From time to time I’ll find the opportunity to chat with leaders of competing digital agencies. We do the things you’d expect: tell stories, exaggerate our successes, and commiserate over the challenges of the business. Lately I’ve been hearing a constant refrain in the “commiserate” section of the conversation.
We’ve all heard some version of the following complaint from our clients: ”We have a problem. Our digital agency fees have been growing faster than our digital media spend. Something is wrong and it has to stop.”
The reality: Nothing is wrong and it would be a disaster to attempt to reverse this trend.
The marketing mix is changing. Clients are increasing their investments in owned and earned media. Owned media are the things we build and own — mobile applications, web experiences, digital-out-of-home, etc. There’s no media cost — only agency fees. Earned media are the things our customers are saying to each other — social experiences that must be built, monitored, and managed. Again, no media cost — only agency fees.
It’s simple math. The better we get at exploiting the power of owned and earned media, the faster agency fees will rise relative to media costs. I must admit I have a hard time seeing the problem. If a $500k social influence marketing program (all agency fees) performs as well as a $10-million paid media program (10% agency fees), who really is being penalized? Answer: the media, not the client. Instead of being challenged, agencies should be applauded for building and managing owned media that delivers results at a fraction of the cost of paid media.
In the coming years some of our clients will experience years where their digital media spend declines and their digital agency fees increase. That’s probably going to take some explaining.