in-house in a
bid toward cost effectiveness, transparency and greater control
over customer data. 

• According to a brand Forrester
  survey from May, 64% of respondents said that they use
  in-house agencies for some services in 2018 — an increase of 52%
  from a decade ago.
• Unilever recently said that ended up
  saving 30% in marketing spend after shifting some
  production resources to its in-house agency.

The trend is gaining steam, said Scott Kauffman, chairman and CEO
of MDC Partners.

“Clients ought to take ownership of automated process,
commodity-priced functionalities,” he said. 

Companies need to serve customers around the world

In this digitally connected age, CMOs require teams that can
execute globally. This puts pressure on agency holding
companies to work across their agencies’ different profit centers

While several holding companies have global presences and are

making greater efforts to foster global collaboration, this
is an area where consulting firms are seen as having an
advantage.

• One brand marketer, for instance, told Forrester that a
  global partner to help build best-in-class capabilities and scale
  isn’t realistic in the current agency structure.

CMOs are aggressively managing and cutting costs, especially on
the media side

As they look to prove the impact of every dollar they spend,
brands are steadily eyeing cuts to agency fees to drive down the
cost of marketing.

Meanwhile, traditional agency revenue models like media,
production and operations are grappling with the threats of
transparency, automation and competition themselves.

This undoubtedly puts pressure on agencies to trim and justify
costs, forcing them to discount labor costs, restrict the scope
of work or manage margin through fees.

That creates a vicious cycle, where client trust is affected and
the quality of services delivered is compromised. Yet the number
of fees marketers are saddled with keeps growing, 

“The cost of marketing is significantly increasing from the
expansion of touchpoints, the price of media, content, data,
technologies, and agency fees,” says Colin Kinsella, CEO of Havas
Media.

Consultancies are encroaching on high-margin marketing services

Global management consulting firms like Accenture and Deloitte
have been increasingly encroaching on agencies’ turf in recent
years, buying
their way into advertising through creative
acquisitions with added experience in
business transformation.

• Accenture Interactive is now the world’s biggest digital ad
  agency, and has seen 50% growth and $4.4 billion in agency
  service revenues in 2017.
• Another recent Forrester survey found that 73% of marketers
  are open to using consultancies for digital marketing work,
  including 14% who said they were “very open.”

More stakeholders are driving company growth agendas than before

As marketing and technology become more intertwined, a larger
group of stakeholders are beginning to call the shots. According
to Forrester, while CMOs have the fastest-growing technology
budget, CIOs are getting increasingly more involved in agency
deals because technology plays such a vital role in execution.

• For instance, an agency executive said that marketing owned
  only half the “content” budget at one global technology company.
• 50% of global marketing decision makers see revenue growth as
  a top priority for their organization, ahead of improving
  differentiation or brand reach in the market.

This has weakened the role of agencies as well as the
agency-of-record relationship, as brands begin to rely on other
partners for services typically provided by agencies in the past
in a bid toward greater efficiency.