Agency Business and the Future

Twenty-five years ago, as
Aurora began its journey
towards becoming the
leading journal covering
marketing and advertising in
Pakistan, I moved abroad,
transitioning from the traditional
advertising business to the
nascent data-driven digital world.
At the time, most agencies in
Pakistan provided integrated
services, and independent
media buying agencies were
just starting up. Print was the
dominant media and there were
only a couple of TV channels.
Large-scale sponsored events
were limited, and the fashion
industry was yet to take off.
Billboards were still mostly hand
painted. Major TV commercials
were produced abroad but the
home-grown talent of directors
and producers was starting to
emerge. Large agencies were
affiliated with multinational
agencies benefiting from global
client alignments and in some
cases proprietary planning
tools and training. Agency
remuneration was based on
commission, generally fixed at
15%, and agencies competed on
creative ideas.

Fast forward a decade later,
around the time I returned to
Pakistan, and the media had grown
exponentially, with the proliferation
of TV channels. In line with global
trends, media buying houses were
beginning to dominate media
planning and buying, traditional
agency brands focused on creative
services and a crop of specialised
agencies entered the industry,
focusing on events, activation,
PR and OOH advertising. In
Pakistan, digital marketing was
restricted to static websites and
there was no trace of data-driven
marketing. The shift towards a
fee-based remuneration model
was beginning, opening the path to
competitive pricing and haggling.

The next decade and a half
saw a major shift with the rise of
the internet and the emergence
of digital, social media and
e-commerce platforms. Ubiquity
of information and access
to tools levelled the playing
field for new entrants. Digital
agencies mushroomed, followed
by freelancers, fuelling the gig
economy. Traditional agencies
caught up by embracing the
change, as marketers began
shifting their budgets to new
digital platforms. Cheaper
smartphones and broadband
access increased the reach
of digital platforms creating
a plethora of customer
touchpoints. This increased
the need for measurement and
optimisation to achieve the goal
of reaching the right audience
at the right time with the
right messaging. Advertisers
started looking at project
based pricing versus retainer
based remuneration.

Now, 25 years later, the
industry is on the cusp of
major disruption driven by
AI, and the hyper cycle of
technological convergence
opening myriad pathways for
marketers to communicate. A
report by Forrester on Agency
AI-Powered Workforce Forecast,
2030 (US), says that, “By 2030,
US advertising agencies and
related services companies will
lose 32,000 jobs to automation – 7.5% of the total agency
workforce. While creative
problem-solving roles will thrive,
process-oriented roles will
shrink due to the influence of
automation, machine learning, and generative AI.”
(https://www.forrester.com/press-newsroom/forrester-agency-ai-workforce-2030/)

These estimates are based
on what we can understand now
about a potential future. However,
the convergence of technology
like AI, 5G, Quantum Computing,
VR/AR, Blockchain, Voice
Recognition, and the Internet
of Things has the potential for
profound, constant, and unknown
disruptions. Perhaps this is a
reason behind President Biden’s
recent ‘Executive Order on Safe,
Secure, and Trustworthy Artificial
Intelligence in the US’. It may be
to slow the pace of change, so
humans can contain the speed of
disruption that has social, political,
and economic ramifications.

So, what does this mean for
agencies? An agency traditionally
provides services that help
marketers attract customers
to their products and services.
This purpose has not changed;
however, the context is constantly
changing, compelling agencies
to rethink the services they
provide. Technological disruption and innovation compound the
challenge of reaching the right
audience through the right channel
at the right time with the right
message, while enabling solutions
that help solve it. Digital platforms
have created low attention
spans with many fragmented
touchpoints; at the same time,
data aggregation powered by
intelligent tools allows better
predictive personalisation. The
key in this equation has been the
marketer’s ability to use behavioural
data which consumers exchange for
using a platform for free.

Regulation around data privacy
could threaten this arrangement.
To comply with evolving European regulations,
Meta is introducing a new
subscription option in the EU, EEA
and Switzerland. In November,
they will be offering people who
use Facebook or Instagram and
live in these regions the choice to
continue using these personalised
services for free with ads or
subscribe to stop seeing ads.
While people are subscribed,
their information will not be used
for ads. It will be interesting to
see how many people opt to pay
12.99 euros per month for their
privacy and avoid ads. (https://about.fb.com/news/2023/10/facebook-and-instagram-to-offer-subscription-for-no-ads-in-europe/)

Assuming people choose not
to pay and allow their data to
be shared with advertisers, the
explosive growth of information
and the increasing plethora of
permutations and combinations
to communicate with customers
will encourage platforms to
use AI and give rise to new AI
marketing tools. The process
has already started. Amazon
is rolling out an AI-powered
image-generation tool to make ad
creation better and easier. Meta is
rolling out features that will allow
advertisers to use Gen AI directly
in their Ads Manager workflow. It
includes features like background
generation to choose relevant
creative designs, image expansion
to automate image adjustments
for various formats and alternative
text based on the original copy.

This is just the beginning.

AI is likely to disrupt the
advertising business more than the
internet as its impact grows, from
enhancing production to automating
decisions. Small businesses and
freelancers can benefit most from
the incremental impact of AI in
enhancing their communication
capabilities at an affordable price.
Legacy agencies will face pressures
on cost as clients will expect
execution costs to come down
through AI-driven efficiencies.

Large advertisers will expect
their agencies to connect the dots
and act with speed and agility.
Going back to integration seems
to be a trend, but not necessarily
just through consolidation, but
also through the collaboration of
specialised agencies. A recent
survey by the World Federation of
Advertisers (WFA) and MediaSense
shows “an overwhelming proportion
of major multinational brands are
looking to improve their agency
model. Just 11% of respondents
believe their current agency model
will fit future needs, while 24% say it
is unfit for future purpose.”

While regulations on data
privacy and any guardrails around
AI would affect the speed of
disruption to the agency business,
technology will be a dominant
force affecting the business.
Finding relevant technology
platforms in the emerging
scenarios and adopting them
quickly will be critical for an
agency’s survival. Talent will be
a major challenge for agencies
as low-skilled executional work
will be automated and demand
will be for strong creative and
problem-solving capabilities.
Agencies need training to
adapt; collaboration, particularly
for smaller agencies, will be
necessary. Agencies will need to
evolve to stay relevant in the age
of information and automation
and position themselves for
emerging opportunities.

Ray Kurzweil, Google Director of
Engineering, futurist, inventor and
author, predicts that “Artificial
Intelligence will reach human levels by
around 2029. Follow that out further
to, say 2045, and we will have
multiplied the intelligence – the
human biological machine intelligence
of our civilisation – a billion-fold.”

Only time will tell if his
predictions are correct but the
process has begun.

Amin Rammal is a marketing
technology enthusiast and Director,
Asiatic Public Relations. amin.rammal@gmail.com