Disruptive Innovation in the Advertising Industry

"There's never been a better time to be in advertising," says Aaron Reitkopf, North American CEO of digital agency Profero, referring to the unbound possibilities of digital, "and there's never been a worse time."

The Future of Advertising in Fast Company is a fascinating look at an industry dealing with disruptive technologies and other topics from this semester (even if I didn’t intend to write another “future of” blog post). Even as a neophyte to the advertising industry, I was surprised to read how much managers were struggling to keep up to speed on technological change even in an industry rich with creative thinkers.

The most visible change within the industry has been the proliferation of hundreds of smaller, leaner firms competing with larger, full-service firms that came formed during an era of consolidation. Instead of one holding one agency of record, many large brands are maintaining a portfolio of agencies to meet specific needs (see proposed digital advertising stack). Whereas agencies of record can typically have hundreds of employees or more, these leaner firms can be as few as five employees but have access to 1,500 more through outsourcing. By defining their organization’s edge closer to a minimal, core service of an agency, these lean firms pass on value by first saving through outsourcing (or even crowdsourcing) tasks that were typically done in-house, and not having to manage the hiring and laying-off employees brought about by adding or losing contracts.

In order for the traditional holding companies to have the proper capabilities to compete (especially flexibility), individual agencies are given financial incentives to work together and leverage their individual areas of expertise and bill by the hour (like lawyers). How agencies charge for services and where to put the cash register is getting more complicated, however, as more and more ad content is given away via YouTube, games, apps, etc.

Clay Shirkey notes near the end of the article that large institutions or organizations collapse when they lack flexibility. If advertising holding companies can behave less like an assembly line and more like a platform with a variety of services at its disposal, they stand a better chance at surviving the digital revolution.