Disintermediation–a.k.a. cutting out the middleman–is something that agency executives are worried about, and rightfully so. Besides the fact that brands are doing all they can to cozy up to startups and take on the responsiblities that were once left to the agency, many tech companies are also providing consulting and creative services to clients.
Tons of examples of agency disintermediation can be found. Target hires in-house data scientists. Campbell Soup hosts hackathons, and Pepsi has a startup incubator program to vet potential partners. Additionally, at the beginning of this year Nike severed ties with its agency and brought social media management in-house. This is just some evidence that work that was traditionally left to the agencies is now being handled by brands themseves.
“Some companies outsource, and then they have 23-year-old digital natives tweeting and texting and such on their behalf,” Carmen D’Ascendis, former CMO of Jack Daniel’s, told Digiday earlier this year. “To me, that seems not the most effective way to engage with your consumer. The reason is, it’s unclear if they understand your brand enough. I don’t believe you have to be a digital native to get digital. How does Fisher Price figure out toys? They don’t have kids doing their marketing, that’s for sure.”
Here's what agency folks have to say about disintermediation:
Bob Goodman, SVP, Director of User Experience, Arnold Worldwide (@bob_goodman), told CMO.com:
Ad agencies absolutely face a quickening pace of disruption—and it’s very exciting for everyone. Disruption is impacting agency people, creative product, process, and pricing models. Disintermediation is one important aspect. For some brands and some projects, they may look to insource more work and ramp up their in-house capability, especially in mobile and social. But when you talk about disruption and the need to evolve, a lot of that is coming from this amazing category collision between ad agencies and technology companies. Silicon Valley and Madison Avenue did not used to compete with each other. Now they do.
Tech companies, including startups, are trying to move from consulting, ad tech, content delivery, media, and data harvesting "up" into the creative brand-building space that's always been at the core of what agencies do. Agencies now need to extend their creative dynamism into greater executional capability. It's an exciting challenge to consider how to combine both the big picture brand narrative and the mostly non-narrative world of software, media, utility, algorithms, user data, and user behavior.
The need to evolve is not sudden, but the sense of urgency across the industry now seems contagious. The disruption is already proving to be a huge creative opportunity for agencies to work in new ways and tap into new skills. Brands, themselves, are under disruption. Leading brands continue to seek out creative partners who can help them navigate the disrupted landscape and work dynamically and collaboratively to connect business, brand, and users.
I started my career at agencies during the dot-com era and struck out for Web shops, startups, and later Microsoft so that I could dive deeper into software-driven innovation. It's exciting now to be back at an agency that's embracing that same challenge. The UX team I lead works alongside software engineers, content developers, journalists, illustrators, and product managers. And these skills are no longer just side specialities; they are increasingly at the core of how we collaborate with our clients and their brands.
Tony Quin, CEO of IQ Agency, and chairman of the Society of Digital Agencies (@tonyquin_iq), told CMO.com:
I think disintermediation has happened with some brands and their agency partners already. But it happens at certain types of brands. There’s a general trend with the larger brands, where they are bringing in-house various services that used to be performed by their agencies. So, for example, they may have paid an agency before to handle their social media, but now they’re doing it internally.
Then there are certain types of brands like Pepsi and Nike, where innovation is part of their company culture, and because they’re so focused on it, they're trying to build direct relationships with startups and tech companies, and leaving out the middleman. But the reality is that the majority of brands–the agency world’s bread-and-butter brands–aren’t all that focused on innovation. Innovation is on everyone’s lists, but that doesn’t mean everyone’s doing it.
I watched a Forrester presentation at a SoDA event where the research company presented findings from a recent study. The research found that most brands are not doing anything substantial in terms of differentiation. There are exceptions, of course, but many aren’t innovating. I think the bigger threat to agencies is the brands taking some agency work in-house. And it is worrying. If they think they can do what we can do, that’s not good.
Agencies will always be different from internal resources. Agency people are not subject to the same corporate pressures as the brand folks are, and they have the benefit of actively working on multiple brands, not only more broadly but more in-depth. There’s also this swinging back and forth between having an AOR and using several different agencies for different things. I think we are on a swing where the brands are moving away from one AOR.
Tom Stein, CEO of Stein IAS (@Tom_Stein) told CMO.com:
The world of modern marketing is such that agencies, clients–everyone is looking at the present and future and trying to think of models that will work best, so brands are developing technology platforms or bringing social media in-house, and some won’t. I don’t feel a threat. I actually think the contrary. There’s enough complexity that there’ll always be room for the agency, and the right agencies are at an advantage point. It’s challenging for brands. They have bandwidth and training limitations. It’s easier to have a third party. That precludes disintermediation, so I’m not concerned about it.
Tim Williams, author and consultant to marketing agencies, writes for LinkedIn:
Today, the advertising “agency” is being disintermediated in several disruptive ways. First, and ironically, agencies are being disintermediated by the very establishment they were designed to support–the media. Media companies like Viacom, Meredith, and Conde Nast all are getting into the advertising agency business themselves, in effect biting the hand that feeds them.
Production companies like Radical Media and B Reel are doing the same. In the past, these kinds of companies would have been viewed as suppliers or business partners to agencies–not direct competitors.
But the biggest form of disintermediation for agencies is coming in the area they feel they should be most able to defend: developing creative concepts. And it can be summed up in one word: crowdsourcing.
Mike Carlton, Founder of Carlton Associates writes on his company’s blog:
Economists call it, “The Economics of Transparency.” Where buyers and sellers can directly communicate the knowledge that once was held by the middleman. And where the costs associated with the middleman are eliminated.
Powered by the Internet, we have entered a new age of business. For the web not only enables disintermediation, it encourages it. It has made it easy for buyers and sellers to meet in a virtual marketplace. A place where middlemen aren’t needed. And the cost of their services is eliminated.
Benefiting both the buyer and the seller. And the overall economy, too. In fact, it has become an important force in helping sustain widespread economic growth.
In this environment, all middlemen are under scrutiny. There is relentless economic pressure to eliminate them. Countless bright minds are constantly exploring ways to drive costs down by cutting them out of the process.
Today, it’s not a cake-walk being an intermediary. It is not a cake-walk being an agent. Or being an agency.