Wednesday, April 21, 2010

Agency Deals - how the industry has failed to grasp the digital opportunity

The media industry has been through a lot recently. Assailed by digital, hunted by procurement, squeezed by the recession, media agencies have had their fair share of these problems; but a new development in recent months spells the end for the model. And far from seizing on the opportunity digital presents to reinvent their business, the industry seems bent on applying a discredited system to the new world too.

To understand why, we need to turn the clock back.

When the great schism between media and creative agencies occurred twenty years ago, the key sales proposition of the newly created media agencies was value. They focused on screwing down rates, and delivering them with cheaper staff.

And on the client side, fuelled by media auditors, procurement were given renewed focus on this newly accountable sector.

The media guys were making big promises, and getting paid less for them. Somebody had to pay, and media owners stepped up to the plate. Agency deals were honed and sharpened, and the market shifted around to accommodate their power.

Broadly an agency deal works like this. An amount of money, or a level of share is granted to a media owner. In return, an amount of media value is granted. The agency then divides this up amongst its clients.
But that division isn’t even. And it isn’t everything.

Some clients get more than others. For every client who’s getting pricing below the average, there has to be another who’s overpaying (or two smaller ones). Even matching clients’ complementary requirements to balance the books isn’t enough, with a rumoured £300m overtraded last year in TV alone.

But the agency tries not to give it all away. If they don’t commit the whole dealbase, they can keep the difference – substantial sums that make up for the uneconomic fees their clients pay.
So why do clients wear this?

For some, being able to report a cheap fee to the board is enough; they’d prefer it if the agency was making money on the side. Others calculate that because they’ve made heavy demands in their appointment negotiation, they’re on the benefit side of the deal book, and therefore ahead on the game. Some are simply being mercilessly exploited.

So even though advertisers get media to fit the agency’s deal rather than their marketing objectives, enough will wear it to make it work, and this has enabled agencies over the years to respond to procurement pressure by steadily reducing their fees.

What’s changed?

Two things.

First, fees have hit a new low. One global media account is rumoured to have changed hands recently for 0.5%. Nobody on the board of that client is asking what they get for that amount, but the answer is simple. They get junior people. Simple media solutions, stacked high and looking cheap. Agencies’ hope that by defining the service tightly, they can make extra by charging for out of scope work. But inexperienced staff don’t know how to spot business development opportunities, and the out of scope rarely appears. And of course there’s the slush fund in the media dealbase to subsidize the fee.

And here’s the final nail in the coffin. Big advertisers have started to abandon the media pitch, instead auctioning the media to lowest bidder. In effect, these advertisers have twigged that the multi-round auction process will cause agencies to cannibalise the slush fund until there’s nothing left.

A few pioneers see digital as the way out of this mess. By focusing on value outputs rather than cost inputs, both advertisers and agencies benefit. But on both sides, many have simply imported the old model. 

Rock bottom fees. No out of scope work. No subsidisation from the deal base. Dumbed down staffing. What’s left for the media industry, and what’s left for GSK’s last-to-the-party media review?

Wednesday, April 14, 2010

The business of conversation on Twitter

‘Just setting up my twttr’, the first status update on Twitter was sent March 21st 2006 by co-founder Jack Dorsey; 130 years separated it from the first successful telephone call when Bell called “Mr. Watson, come here, I want to see you” and Watson heard each word distinctly, though history doesn’t note how irritated he probably felt.

At first glance, I’m struck by the banality of both the statements; hardly ‘one giant leap for a man’. But whilst Twitter is often criticised for the trivial nature of its content, people forget that the vast majority of phone calls are of the ‘get some milk on the way home’ variety; hardly changing the world.

So the microblogging site that gives you just 140 characters to share your deepest thoughts is four years old.  It’s been hacked by the Iranian Cyber Army, turned down both Google and Facebook as suitors and launched a thousand croissants.

It’s one of the most talked about brands on the internet; all this without turning a bean in profit.

We don’t care about that.  We hear lots about Ashton Kutcher and Stephen ‘I’m stuck in a lift’ Fry on Twitter, and those celebrity brands have certainly found value in connecting directly with their fanbase.  Astronauts tweet from space, babies from the womb.  But beyond those individuals, the question on marketers’ lips is, has business found a way of making money from Twitter?

Mostly, as with Facebook, business activity on Twitter is unfocused, lacks a clear reason for being there, and most importantly, a benefit for customers.  But there are a few exceptions, from big businesses to small, where enterprising people are connecting to consumers for their mutual gain.

Dell has booked $3m in revenue and gained substantially in awareness of its outlet store.  With over 80 Dell-branded Twitter accounts, the company uses the channel for customer service, distributing coupons and exclusive offers to customers regionally.

Best Buy adopted Twitter broadly across its organisation, launching its Twelpforce service with employees encouraged to answer technical queries from consumers in the channel.  They’re not paid to do this, but employees sign up via Best Buy’s own interface and follow a well-crafted set of social media guidelines created by the company.

Hundreds of customer queries are answered every day with typical issues being product recommendations and customer support; ‘If the blue light stays on, it's likely a camera software driver issue with light levels. #twelpforce’, ‘#twelpforce Is there a specific refrigerator you have in mind, most doors will come off’.
Jetblue in the US use it to ‘break down the artificial barriers between customers and the individuals who work at companies’, and report that when customers are better informed about delays and other problems, their treatment of front line staff improves.

KogiBBQ in Los Angeles, a mobile vendor of Korean/Mexican fusion food (you can’t make this stuff up) uses Twitter to let it 58,000 loyal fans know when and where its trucks will be.  So if you’re in the market for a stinky leprechaun burrito (there’s no explanation of the Irish content) you need to know the ‘Alibi room grill is fixed!! Come on back and grab some gruba!!’

What distinguishes these successful brands is their eagerness to connect with consumers.  The overwhelming majority of conversations are about them, rather than with them; and they flourish by being a part of the conversation rather than being a broadcaster.

It speaks volumes about their openness, and puts a human face on the corporation.

And mass marketers who dismiss the traffic volume as irrelevant are missing one important thing.  Both Bing and Google index Twitter; and the recency of the content drives it right up the results.  So when consumers search for your brand, you’d better hope the conversation’s good.