2. “Advertisers and their agencies are facing an increasing challenge, which…often creates friction, inefficiency and waste in client/agency relationships as traditional players on either side, or both, apply traditional practices (or expect traditional outcomes) without an understanding of very different Digital norms and economics.” 2
3. Client Perspective May not understand requirements to deliver digital marketing programs Simplify and standardize processes for managing agencies: Same compensation framework Same metrics (effective commission rate, blended hourly rate, etc). 3
4. Digital Reality More labor-intensive Different set of skills Demand > Supply for certain talent Historical relationship between cost of “creative” “production” and “media” no longer relevant 4
5. Digital Reality The right agency model to deliver value Getting compensated Maximizing profitability 5
7. Digital Agency Service Model Production Media Strategy and Planning Media Buying Brand Strategy Creative Multiple Channels: Website, SEM, SEO, Video, Social, Email, Mobile, etc. Build/Partner/Outsource? Specialist/Integrated? 7
8. Digital Agency Service Model Production Media Strategy and Planning Media Buying Brand Strategy Creative “One of the smartest things we did was build an in-house production capability. Having said that, I don’t know if we would do it today.” President, Leading Digital Agency 8
9. Digital Agency Service Model Production Media Strategy and Planning Media Buying Brand Strategy Creative Quality Control Understand Client’s Technical Infrastructure Commoditization Investment required given expanding range of options 9
10. Digital Agency Service Model Production Media Buying Media Strategy and Planning Brand Strategy Creative 10
11. Digital Agency Service Model Production Media Strategy and Planning Media Buying Brand Strategy Creative Operating Margins In-house: 19.2% Outsource: 16.5% 11
12. Digital Agency Service Model Media Buying Production Media Strategy and Planning Brand Strategy Creative Operating Margins In-house: 18.5% Outsource: 18.0% 12
13. “The Newest Ad Agencies: Major Media Companies. Marketers Increasingly Bypass Traditional Business Model” “Google, Omnicom Partnership Redefines Digital Advertising” “Hearst Buys iCrossing For $325 Million” 13
14. Clients Media Planning and Buying Strategy and Creative Production "If I were an agency, I would be really worried about being disintermediated. More and more, agencies are almost in the way sometimes.“ Ad Exchanges Ad Networks Media Companies Search Engines Becky Saeger, CMO Charles Schwab 14
15. Clients Media Planning and Buying Strategy and Creative Production Ad Exchanges Ad Networks Media Companies Search Engines 15
16. So, What’s the Right Agency Model? Client Requirements Media Consolidation Production Volume Agency CoreCompetencies Culture Ability to Differentiate Quality Price $$$ Growth vs. Margin Erosion 16
20. Output-Based SOW Traditional Digital Create development and production of one :30 TV Spot One full-page, four-color print ad Website Enhancements: Strategy, Architecture, Wireframes 20 Landing Page Designs & Code Executions 20
27. Budget/Proposal “Marketer perceptions are that digital agencies are more expensive, when in fact, the expense is simply related to outdated perceptions about agency fees as a percent of media and/or production spend.” Digital Campaign $250,000 $0 $1,000,000 $1,250,000 25% David Beals 27
