Tag Archives: Artificial Intelligence

Agency Model Transformation Was Already Afoot

31 Oct

One sad reality of 2020 was the negative impact of COVID-19 on U.S. employment. Simply stated, the loss of jobs resulting from shelter in-place regulations negatively impacted business sectors ranging from travel and hospitality to retail and yes, advertising. 

According to a recent report from Forrester, 35,000 U.S. ad agency jobs were cut this year. The principal reason for this contraction, agency expense reduction moves tied to drops in revenue related to marketing spend reductions by advertisers. 

However, the loss of ad agency jobs, which accelerated in 2Q20 was actually part of a broader trend tied to the ad industries adoption of technology. This according to Jay Pattisal and J.P. Gownder of Forrester Research, authors of a blog post entitled; “The Smaller, Smarter Future of Agencies.”

According to the authors, the application of artificial intelligence (AI) and intelligent automation (IA) to agency workflows “will yield a long-term reduction in the size of agencies as measured by the number of human employees.” By their estimation, creative and media agencies will lose 11% of their jobs to automation by 2023. Their recommendation to agencies is to embrace this change and accelerate their transformations, becoming more “streamlined, intelligent providers” by harnessing the power of “intelligent creativity.” 

Many within the industry have prognosticated on how the ad industry model might evolve and the perspective advanced by Forrester certainly has merit. However, for an industry with over 57,000 ad agencies operating in the U.S. alone (source: Manta Media), there is no “size nine shoe” solution that can be applied to each individual agency’s quest to remain relevant. 

One thing is certain, many of the jobs lost in 2020 will not return, regardless of the course of the pandemic or the resumption of client marketing spend. Process innovation, automation and consolidation will have rendered many of those positions as obsolete.

Time for Advertisers to Reach Out to the Regulators

26 Oct

Like many business segments, the ad industry has never been one to welcome government involvement when it comes to policing itself, and perhaps rightly so. That said, now may be the time to embrace the regulators.

Why? Simply put, digital advertising fraud is out-of-control. In a recent article in Campaign U.S. author Alison Weissbrot shared the results of a recent study by ad verification company Cheq and Professor Roberto Cavazos of the University of Baltimore suggesting that U.S. advertisers will lose $35.0 billion to ad fraud in 2020. In a sector that represents $333.0 billion in annual spend this means that ten cents of every dollar spent by digital advertisers is siphoned off the top by fraudsters. For perspective, the author cites the fact that this level of fraud is greater than that impacting the $3.32 trillion credit card industry. And the problem is not limited to the U.S. alone. Consider the finding from Juniper Research’s 2019 report on advertising fraud, which indicated that globally lost $42.0 billion to digital ad fraud last year.

Renowned fraud investigator, Dr. Augustine Fou once commented that, “ad fraud is more lucrative than tax fraud, counterfeiting goods or being a Somali pirate.” Adding credence to the increasing role of organized crime and criminal nation states in digital ad fraud, The World Federation of Advertisers (WFA) recently stated that “fraudulent internet advertising schemes will become the second-largest market for criminal organizations.”

For all of its well-intended efforts, the advertising industry has been unable to effectively counter this growing threat. Thus, it may be time for The World Federation of Advertisers, the Association of National Advertisers, the 4A’s, the IAB and their members to reach out to lawmakers and regulators to join in a coordinated effort to uncover ad fraud at its root and to develop more effective means of enforcement to both deter and punish the criminal organizations perpetrating the fraud. The 18thcentury French social commentator, Montesquieu once said that; “there are means to prevent crime – its punishment.” Combining the expertise of the ad industry with the regulatory and enforcement capabilities of lawmakers makes good sense.

The problem of ad fraud is not abating. With the expanded use of technologies such as programmatic buying and artificial intelligence and the complex, often non-transparent nature of the advertising supply chain, the risk of fraud remains high, threatening not only digital ad spend but emerging media sectors such as mobile and connected television as well. 

Will AI Render Media Agencies Obsolete?

11 Sep

artificial_intelligenceArtificial intelligence (AI) is already reshaping how advertising is developed, planned and placed. The marketing applications being envisioned and adopted by agencies, consultancies, publishers and advertisers are nothing short of remarkable.

From the onset of “Big Data” it stood to reason that the concept of predictive analysis, the act of mining diverse sets of data to generate recommendations wouldn’t be far behind. Layer on natural language processing, which converts text into structured data, and it is clear to see that “deep learning” is on the verge of revolutionizing the ad industry. As it stands, algorithms are currently optimizing bids for media buying, utilizing custom and syndicated data to match audience desires (or at least experiences) with available inventory.

Effective, efficient, automated methodologies for sorting through vast volumes of data to evaluate and establish patterns that reflect customer behavior for use in segmenting audiences and customizing message construction and delivery holds obvious promise.

