A Report on Small & Medium Sized Ad Agencies

Swystun Communications was commissioned by a private equity firm to look at small and medium sized advertising agencies. Our client gave permission to share a portion of the study including trends and insights that challenge the commonly and historically accepted perception of these players in the industry. The report’s contents are:

Section 1: Advantages | Disadvantages

Section 2: Challenges | Opportunities

Section 3: The Big Learning

Section 4: Insights

Section 5: In Conclusion

We found that owners and leaders of smaller agencies are bullish on their future. They are recognizing the change in their value proposition but need to creatively rebrand to take advantage. Size of agencies will always be a consideration but new models that deliver scale without comprising quality and cost present the greatest opportunities to compete.

Download Big Value: A Study of Small & Medium Sized Advertising Agencies.

A Newer Big Idea: Retooling The Advertising Agency Production Line

I recall the 1999 attention getting idea by Vancouver agency Rethink. The three leaders of the agency had just left Palmer Jarvis DDB to go out on their own. In order to create buzz for their startup they branded and distributed Rethink Beer. The product helped put Rethink on the map and remained on shelves until 2003.

This is one example in a longstanding series of agency experiments with product development. A new book by Leif Abraham, with an amazingly long title, suggests how Madison Avenue needs to change. His effort is called, Madison Valley: Building Digital Products. Getting the Most out of Talent. And How Madison Avenue Can Be More like Silicon Valley, which is a fine preview of the book’s content. The overriding premise is creative businesses should not restrict themselves to communications but should leverage their talents for real product innovation.

Having worked at, and for, a number of agencies, I know these businesses would love to reap the profits of an iPod or Nike FuelBand as additional revenue or to stave off the long anticipated lower margins resulting from an old business model. Yet, Abraham points out the reality, “Every agency wants to build a lab and make products. Every award show adds product innovation categories. But we haven’t yet seen a successful product coming out of an ad agency. My book gives an analysis on how product innovation is treated in agencies today, what needs to change and why it’s about more than just the product.”

A Tad Too Tangible
Part of the reason why agencies struggle with innovating more tangible ideas is because advertising are largely a “fill-in-the-blanks” or paint-by-numbers exercise. You fill-in an ad which is different from coming up with Brandssomething from scratch. Abraham sees advertising as an endless cycle of temporary efforts built on very old ways of doing things. He contends that a television “spot from 10 years ago is similarly produced to the one you saw today.” Abraham also believes other impediments get in the way, “Agencies owned by holding companies can have different goals than their clients, because shareholders have determined the goal to be “how can we suck as much money out of a client in a quarter as possible?””

Abraham believes there is an opportunity to invent but the changes agencies need to make are fundamental and systemic, “agencies have to get away from treating product development like a project and more like the founding of a new company.” Hashem Bajwa, CEO of product development studio Design & Development, which was spun out of Droga5 has a few words on the subject, “With the structure they have, I don’t think it’s possible for agencies to create real products. They’re not dedicated enough to it. Clients and new business will always be the priority for an agency, so product development ends up becoming this dream on the side.”

Some models exist including BBH that houses their innovation and product-development efforts under a separate banner. Huge and Rockfish have “labs” while Wieden & Kennedy calls its own efforts “Incubator.” Abraham believes the vast majority of these are window-dressing marketing efforts for the larger agency. Few of them have dedicated staff and they tend to generate more press releases than actual product.

There are a few tangible examples. Rockfish’s products have included CouponFactory and TidyTweet. These generate revenue independent of the agency. Design & Development came up with Thunderclap. This product similar to the fictional Woof.com in the sitcom, The Office, is “a tool to help raise awareness about specific issues by allowing thousands of users to send messages out across their social networks simultaneously.”

Bajwa takes a shot at the playing field of innovators, “Agencies like Anomaly or BBH or W+K say they’re doing a lab or an incubator and it sounds cool, but I never see any results from it and the stories end up being hollow. This is not an agency hobby, it’s a real commitment with the goal of creating valuable businesses.”

