Friday, 15 April 2011

How Entrepreneurial is your agency?

Ad agencies are rethinking what it means to be entrepreneurial and according to an article in the Evening Standard,  are considering two interesting ideas for increasing revenue and winning new business:1. Taking share options in a client's business in lieu of fees
2. Retaining some of the intellectual property (IP) rights of an ad campaign, rather than letting the client take everything.
Although these two ideas are not extreme, they are unconventional for an industry which typically generates revenue from a client remuneration system. This system is reliant upon fixed fees or man hours and very little on campaign results.
The two new trending ideas show great new business potential and are inextricably linked. An advertising campaign (based on IP) ultimately contributes to the success of your client's business (sales and profit) which naturally suggests that agencies should retain IP rights and pocket some of the business share.

However the article didn't really reference the value based model pioneered by Coca Cola which is founded upon performance related pay. Such models would incentivise agencies meaning the best agencies will earn the most.  The flaw with performance-related pay is the complex nature of determining the actual value of a campaign so I think there is room for a model which is based on both performance and fixed fees.

Another factor which has encouraged this wave of new business models is increased competition from smaller specialised digital agencies. Consequently the Evening Standard reported that traditional agencies will need to develop more commercial models which point towards new service offerings or venturing down a non-advertising route such as brand start-ups. Part of me thinks agencies should be stepping outside of the traditional service offerings as it encourages entrepreneurial spirit, but conversely I don't think they should try to offer and claim to be experts in everything. Demonstrating expertise in one or a few services is far superior than being mediocre at everything.

All-rounder vs one expert talent - What do you think?

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