GEN AI has a big impact on the business model of the agency |

For the past 40 years, there have been many changes in the advertising industry. A person who is older will remember the transition to the “Desktop Publishing” (DTP), where the layout converted to the blueprints is designed on a computer. After that, the Internet appeared, along with SEO, e -commerce, social media, programmatic, CRM, mobile, influencers, etc. Each time, the agency needed to adapt to technology, skill sets, processes, organizations, and culture.

At present, we are rapidly approaching the next transition, that is, the influence of generations AI. And in the industry (as usual), there is an intensified discussion on the effects of generations AI on creativity, but this transition will have a more serious effect on the business model of the agency. 。

Commercial creativity

First, let’s explain the creativity. It is true that we are a creative industry, but there is an illusion that creativity is everything. It is incorrect. Creativity in business is a way to achieve commercial goals. Our clients purchase “commercial creativity”, but for the advertising industry, the “commercial” part has been shortage for many years. We celebrate Cannes’s “drill” for creative work, but clients buy the “holes” and business effects.

This “misunderstanding” about the value of Agency providing to business is now bothering the industry. Focusing on selling creativity is becoming more and more meaningful for clients. They find the results (they need).

If you have any questions, look at the successful cases of excluding consulting companies such as Accenture Song or Deloitte Digital, or excluding agencies such as META and Google and trading directly with customers. Alternatively, look at the share of the agency that continues to increase from the increasing marketing budget.

The current business model of the agency

So why does GEN AI change the business model? Agency has two types of projects.

Big Idea Works (Biw) – It’s “flashy”: TVC, campaign, “representative” work, ideally business as eugenus (BAU) in Cannes -Banner, etc. No job ads, social media content, promotion, website updates, etc.

Most agencies prefer great ideas to provide pride to the agency staff and provide opportunities to advertise agencies. But BiW rarely makes a profit. The labor is high, it is necessary to be involved in advanced users, and it takes many times to interact with customers. On the other hand, BAU is quite predictable. You can use templates, young staff can generate work, and there are few advanced coaches.

Most agencies perform a mixed model calculation for these two parts of the work, so BIW, which has a low profitability, is balanced by a very profitable BAU.

Game changer

But GEN AI challenges this model. In other words, BAU’s work is template and generated by young staff without much supervision. In other words, GEN AI can handle BAU work. Not for agency, but for clients. And the client is aware of that.

In fact, the client needs to do so. The time and cost of BAU generated by AI are too huge to ignore. It is a few minutes of work, not hundreds of dollars and a few days. The procurement department and the client’s CEO (probably using Chatgpt for your own email messages) ask the marketing team to use this technology. Therefore, even if the client does not believe in artificial intelligence, it is likely to be forced to explore it.

Economic necessities

So what kind of impact do business models have? Let’s calculate:

It is assumed that the agency is currently receiving 30% for a large idea work and a 70% reward for normal work (BiW has created -20% loss and BAU is 20%. Assuming that you are producing the profits of). With such a setting, about 8% of profits are obtained *(30 x (-0.2) + 70 x 0.2 = 8)

Assuming that the client has decided to undertake half of the BAU work (= 35%) in the company. As an effect

Government agency’s budget is reduced to 65% (100% to 35% of BAU’s work). The work volume of institutions shifts to 46% and 54% BAU. Therefore, the profitability of government agencies decreases from 8% to 1.6%/ *(46x (-0.2)+54×0). .2 = 1.6)

Thus, in addition to the loss of 35% of the initial budget, the agency can only get one -fifth of the previously obtained profits.

In order to reach 8% of the margin at first, the agency must do one of the following:

Reduce the work load on a large idea to minimize the loss (up to -0.06% loss) or client 19.4% for large ideas work.

Reduction of work load = rationalization of ideas creation process

Well, today’s pitch and live briefing have a time limit, that’s already happening. Trying to increase the efficiency of creative processes can increase more mediocre ideas, make creative teams unhappy, and eventually burn out.

Further claim to the client

If you persuade your client to pay 20% to big ideas, you will have problems that the industry has built up over the past few decades, the values ​​of advertising agencies.

It is unlikely that a client who has just underwent BAU’s job in order to take advantage of the cost benefits will pay 20% to the agency for the remaining large ideas.

After all, the agency should be more satisfied. As my boring work has decreased, I can concentrate on fun.

The important question here is what is the value of the idea? Is the man -hours agreed, or FTE? Specialized knowledge? Or creativity? Or is the value of the idea measured by the consequences of that idea brought to business?

You can see the answer: commercial creativity. However, the industry was not very interested in visualizing the concrete effects of the client’s business.

In order to claim more fees to ideas, agencies need to judge the value of the client’s ideas for the client.–Therefore, they can seek a fair distribution of its value. To do so, it is necessary to deepen the client market, business issues, financial conditions, competitive environment, etc. and agree on indicators that fairly establish ideas’ contributions to business.

In other words, it is a new business model.

Faster than expected

Considering the overall speed of the introduction of AI (Is there anyone who hasn’t tried Chatgtp yet?), This change can happen within the next two to three years. While some industries (retail businesses and daily consumer goods) will be faster, other industries (luxury goods and pharmaceuticals) will be slow. The impact has already been visible. Changes in budgets have made Adlands more common in Adlands.

The biggest propulsion is whether the client is ready to introduce technology. Digital change in marketing began slowly, but it accelerated in the field where only the budget shifts.–Without process adjustment–Wanted (SEO, paid digital, social media content, etc.). This transition is quite easy because GEN AI has already been integrated into some social platforms and e -commerce platforms.

Scenario of future agencies model

In order to deal with the reality that will occur soon, the agency has two directions. One is to support business problems upstream, or the other is to compete with faster, cheaper and easier asset development in the downstream. This can be provided through various agency models. Here is a crystal bowl that may be in a bent corner.

Head upstream

1. Creative marketing consulting company

Concept: Solve business problems through strategic and creative marketing thinking.

Service: A small team of experienced advanced marketing staff is highly customized according to the needs of the client. As an advisor to CEO and CMO, the marketing strategy will be supervised and commanded, and in some cases, it will be executed.

Reward model: Value base. It is a combination of maintenance fees and success fees, and is probably the percentage of results achieved in business.

Profitable: It increases according to the quality of the marketing solution.

Assignments: Advanced clients accept new ways of working and believe in the value of creative problems. Access to the owner who recognizes the cost of the problem and the value of the solution. Measurement framework to verify achieved results.

Variation:

Data Driven Agency: Part of a creative marketing consulting company that derives strategic and creative solutions using data.

Boutique Creative Agency: I work in the same way as the 90s. Although it is a conventional advertising development process, it is performed at the global creative quality level.

Head downstream

2. Supplements for creative ideas

Concept: Cover that GEN AI cannot be done yet, that is, creative ideas.

Service: A standardized process for developing creative toolkits so that clients can develop their own assets. The tool kit includes ideas explanations, major visuals, and major prompts. Advanced integration with the GEN AI tool.

Reward model: Package price of tool kit.

Margin: If the standardized process is established and observed, the margin will be higher. Assignment: Process discipline. You need a client who is confident in developing and implementing assets yourself and is confident in AI generation skills.

Variation:

NUCLEAR Creative Agency -A small team (2-3 people) functions as a partially entrusted in -house creative team.

Other agencies -We develop all assets that are reluctant to generate through GEN AI.

summary:

Regardless of the future, as before, the change in technology will have a dramatic impact on the advertising industry. GEN AI can have the biggest impact on advertising business models so far. Therefore, it is time to not only consider the impact of GEN AI on creative products, but also think about business models … the time is faster than we think.