My Two Cents On Advertiser Versus Agency Debate

Dave Morgan

Founder & CEO

Originally posted on MediaPost

I want to thank Nancy Hill of the 4A’s and Bob Liodice of the ANA for examining the critical issues of talent, compensation and the media and advertising industry’s slowness to change in back-to-back columns in The Wall Street Journal’s CMO Today earlier this week. Each courageously went out on a limb, and our industry will be better for it.

In her column, Hill took marketers like Unilever to task for the dearth of great creative talent in the ad industry. With the reduced compensation clients provide for agencies’ efforts, agencies are barely able to pay even 40%-50% of the $80,000-$90,000 starting salaries that technology companies like Google and Microsoft are able to offer.

In response, Liodice agreed with Hill about the talent gap problem at agencies in general. But to counter her points, he noted that revenues and profits at public agency holding companies are growing much faster than their clients’ businesses are. He wondered why those agency profits weren’t trickling down to produce better pay for junior employees. He cited agencies’ failure to embrace change and adapt their business models over the past decades as key reasons for their structural ills.

While I think the world of both Liodice and Hill, and am inspired by both of their positions here, I have to say that I am in Liodice’s camp on this issue. Fundamentally, the burden for hiring, training and retaining great talent is entirely the responsibility of the employer. Agencies cannot blame their clients for their hiring practices, and compensation is only one of the issues that agencies face in recruiting the best talent.

Total investment and employment in ad- and media-related businesses have grown considerably over the past several decades, much of it driven by companies focused on technology, data and highly skilled consulting services. Most of these companies do not have business models rooted in selling cost plus services: that is, getting paid a fee or percentage on top of the base cost of service employees. Instead, these companies make money in more leveraged ways, licensing software or data, selling media or marketing outcomes on performance-based pricing, charging premium fees for technology implementation services, or selling research and actionable insights.

These companies include folks like Google and Microsoft. They also include many entities within agency holding companies, like WPP’s Xaxis, Omnicom’s Accuen, and Dentsu’s Amplifi, to name a few. Better business models enable employers to pay more, but that’s only part of it.

My experience has been that what great talent wants most is to work on challenging and fun problems, to do it with people they enjoy working with, to be able to have a meaningful personal impact on the overall work, to have a voice in the business, to be treated fairly, and then to be compensated well. Ideally, that compensation aligns their interests with those of their managers and owners (and even their clients).

Start-ups and large technology and management consulting businesses focused on advertising, marketing and media have fared well in hiring and retaining great talent over the past decade or two because they have made these factors a critical part of the focus. They recognized, for instance, that consumer-marketing companies in the U.S. were entering periods of slower overall growth, so they created solutions that didn’t just sell services, but outcomes. These outcomes included better ad results for less money, guaranteed; or big databases and analyst teams built on their own dime, only charging clients small fees when they used the teams, without expectations of exclusivity.

I love agencies. They are not going away. However, many will need to make some fundamental changes to their businesses – from overall strategy to business models to capital structures to compensation structures – if they want to continue to be the primary drivers in our industry. What do you think?

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