big established players worldwide struggle to compete with google, facebook, and co. on their home turf and to take their business into the digital age. japan’s big agencies are upping their game to compete.
no matter where or how big, be it the american omnicom group (which owns bbdo, for instance), the french publicis (owner of inter alia razorfish), the british wpp (ogilvy & mather) or dentsu aegis from japan – traditional advertising agencies increasingly struggle to cope in the digital age. the behemoths of the internet age, above all else facebook and google, as well as data-driven consulting businesses, such as deloitte, are increasingly competing with ad agencies in their home turf.
one look at the cannes lions, the largest annual powwow for ad agencies, is enough to see how the lines are withdrawn: google’s and facebook’s booths were as hard to overlook as their sponsorship logos (link). outside the venue, they also occupied most of the prime beach area, pushing aside the established players to showcase their newly discovered advertising savvy. and they did not leave empty-handed: google, for instance received the grand prix in the category mobile. not only are digital firms competing with traditional ad agencies – they are winning.
japanese agencies, whose business so strongly rests on being in tight control of traditional channels, are under particular pressure. for one, access to digital channels is vastly different and much less centralised than to traditional ones, upsetting the core of their monetisation model. second, digital channels need very different forms of creative campaigns – and engagement – than are required in traditional one-way channels. one director at a large japanese advertising firm, only speaking on assurance of anonymity, showing the highly sensitive nature of this challenge, described japan’s digital advertising market as ‘a battlefield’. no wonder, the internet giants with their out-of-the-box thinking workforce, direct control of major channels, and vast swamps of consumer data are perfectly placed to take on the established ad agencies in their core territory.
all the while ad agencies are already being squeezed from other ends, too. japanese big agencies’ business model, in particular, is very much based on acting as guardians of traditional channels, such as tv placements. but these are fast shrinking in significance, putting strong pressure on big japanese agencies to reinvent their business: tv viewership is in steep decline (link), undermining the most important channel traditionally closely controlled by japan’s two advertising giants, hakuhodo and dentsu. new digital channels, such as google (which also owns youtube) or facebook, however, let firms set their own parameters for targeting exactly those customers they want to reach without having to go through an agency. market research firms are also biting at their heels, further reducing ad agencies from their heyday position of creative centres and partners to executioners of ideas cooked up elsewhere and increasingly implemented outside their remit.
even more important, competition is intensifying in another crucial area, too: more and more advertising and digital firms are fishing in the same talent pool of creative minds. gone are the days when ad agencies and banks were the destinations of choice for the best and the brightest. compared to the silicon valley-style open, collaborative work environments these digital behemoths are routinely offering, traditional ad agency offices look increasingly stale: on doda, one of japan’s major career portals, japan’s biggest and most venerable ad agency dentsu is not even in the top 10 anymore (nor is any other ad agency), while google is fluctuating between the number 1 and number 2 spot. once advertising agencies are losing the claim to hosting the best creative minds, the power balance will tip in digital firms’ favour even more strongly. as a director at one of japan’s top agencies put it, already ‘the power balance in the market has dramatically shifted’.
large ad agencies everywhere are thus scrambling to keep their creative mojo flowing and to cope with digital firms’ challenge. ogilvy & mather, for instance, is completely restructuring its business in a pilot project to better respond to the demands of the digital age: it is breaking down all functional divisions (such as creative, planning, digital, client services), instead building their teams around content (output) needs, rather than functional input. as well as boosting creative output and break down the division between ‘digital’ and ‘creative’ as distinctive units, this new, more collaborative working environment is also meant to boost the agency’s attractiveness in the competition for the best creative talent – and is reflected also in its office layouts that is mirroring silicon valley’s office design spirit. ad agencies in japan are following suit: hakuhodo, japan’s second-largest, has hired klein dytham to redesign its offices (link), perfectly mirroring open, collaborative and playful silicon valley style office layouts. but whether redesigning the shell without more fundamental changes in how they take their business digital is enough to get their groove back is questionable.
japan’s number one, dentsu, meanwhile, is trying a different approach: it is doling out money, gulping up digital and data analysis firms in the hope of acquiring the capabilities it presently lacks. it has been on a buying spree since its 2012 $5bn acquisition of aegis, a big british media firm. from 2013 to 2015, it spent another ¥100bn on 76 overseas acquisitions. by far the largest junk of this goes into digital marketing capabilities, demonstrating what great and urgent need dentsu sees for stepping up its game if it wants to continue to thrive. and it has just last month earmarked another ¥50bn for m&a in 2016, according to japanese business daily nikkei.
the old model of the ad agency as a creative hub and as a firm’s partner from ideation to execution is hitting a wall in the digital age. in order to compete with data analysis-driven digital firms and consulting businesses, ad agencies will need to do more than just refurbish their offices. japanese agencies in particular, whose business so strongly rests on being in tight control of traditional channels, are under pressure. the core of the struggle is about whether they can preserve their claim to creative supremacy in the digital age, too. ogilvy and hakuhodo are showing one way to go about securing this internally, rethinking their attractiveness in the competition for top talent and restructuring business in order to bring together digital and creative by removing the separations between the two. dentsu is taking the external route, acquiring the skills its lacks.
before long, expect a flurry of activity in ad agencies everywhere to find a response to the same challenge.
note: an earlier version of this article has been published by tech in asia (link)