Aurora Magazine

Promoting excellence in advertising

Published in Nov-Dec 2014

Of the record or of the idea?

Although mainstream agencies continue to hold their own, they may soon find themselves out of their comfort zone.

An Agency of Record (AOR) is commonly defined as an advertising agency authorised by an advertiser to buy advertising space and/or time on its behalf (businessdictionary.com). While this is still relevant from a media buying perspective, the adaptation of this concept in the creative, strategy and execution space may not be so intuitive in a digitally-driven, highly fragmented communications environment. The relevance of an offering (AOR or any other relationship) depends on what the customer (advertiser) needs. The traditional agency model was a strategic partner relationship with the advertiser to manage their brand communications providing strategic planning, creative idea generation, production and execution, and media planning and buying.

The AOR has been a prerogative of multinationals and large national (local) clients. In Pakistan, multinationals adopt brand strategies developed at the global or regional level with an aligned AOR. Major thematic campaigns too are beginning to move in a similar direction where the trend is towards global and regional creative. So the selection of AOR agencies by multinational clients is typically based on regional or global agency alignment. The local agency affiliate is more execution or tactical focused. It is unlikely this will change in the near future as multinationals are able to better synchronise and manage cost with globally or regionally aligned AORs.

Very few local advertisers invest in strategic planning, so generally the focus tends to be more on execution. In many cases, large local advertisers appoint AORs but the selection is often driven by price or triggered by new decision makers in the marketing department. They also tend to maintain flexibility by keeping a roster of execution agencies.

In Pakistan, similar to the rest of the world, media planning and buying has become a specialised area thanks to the advent of media buying houses. Whether an advertiser selects a full service agency or a media buying house to plan or buy media, economies of scale supports the consolidation of media buying to a single or few entities. Hence the support for AOR in case of media continues to stand for now.

However, some media buying houses are offering creative services, particularly, in the content area by partnering with content producers or smaller creative agencies. While they act as a single AOR for the advertiser, they are forward integrating with smaller entities and freelancers. There are different permutations of AORs when dealing with specialist areas such as mass media versus digital, versus PR, versus activation. The decision is driven by the advertiser’s legacy system and the organisational structure and capabilities, the agency’s offering in the marketplace (full service versus specialisation) and the cost structures of the industry.

Although in the short term the AOR model seems to be working in Pakistan with different variations, the debate brewing globally is will the concept of AOR continue as digital’s share of advertising grows? In my opinion, the answer depends on several factors.

In the good old days, the agency was perceived as the expert on consumer behaviour, a reservoir of creativity and the shrewd negotiator making deals with different media owners on behalf of their clients. A centralised role was important to synergise at least parts of the advertising value chain.

Currently, it seems agencies, at least in developed countries, are going through a midlife crisis experimenting with various business models, flirting with technology companies while soul searching to identify who are they. What is causing this?

The likes of Google and Facebook have changed the traditional advertising model. Google has consolidated the majority of website content publishers while Facebook has provided a platform for user-generated content to be monetised as media. Facebook may even challenge Google’s dominance in the website space through their Atlas advertising system, which allows users to be targeted on any website using their Facebook details. According to data from eMarketer published in The Wall Street Journal, Google and Facebook are expected to take 40% of the $120 billion global online advertising spend this year, with a 32% and eight percent share respectively. More dramatically, 66% of the $32 billion global mobile advertising will come from these two alone; with Google and Facebook accounting for 46% and 20% share of spend respectively.

The impact the likes of Google and Facebook had on the traditional advertising model can be summed up having:

1 Centralised negotiations and the ability to serve ads through their networks, despite the exponential increase in content publishers.

2 Allowed seamless content integration through the likes of YouTube or Facebook fan pages.

3 Provided designated representatives who work with large global agencies and advertisers, offering direct advisory services in local markets to better plan their media spends with them.

4 Improved customer insights through unprecedented data on users, which they can crunch in real time and deliver to advertisers and agencies through user friendly interfaces.

5 Built predictive capabilities, deploying algorithms to more effectively target and engage consumers.

While AORs are common in traditional advertising, they are not necessarily the dominant arrangement in digital. Digital savvy advertisers are developing their own online assets that can be managed internally or by the agency which either comes up with the idea or is best equipped for it: AOI (Agency of Idea) versus AOR (Agency of Record).

The impact of digital is also evident on the advertiser side with ‘The Rise of the Chief Marketing Technologist’ (Source: Harvard Business Review, Jul-Aug 2014). According to the article, “CMTs are part strategist, part creative director, part technology leader, and part teacher; they champion greater experimentation and more agile management of that function’s capabilities.” Agility implies flexibility in working with different entities or individuals in order to move faster.

Is the AOR relevant in the fast-paced digital, ideas-driven world? If media planning and buying is being simplified at the tail-end of the communications value chain and a CMT is in place on the advertiser’s front, what services will the agency of the future provide?

Global communications groups are hedging their bets by investing in technology driven companies with different areas, including data analytics and insight, digital creative agencies, ad serving networks and content platforms, including ecommerce sites. WPP’s recent investment increase in AppNexus and Publicis’s interest in Criteo are evidence of their foray into data and technology to provide alternatives to Google and Facebook’s targeting and ad serving capabilities. Interestingly the market valuations of AppNexus and Criteo are estimated from four billion and two billion dollars respectively, which is probably more than the standalone valuation of most large global ad agency networks, if they were valued separately from their holding company.

Which of the bets by the global communications will pan out is the billion dollar question. In some areas, such as online advertising, the odds are stacked against them as they make acquisitions to compete with Google and Facebook whose market capitalisation is several folds greater with deep pockets. Sir Martin Sorrell in a recent interview with Beet.TV opined that Google and Facebook are ‘media owners’ much as Disney or Viacom, and as such should not be in a position to do media planning. On the other hand, Google’s latest deal with comScore enhances their offering in media planning. It integrates technology into Google’s Double Click ad serving network, providing the ability to measure their desktop display and video campaigns in real time using the reach and frequency metrics they are accustomed to using in TV.

Whether the ad agency networks will be successful in maintaining AOR status quo in the digital age through its acquisition of technology companies is uncertain. In the short term at least, the global debate on AOR is less likely to impact Pakistan given the dominance of traditional media. However, in an increasingly digital world, the global trends are likely to disrupt the local scenario.

Amin Rammal is Director, Firebolt63, The Brand Crew and APR.
amin.rammal@firebolt63.com