If We Build It
Digiday recently featured stories of agencies that have started making, distributing and marketing products. Omelet LA partnered with chef Betsy Opyt on a line of peanut, almond and sunflower butters that exists under the Healthy Concepts Food Company. Omelet made “a substantial financial investment” in the product and provided the marketing support. The product spent over a year in development which would test the patience of most agency CFOs.

Philadelphia-based Red Tettemer O’Connell & Partners co-own a liquor brand called Tub Gin. “Ultimately, it’s not what we do for a living,” said Steve Red, president and chief creative officer of the agency. “So there’s always a challenge putting the manpower against the business aspects of Tub that don’t standardly fall within what an ad agency does: distribution, sales calls, product production.”

New and recurring revenue is attractive. So is demonstrating innovation and progressiveness in an industry that sorely needs to. The business model of agencies today would look the same to Bernbach, Ogilvy, Burnett and Don Draper. For most agencies though, the expertise and investment to make a product happen just may not be there. “Most agency structures have not changed since the ’60s,” says Betaworks’s head of creative James Cooper. “Startups and making products is cool, and they want to appear cool and modern — to both clients and staff.”

Cooper is the author of the forthcoming Creative Social book, he suggests, “Even though deep down [agencies] know they are not really suited to making their own products or acting like a startup, they feel like they should try it. They see Instagram or Snapchat and fall into the classic ‘I could do that’ trap.” The trap could pay off though as evidenced by MRY who spun off their proprietary software into Crowdtap, and raised over $12 million in venture capital to further build and market the product.

I agree with Abraham and believe agencies are idea factories that could become amazing product developers. However, they would need serious overhauls of the current production line and thinking to develop the next NEST thermostat. The agencies will only change when the market forces them to and until that time will milk a cash cow that has been mooing loudly for well over sixty years. Then they will have to retool both their idea generation and business models to truly capitalize.

Two Quirky Addendums…


Agencies Love Their Liquor
There seems to be a specific category that agencies gravitate to when wanting to launch their own products. Agencies love beer, wine and spirits. In addition to Rethink Beer and Tub Gin there have been a few more entries. These concoctions range from pure-play profit ventures to short-run guerilla marketing campaigns.

  • Mother launched White Pike Whisky with a cheeky campaign that featured the line, “Aged 18 Minutes”. The whisky could be housed in an accompanying flask that Mother designed.
  • BBH-Zag focused on product quality and elegant branding with Qui Tequila, the world’s first platinum extra añejo tequila.
  • Anti of Norway has its own vodka brand, Black, that they make available for all client meetings. It is also distributed in bars, clubs and government liquor stores all over Norway.
  • Crispin, Porter + Bogusky introduced the Papa’s Pilar line of superpremium rum in 2013. These Ernest Hemingway-themed pair, one dark and one light, were the agency’s second liquor creation. Previously CP+B had mixed up Angels of Envy bourbon.

  • When The Leith Agency found themselves without a beer client for the first time in 25 years it created its own golden ale called The Maid in Leith. The nautical name and branding was inspired by the Water of Leith that surrounds the agency’s office. Profits from sales went to The Water of Leith Conservation Trust.

  • Just this year seven friends from London advertising agency Karmarama launched Two Fingers Brewing Co. and created the craft beer Aurelio. It is available exclusively from Tesco and all profits go to Prostate Cancer UK.
  • Walter Issacson’s Tequila Avion has been widely popular with ongoing appearances on the television show, Entourage.

I worked on a project for DDB in 2012 that saw the creation of Ethel’s Brew. This was a branded product made available for free at the Creativity Festival in Cannes. All I can say is it “sold” very well.

Creative Book Marketing
Leif Abraham’s book, Madison Valley, is marketed and shared in a very progressive way. All you need to do is visit www.madisonvalley.co and you can download it for $4.95 or simply share a tweet and you get it for free.

Cheers!