It is hard to ignore the steady drumbeat of warnings that management consultants are coming to challenge agencies. Management consulting firms are often seen as the enemies of agencies – new market entrants that need to be stopped. Many of them have already won, as Forbes illuminated in a recent article. “According to Ad Age, all the top 3, and 8 of the top-10 ad agencies are not those legacy names that might visit your home nightly with their TV commercials. Instead, they are consultancies like Deloitte, Accenture, KPMG and PwC.” Agencies seems to be responding in-kind, building up their consulting expertise.
This trend is driven by many factors, with two of the key drivers being:
- Brands are increasingly spending more on MadTech, and technology has always been a core capability of management consultants;
- Digital transformation is now often driven by customer engagement points (MadTech), and agencies have a long history of driving and managing customer engagement points for brands.
The old three-martini lunch may have passed, but the agencies’ “trust me” attitude often remained, at least until recently. The ANA’s report on agency transparency, the P&G bombshell at the IAB Leadership conference, and recent cries from some YouTube advertisers speaks to the increasing volume of calls for change. The press points fingers at ‘AdTech’ companies, the programmatic nature of buying, fake news, fraud…
I think it’s something different.
Given all the background noise about transparency, agencies, AdTech companies and others have a vested interest in the ‘media’ pricing model, which hides all the dirty little secrets: fees and recharges with agency trading companies, the hidden costs of SSP’s and Exchanges, and the ‘price included’ fees of data targeting. These (and many other) MadTech fees are structured to be imbedded in the holy ‘media-based’ model.
This model is seriously broken. With many claiming the ‘AdTech tax’ is at least 45%—and some declaring it to be as high as 75%—everything is suspect. Brands are spending more on MadTech than ever before. They know they’re getting screwed, they’re just not sure how.
In march the consultants, with their decades of expertise in supply chain management, and a depth of expertise in getting technologies to work together, that few agencies can challenge.
Large consulting firms have spent decades, if not generations, tearing down supply chains to remove waste and friction, reassembling them for higher efficiency. The typical MadTech supply chain to deliver an impression is primed for the consulting axe:
- Data and Targeting
- Ad Serving
- SSP/Exchange fee
- Dynamic Creative
Each of these technologies, many of which are invaluable, are bundled by agencies into the ‘price of the media’ and distributed behind closed doors. Management consultants know how to play in this game. They are going to continue to gain market share, particularly against major agency holding companies, until the pricing model changes. And, by the way, it’s not that consulting firms come at a bargain, but they don’t hold the same vested interests that agencies do. They expose problems, are more transparent about their own pricing, and are ruthless in attacking the supply chain.
Management consultants will drive transparency in agency pricing models. However, while they are experts in supply chain management, they are not as good at recognizing how MadTech innovation can improve a brand’s performance, and are likely to pick only the largest tech suppliers as they strive for supply chain efficiency.
Let management consultants drive agencies toward embracing transparency. But technology companies, take note: To maintain an innovation-driven ecosystem, rather than to see a culling of the herd with only the largest companies surviving, will require new pricing models. The onus is on MadTech to create them, and to lead the way.
Author: Jonathon Shaevitz
Jonathon Shaevitz is the CEO of Industry Index.