No more the young pretenders

The continuing battle for supremacy between established advertising agencies and the new breed of digital upstarts rose to the surface last week when online auction site eBay appointed self-professed “integrated agency” Albion to handle its advertising highlights.

In this case, eBay rejected the overtures of shops famed for their television ads such as Mother and WCRS in favour of an agency that promises to use the internet as lead medium.

In truth, online media is set to transform the marketing services industry and will destroy the old model of agencies that base campaigns on 30-second television ads. In future, television, print and other executions are likely to be the extra sparkle on top of campaigns that begin online.

Digital shops have been making tentative in-roads into above-the-line business. Albion’s appointment by eBay comes after digital shop Glue gatecrashed advertising shortlists for Eurostar and mobile phone operator 3. Glue failed to win either, but the fact that it was considered a suitable rival to pitch against Fallon and Euro RSCG (Fallon went on to win Eurostar and Euro RSCG 3) suggests that digital agencies are beginning to confront above-the-line rivals in a serious way. Digital shop Agency.com has won integrated duties on the Ikea account.

For some, these moves signal fundamental changes in the structure of the marketing services industry. Analyst Bob Willott, editor of Marketing Services Financial Intelligence, says he has been taken aback by the speed with which brand owners are shifting spend online. In future, advertising will be driven by agencies that are capable of digitally locating and monitoring audiences rather than those that can create beautiful campaigns aimed at anyone prepared to watch and listen, he believes. “On a ten year view, digital agencies will be at the centre of the work and this will feed out into other types of skill sets. Digital will be in the driving seat,” he says. He even foresees a time when agencies producing mainly television ads will be “boutiques” and the digital agencies the mainstream shops.

Digital focus
In the face of this onslaught, established agencies which have been wedded to TV ads are fighting back by buying up digital businesses or hiring online talent to start up their own online arms.

Just last week, Virgin Atlantic moved its £2m digital advertising into the Y&R online arm Saint@RKCR/Y&R out of incumbent Glue. RKCR chief executive James Murphy says digital agencies are hamstrung by a lack of management depth in strategy and account handling. This is why the agency set up Saint rather than buying a digital shop. The digital specialists’ lack of planning capability is a weak point that holds them back from winning above-the-line accounts, he says.

Saint is expected to be folded into the main RKCR agency as, according to another source, its quasi-separate status is a ruse to make clients think that they are getting specialists.

Murphy adds/ “If you look at the industry over the next ten years, you will see a group of very premium agencies emerge that will provide a new total service.” These high-quality, full-service agencies will combine the technical skills of the digital specialists with the planning and creative abilities of the traditional agencies. Earlier this year, BBH won the digital business for Unilever-owned male toiletries brand Lynx and Axe, for which it had created the advertising. Work had previously been handled by digital specialist Dare.

Following the eBay pitch, some advertising sources were dismissive about the brand’s decision to hire Albion, an agency with little experience in creating television ads. Albion was set up by the founder of digital shop Tribal DDB, Jason Goodman, four years ago, and much of its work has been done online for brands such as Betfair, while its relationship with eBay began when it won the business for its subsidiary Skype. It also handles UKTV and Blackberry and its main strengths are considered to be with technology brands.

Goodman says TV is no longer a lead medium for many brand owners and this is something established agencies fail to grasp. “It is becoming a support medium, even for big brands. Its role is shifting rapidly towards digital,” he says. EBay will spend as much of its marketing budget online as it does on television, he claims.

Ad agencies claim that many digital agencies cannot make the grade on creative briefs. But this view is dismissed by Eurostar’s head of UK marketing Greg Nugent. He put digital specialist Glue on a shortlist for the brand’s business, and he says the agency was as good as any other agency he met during the process. Nugent says: “It doesn’t take a brilliant forecaster to work out that in a few years time, 50% of business will be won by agencies that understand that the primary way of reaching people is through online.”

However, another source says the inclusion of Glue on the Eurostar and 3 shortlists was an aberration, and was a case of brand owners wanting to demonstrate they are up to speed with the Web.

The pressure is on
Even so, the incursions of digital specialists exert further pressure not only on creative boutiques, but also on established multinational agencies which are struggling to win and retain clients. Many national brands are flocking to semi-independent agencies such as CHI, BBH and DLKW. Multinational agencies are largely sustained by global relationships with trans-national corporations. But the rise of micro-networks along the lines of BBH through its relationship with Leo Burnett poses a major challenge to this side of their business, compounding the threat from online specialists. However, the likes of Procter & Gamble are unlikely to undo their relationships with multinational agencies.

Last month it emerged that Tim Lindsay, UK chairman of beleaguered agency Publicis (£90m down in billings after losing Asda, MFI and the Post Office) was jumping ship to take charge of another struggling multinational, TBWA/London. This leaves Publicis flailing without any senior figures in charge. Other agency dinosaurs that appear to be lumbering towards the precipice edge include Saatchi & Saatchi, JWT, McCann Erickson and Grey. One consolation is that they are all in crisis together.

However, Lindsay gives an upbeat prognosis for the multinationals, saying they will buy up digital specialists and metamorphose into the types of businesses their clients require. “In three years, there won’t be specialist digital agencies, they will be subsumed by the mainstream agencies,” he says. But the multinationals will need to consolidate the different elements of their offers – such as TV commercials, direct marketing and digital – into one profit centre and in one location.

The main problem for the multinationals is that top advertising talent is being creamed off by smaller. more glamorous shops, leaving a management vacuum at the top of many global leviathans. They are being forced to bring in people from outside the ad industry to fill these roles.

Taken together, the online threat and the recruitment crisis facing multinationals is rewriting the rules of the advertising industry. In ten years’ time, the business models of the UK’s top shops are likely to be radically different from today. Many agencies will not survive in their present form.