Is there an observable decline in the influence and relevance of adverting agencies?
In the shifting sands of the advertising industry, the traditional giants are taking a beating. Ajaz Ahmed, the trailblazing founder of AKQA, has come out swinging, promising to disrupt the "sluggish, bureaucratic" ad groups that have been languishing under lackluster earnings and wavering share prices since the pandemic. Are those holding companies on borrowed time?
Ahmed, who founded AKQA at the tender age of 21 back in 1994, isn't one to mince words. His bold rhetoric and larger-than-life personality have always been hallmarks of his public persona. He's known for his audacious taglines, like 'Get big or die trying' and 'share of market comes from share of mind', which he penned during his days at AKQA.
Now, with the launch of his new venture, Studio.One, Ahmed is talking about the industry's current state with undeniable passion. He sees a new era for independent agencies, a paradigm shift that Studio.One aims to spearhead.
So, what sets Studio.One apart from its rivals in the industry? According to Ahmed, it's all about embracing technology, uprooting outdated practices, and offering leaner operations. The fledgling agency will approach client service in a way that produces better, more cost-effective, and more thoughtful work than the established behemoths that have reigned supreme in the industry since its 'Mad Men' heyday.
"We will go head to head with the slow, bureaucratic, and expensive agencies within the holding companies," Ahmed declares, putting his cards squarely on the table. "They've become ineffective."
The struggle of the ad industry giants to keep pace with the breakneck speed of change in this rapidly evolving landscape is clear. Several of the major players like Omnicom, IPG, Dentsu, and WPP have fought a losing battle to arrest their stagnant revenues and falling share prices.
Much of the industry is still grappling with the seismic shifts brought about by the rise of Big Tech as a primary avenue for ad spend. Instead of relying on the expensive media-buying intermediaries that holdcos are bursting at the seams with, advertisers are increasingly finding it more prudent to go straight to the likes of Alphabet, Amazon, or Meta. These tech titans offer an alluring mix of affordable reach and hyper-accurate targeting that traditional ad agencies have struggled to match.
Last year, Big Tech platforms surpassed a major milestone, claiming over half of global advertising spend for the first time ever. To add fuel to the fire, companies' growing ability to leverage AI to create serviceable ads or designs without the need for costly ad agencies only magnifies the woes of the holdcos.
All of this is evident in the recent financial results of some of the main players. in March, Havas reported a 0.8% decline in organic revenue, while Omnicom's earnings slipped 4.5% in Q1 of this year. WPP, once a powerhouse of the FTSE 100, has seen its share price more than halve since its peak in early 2022.
Meanwhile, Paris-listed giant Publicis, which posted impressive organic growth of 6.3% last year, has been the exception that proves the rule. But for Ahmed, whose falling-out with WPP CEO Mark Read over the latter's decision to merge AKQA with the group's other flagship ad agency Grey signaled his discontent, their decline goes beyond mere economic factors. He views it as a result of misguided strategic decisions that have left almost all of them saddled with a conglomerate discount, rendering them less valuable than the sum of their parts.
"They have these bloated internal corporate structures where each individual agency has to pay what's called a 'corporate overhead' to the center," Ahmed explains. "But what value does the center provide? All the pitching, all the winning of clients, is done by the agencies."
The trend towards smaller, independent creative agencies like Studio.One promising clients a more focused, conscientious service at a lower price point is not exclusive to the digital and advertising space where Ahmed operates. In 2019, James Acheson-Gray, a seasoned PR industry veteran, decided to co-found Apella Advisors to cater to clients' growing disaffection with impersonal, high-priced players in his sector. They sought the kind of high-level, bespoke corporate affairs advice from battlehardened experts like Acheson-Gray and his fellow partners.
Asked about the structure he envisions for Studio.One, Ahmed notes that the agency will boast a streamlined approach, mirroring the changes Acheson-Gray has implemented at Apella. With the sophistication of AI operational tools, independent agencies can lean heavily on technology, allowing them to cut costs and offer their clients a more efficient service.
The established ad groups themselves argue that their size and financial muscle position them well to embrace the period's defining technological advancements. They have the means to invest hundreds of millions into new tools or acquisitions to secure the best tech solutions in the business.
However, for independent agencies like Ahmed's Studio.One, the playing field has leveled, thanks to technology. With technology enabling smaller agencies to be more sophisticated and competitive, they can challenge the industry's heavyweights and offer clients a unique, high-quality alternative.
In the constantly evolving world of advertising, the question remains: Can the traditional ad holding companies adapt fast enough to stay relevant in the face of inevitable disruption? Or will they continue to fall behind, with independent agencies rising to steal their thunder, as the once-dominant traditional lagers did in the face of the craft beer revolution?
Ahmed summarizes his vision for Studio.One succinctly: "Our belief is that we should bake a better pie." As the wind of change sweeps through the advertising industry, only time will tell if the traditional holdcos can rally to win over consumers with a fresher, more tantalizing offering.
Technology plays a crucial role in the reinvention of the advertising industry, with independent agencies like Studio.One utilizing it to offer leaner operations and more cost-effective services compared to traditional holding companies. The economy is shifting towards favoring tech-savvy businesses, as seen in the meteoric rise of Big Tech platforms, which are increasingly becoming the primary destinations for ad spend. As a result, the traditional advertising model is being disrupted, with big players like Omnicom, IPG, Dentsu, WPP, and Havas facing stagnant revenues and falling share prices.
