We are currently living in a world that is highly volatile and disruptive, thanks to breakthrough technologies and political shifts. Predicting the future of the agency business model seems impossible; the best we can do is understand the present state and emerging trends that will influence the economic drivers of the business. The advertising industry is becoming increasingly crowded, with new entrants regularly joining the market. Apart from small boutique agencies popping up due to low barriers to entry, large consulting and tech companies are entering the fray, leveraging technology to offer innovative solutions.

Coca-Cola, as part of the ‘Real Magic’ platform, recently launched a first-of-its-kind AI platform called ‘Create Real Magic’. The platform generates original artwork using iconic creative assets from the Coca-Cola archives. The technology behind the platform combines the capabilities of GPT-4, which produces human-like text from search engine queries, and DALL-E, which produces images based on text. This innovative platform was built by Bain & Company and OpenAI, which have a service alliance. One of the value propositions of this alliance is to help leading product and service marketers better reach their customers by using ChatGPT and DALL-E to develop highly personalised ad copy, rich imagery, and targeted messaging.

Although Coca-Cola has appointed WPP as its global marketing network partner to manage end-to-end creative, media, data, and marketing technology across the whole portfolio, the company continues to engage with others who develop innovative ideas. The concept of the Agency of Idea (AOI) versus the Agency of Record (AOR) has been around for some time. It does not displace the traditional AOR, but it does reflect that the AOR does not entitle the agency to exclusivity, particularly with respect to creative ideas and execution. The main value of AOR for multinationals is the ability to coordinate seamlessly across multiple global markets and localise content. With local advertisers, this is not a critical advantage, and they are able to shop around for the best value.

Technology has been an equalising force that has enabled small agency setups to provide innovative ideas and compete against the traditional giants. Initially, tech platforms such as Google and Facebook made it easier to start a digital agency by making it easy for someone to create, promote, and optimise campaigns, without requiring a computer science background. In 2022, Generative AI broke into the public domain with the release of text-to-image models like DALL-E 2 and Stable Diffusion, text-to-video systems like Make-A-Video, and chatbots like ChatGPT. The new wave of technology will further empower individuals and small groups to innovate and will also lead to greater automation. Complete end-to-end AI-enabled adtech platforms could push advertisers, particularly small and medium-sized ones, towards creating in-house capabilities especially if it helps save costs and enables a quick turnaround.

According to Goldman Sachs, up to 300 million full-time jobs around the world could be affected by AI. Economists at the investment bank predict 18% of work globally could be computerised. Even though the effects would be felt more deeply in advanced economies than in emerging markets, to stay ahead, it will be prudent for agencies in Pakistan to adopt this major shift in technology quickly and invest in relevant training. Prompt engineering, for example, has become an in-demand skill because of ChatGPT and DALL-E. It involves effectively communicating with the AI algorithm and gradually teaching it how to respond and follow specific guidelines.

The advertising industry in Pakistan is facing several challenges, including a low-cost, low-innovation market and a shift towards project-based compensation. The economics of the business seems to be a race to the bottom. Low-cost trumps quality here and more money is spent on execution than investing in insights, strategy and creative. Advertisers want breakthrough ideas; agencies need better compensation to invest in talent and training to be able to deliver those ideas. Unfortunately, pressure on pricing will continue to be a challenge for ad agencies, as clients increasingly seek cost-effective solutions while expecting high-quality work. Ad agencies can adapt their business model in several ways to rise to the challenge:

Develop Agile Mindsets
Be flexible, collaborative and customer-focused, and value experimentation, continuous improvement and responsiveness to change. Create a culture which fosters entrepreneurial thinking and collaboration. Refine forecasts and budgets more frequently and make decisions quickly.

Streamline Processes
Optimise workflows and processes to reduce overhead costs and improve efficiency. By streamlining processes, agencies can deliver projects more quickly and cost-effectively, allowing them to compete on price without sacrificing quality.

Focus on Value
Instead of competing solely on price, ad agencies can focus on delivering value to clients. Ideas and innovation which enhance product experience will add more value and stickiness in the relationship.

Build a Learning Culture
Competition for good talent will increase as non-traditional agencies also start to provide similar services or as the in-housing trend continues to grow. Investing in tools and talent will be a necessity. Agencies will also need to evolve their talent acquisition and retention strategies in the context of the ‘Great Resignation’ as people look for flexibility and a sense of purpose.

Specialise in a Niche
Specialising in a particular industry or niche can help ad agencies differentiate themselves and charge higher rates for their expertise. By positioning themselves as experts in a particular field, agencies can attract clients who are willing to pay a premium for specialised knowledge and skills.

Diversify Revenue Streams
Ad agencies can explore new revenue streams to supplement their traditional services, such as branded content or e-commerce partnerships. By diversifying their offerings, agencies can reduce their reliance on traditional services and create new revenue streams that are less vulnerable to pricing pressure.

Collaborate and Build Alliances
Partner with other agencies, such as design or PR firms. This can help ad agencies expand their service offerings and provide more comprehensive solutions for clients. By collaborating with partners, ad agencies can offer a broader range of services without increasing overhead costs.

There is no silver bullet which will make a single agency model successful. Each agency will need to define its own path and constantly mould itself to stay ahead. But all of them will need to embrace technology, work collaboratively and act with agility. Both advertisers and agencies in Pakistan should work together to build a financially healthy ecosystem which fosters investment in creativity and innovation. As AI automates low-cost white-collar admin and routine work, higher level-thinking and skills will be necessary for not just growth but survival.

“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.”
– William Pollard

Amin Rammal is a marketing technology enthusiast and Director, Asiatic Public Relations (APR).
amin.rammal@gmail.com