For the world's largest advertising agencies, the moment of truth has come. Will they be able to adapt to a rapidly changing world, or will they die like dinosaurs?
For many decades, advertising giants have lived a comfortable life thanks to long-term contracts with the largest producers of consumer goods like Procter & Gamble and Unilever, says The Economist. However, now these "obese years" seem to have ended.
With the development of e-commerce, more and more large companies are restructuring their business processes, cutting advertising costs and trying to solve many tasks on their own. In addition, a significant share of advertising budgets goes to Google and Facebook today, as well as to consulting companies like Deloitte or Accenture: the first dominate the online advertising market (and it's so easy to work with them that mediators are simply not needed), while the latter successfully play on the field of advertising agencies, helping clients to find a common language with modern consumers.
Therefore it is not surprising that many leaders of the advertising industry are going through hard times. For the British advertising holding WPP last year was the worst since the financial crisis of 2008 - the company has significantly reduced revenue and margin, and the share price has fallen since February by 23%. In a similar situation, the American Interpublic Group and the Omnicom Group, as well as the French Publicis Groupe, have now appeared.
Advertising giants are too accustomed to the fact that practically all the "external" activity of large customers was concentrated in their hands - production of television and other advertising, media buying, brand consulting and public relations. However, these days, when advertising campaigns are conducted on many different platforms, this business model looks absolutely archaic and inefficient.
The drop in the popularity of television and the proliferation of advertising-free services (for example, Netflix) also do not add optimism to advertisers. Traditionally, the production and placement of TV advertising has been one of the most profitable areas of their activity; but in 2017 TV advertising sales fell by 7.3%, or by $ 4.9 billion.
In addition, many problems have appeared in key clients of advertising agencies. In an environment where more and more consumers go shopping for the Amazon site, and start-ups that work directly with consumers appear on the market one by one, the positions of large companies with their distribution networks are weakening. They are doing their best to cut their expenses - in no small part due to commissions to advertising agencies.
The last is nothing else than adapting to the new market realities. Those who will master new technologies and offer their customers cheap and efficient digital services will survive. The fate of the rest will be sad.