Ad Agencies Are Not Dying. In Fact, It's Quite The Opposite

Mitch JoelPosted by

Just what, exactly, is going on in the marketing industry?

Almost three years ago, our digital marketing agency, Twist Image, was acquired by the largest marketing communications network in the world, WPP. Nearly two years ago, we changed our name to Mirum and became a global digital marketing agency, after bringing together several digital marketing agencies that had been acquired/a part of the J. Walter Thompson Company (also owned by WPP). I’ve recounted the story behind the acquisition of our business, and how it has worked out (see: The World Of Mirum). One of the core realities we faced prior to acquisition was the general consolidation that our industry was facing on a global scale. In short, it was getting harder and harder to win the more interesting pieces of business being an independent agency. Some have managed to make it on their own, most have either been acquired by a larger organization… while others didn’t even survive. 

Today, things are changing.

Now, it’s no longer these big advertising holding companies that are doing the acquisitions. In fact, Business Insider published an article yesterday titled, Consulting firms, cloud companies, and publishers bought more marketing startups in 2016 than the major ad agencies. From the news item:

“Of the 398 marketing startup acquisitions in 2016 only 22% were made by the six major advertising groups, who had to fight it out with consulting companies, IT firms, and publishers… The total deal value rose to $14 billion, 150% more than in 2015. Consulting firms made considerable moves into advertising agencies’ turf last year with acquisitions of small creative agencies.”

I thought the marketing/advertising agency model was broken and, quickly becoming a bad business?

Not true. I never said that. Still, that is much of the rhetoric that you will read if you do a simple Google search. “The model is old. The model is antiquated. The model needs to be reinvented. The model is broken. Brands don’t need agencies anymore.” It’s just not true. $14 billion dollars was spent last year in acquiring marketing service-driven organizations. 150% more than was spent the other year. This is not (just) the usual suspects buying for organic growth and strategic positioning. If the agency model is so broken, why are consulting firms, accounting firms, IT firms, publishers and platforms all competing with the multi-billion dollar advertising holding company juggernauts for these businesses? Why are all of these multi-billion dollar organizations now acquiring companies in secondary and third-tier markets? What are all of the large organizations doing acquiring shops with a couple hundred employees in them?

They’re not buying Silicon Valley. 

If you believe the rhetoric, they are buying out-dated businesses with struggling business models. IBM is buying boutique creative shops, while Google, YouTube and Vice have all picked up niche marketing agencies, that specialize in everything from branded content to influencer marketing. Agency’s are not antiquated. It turns out that agencies are the exact kinds of businesses that those who are talking about (and selling) business transformation, disruption and the future are buying.

Think about that for a second.