Why Agencies And Clients Are Calling It Quits

“Love on the rocks ain’t no surprise” — Neil Diamond

In yesterday’s Online Spin, Maarten Albarda signaled the imminent break-up of agencies and clients. Communication is close to zero. Fingers are being pointed. The whisper campaign has turned into outright hostility.

When relationships end, it can be because one of the parties is just not trying. But that isn’t the case here. I believe agencies are truly trying to patch things up. They are trying to understand their onetime life partner. They are desperately gobbling up niche shops and investing in technology in order to respark the flame. And the same is true, I believe, on the client side. They want to feel loved again by their agency of record.

I think what’s happening here is more akin to a break-up that happens because circumstances have changed and the respective parties haven’t been able to keep up. This is more like high school sweethearts looking at each other 20 years hence and realizing that what once bonded them is long gone.  And, if that’s true, it might be helpful to look back and see what happened.

The problem here is that the agency is a child of a marketplace that is rapidly disappearing. It is the result of the creation of the “Visible Hand” market. In his book of the same name, Alfred Chandler Jr. went to great lengths (over 600 pages) to chronicle the rise of the modern organization. The modern concept of an advertising agency was a byproduct of that.

Essentially, markets grew too rapidly for Adam Smith’s “Invisible Hand” to be able to effectively balance through market dynamics. Organizations grew to mammoth size in order to provide internal efficiencies that allowed for greater profitability. You had to be big to be competitive. Agents of all types filled the gaps that were inevitable in a rapidly expanding marketplace.  Essentially an agent bridged the gap between two or more separate nodes in a market network. They were the business equivalent of Mark Granovetter’s “weak tie.”

Through the 20th century, advertising agents evolved into creative houses — which is when they hit their golden period. But why was this creativity needed? Essentially, agencies evolved when advances in production and distribution technologies weren’t enough to expand markets anymore. Suddenly, companies needed agencies to create demand in existing and identified markets by sparking desire.  This was the final hurrah of the “visible hand” marketplace.

But the explosion of networking technologies and the reduction of transactional friction is turning the “visible hand” market back into the “invisible hand” market of Adam Smith, driven by the natural laws of marketplaces. The networks of the marketplace are becoming more connected than ever.

This is a highly dynamic, cyclical market. Straight-line strategic planning doesn’t work here. And straight-line strategic planning is a fundamental requirement of an agency relationship. That level of stasis is needed to overcome the inherent gaps in a third-party relationship. Even under the best of circumstances, an arm’s-length relationship can’t effectively “make sense” of the market environment and react quickly enough to maneuver in this marketplace. And, as Albarda points out, the client-agency relationship is far from healthy.

The ironic part: What was once an agency’s strength — its position as a bridge between existing networks — has turned into its greatest vulnerability. Technology has essentially removed the gaps in the market itself, allowing clients to become more effectively linked to natural customer networks through emerging channels also increasingly mediated by technology. Middlemen are no longer needed. Those gaps have disappeared. But the gap that has always been there between the agent and the client not only still exists, but is widening with the breakdown of the relationship. Agencies are like bridges without a river to span.

If you read the common complaints from both sides in the presentations Albarda references, they all come from the ever-widening schism caused by a drastic change in the market itself. Simply put, the market has evolved to the point where agency relationships are no longer tenable. We on the agency side keep saying we need to reinvent ourselves, but that’s like saying that a dog has to reinvent itself to become a fish. It’s just not in our DNA.

By Gord Hotchkiss
Gord Hotchkiss is an independent consultant, speaker and author. He’s been a keen observer of the strategic side of search, digital marketing and corresponding human behavior for almost two decades now.
Courtesy of mediapost