So, what does this mean for media agencies? Will they be at the forefront of automation technology? Or will they be swept away by the consultancies and ad tech providers that are already investing here?

If media agencies desire to remain in control as the industry evolves, there are real challenges that they will have to address to remain viable:

  • Re-establish role as “trusted advisor” with the advertiser community. Recent concerns over transparency, unsavory revenue generation practices and a failure to pro-actively safeguard advertisers’ media investments from fraud and from running in inappropriate environments have created serious client/ agency relationship concerns.
  • Attract, train and retain top-level talent to re-staff media planning and buying departments. The focus will need to be on bridging the gap between developing, and applying automation technology and providing high-level consulting support focused on brand growth to their clients. Presently, media agencies are not effectively competing for talent, whether in the context of compensation and or personal and career development options being offered by their non-traditional competitors.
  • Provide a framework for addressing the compensation conundrum. Whether this is in the form of cost-based or performance-based fees tied to project outcomes, commissions or hybrid remuneration systems, tomorrow’s successful media agencies will need to establish clear, compelling compensation systems. These systems will need to reflect value propositions that will differentiate them from an expanded base of competitors, while offsetting (to some extent) non-transparent sources of revenue that many media shops have come to rely on in recent years.

This will not be an easy path for media agencies, particularly for those that are hampered by legacy systems, processes and management perspectives that may limit their ability to more broadly envision and ultimately, assist client organizations addressing their needs and expectations.

Either way, the race is on, as management consulting firms are acquiring various marketing and digital media specialist firms and as media agencies raid the consultancies for personnel to build out their strategic consulting capabilities. The key question will likely be, “Which business model holds the greatest promise, in the eyes of the Chief Marketing Officer, for improving brand performance?

 

 

 

Can AI Bots Solve the Agency Remuneration Issue?

21 Mar

Commodorergb1-243x300It was a simpler time in 1864, or so it seems, when the “Commodore,” James Walter Thompson, founded his namesake agency.

As the ad industry grew over the next several decades, a commission based compensation system was the predominant means of remuneration. Simply put, full-service agencies kept 15% of the gross media rate charged by media owners from whom agencies purchased advertising for their clients. At some point in the 1960’s commission based remuneration began to give way to labor-based fees that were predicated on an agency’s direct labor and overhead costs and a reasonable level of profit.

It wasn’t long afterward that the agency “holding company” was born and full-service agencies gave way to agencies that specialized in a particular area such as creative development, media planning and placement and sales promotion. Both of these trends directly impacted “how” and “what” agencies charged clients for their services. As importantly, advertisers became more acutely interested in understanding more finitely the details behind the composition of their agency partners’ fees. This in turn created anxiety and concerns on the part of ad agencies and clients alike. Advertisers sought to reduce the level of fees that they were paying and the agency community sought to protect their profit margins and maintain some level of privacy surrounding their financial operations.

Fast forward to 2017 and the topic of “non-transparent” agency revenue sources such as rebates, kick-backs, float income and media arbitrage has been at the forefront of contract and compensation discussions since the Association of National Advertisers (ANA) completed their landmark “Media Transparency” study in 2016. Rightly or wrongly, many in the industry feel that client procurement tactics, focused on squeezing agency compensation led to the rise in non-transparent revenue. Agencies for their part, feel as though they are overworked and underpaid, while clients continue to sense that they are paying too much for the resources being proffered by their agency partners.

Challenging times to be sure. Add in the shift from traditional media to digital, the attendant impact on workflow and resources, the rise of new competitors to ad agencies that include consultancies, publishers and ad tech providers and the rapidly increasing impact of technology on operational efficiencies and the topic of agency compensation becomes even more vexing.

And while agencies wrestle with their organizational, talent and cultural issues, the industry is poised for a giant leap forward in operational efficiency. Algorithms that can place media and inform resource allocation planning and artificial intelligence bots that can actually create advertiser content and oversee the production of creative materials have the potential to displace agency personnel across multiple functions. The question is: “What is the impact of these technology trends on agency remuneration systems?”

For an industry that has relied on labor-based fees linked to marking-up employee salaries and selling their time to advertisers, the notion of automation and doing more with less can certainly be daunting. As IBM Watson Chief, David Kenny, once said:

“If you are using people to do the work of machines, you are already irrelevant.”

Thus it is time for the ad agency community to rethink both how they organize themselves to deliver client services and how to evolve from labor-based compensation models to outcome based remuneration systems.

Wonder if there is an AI bot that can assist with this transition?

If you’re an advertiser and interested in learning more about how to compensate your ad agency. Contact Cliff Campeau, Principal, AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation on this important topic.

 

 

 

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