Forget the established agencies: The future belongs to a new breed
Opinion
The size of their business, the breadth of their offerings and their economic model leave the largest publicly listed agency groups vulnerable in the AI revolution. The next few years will see growing dominance of a different breed of agency.
The AI revolution in marketing is now. The impact will be profound, causing disruption that’s greater than anything the industry has experienced before and felt by all participants, with no exceptions.
Agencies will be among the most heavily impacted, with changes rippling through their full range of services and specialisations. Indeed, the largest publicly listed marketing services groups, originally built for a broadcast-first world and then evolved for a digital-first world, may even face an existential threat.
The size of their business, the breadth of their offerings and their economic model leave them vulnerable as AI is unleashed across the industry. After all, agility is hard to apply when working with teams numbering thousands of people.
Many now face a slew of tough questions: can they adapt quickly enough? Can they innovate across the spectrum, face down new competitors and fight on all fronts? Having sold full-time equivalents for decades, how do they switch their revenue model when automation reduces the need for human input?
While survival power will vary, the next few years will likely see growing dominance of a different breed of agency: one that combines foundational marketing best practices and the best of emerging technology to drive ever-stronger performance.
Agencies 2.0: A future-proof vision
My prediction for the future of agencies centres around businesses that are built for today and tomorrow’s marketing world.
These next-generation players power their success by forging symbiotic relationships with the world’s largest advertising vehicles, the giant US tech platforms — treating them as real partners, not “frenemies”.
Management and staff are recruited from Alphabet and Meta, while new entrants are immersed in platform certifications. Investment is prioritised in data science and software engineering teams.
Technology is not added to enhance historical services and processes; it is designed into the fabric of agencies. Unburdened by legacy services and structures, they have no segments in managed decline, no sprawling geographic networks to maintain and no vast workforces that need to be retrained or let go.
Instead, tech is built to optimise campaign performance on multiple platforms and constantly refined with their support, delivering increasingly better performance for clients.
At the capability level, this means audiences are segmented and analysed on an individual behavioural and contextual basis in milliseconds, while creative assets are hyper-personalised at scale instantaneously.
The consequent dramatic reductions in cost per action and uplift in return on adspend deliver an immediate competitive advantage for brands, leading to further reinvestment in tech that creates a virtuous cycle of learning and improvement.
So what does this agency evolution involve?
While the dream of smart efficiency is easy to outline, achieving it won’t necessarily be so simple. Generally speaking, most agencies will need to contend with four key factors.
Amplified marketing complexity
The principles of marketing have not changed — the core objective is still selling things to people — but the complexity of how this is accomplished has grown spectacularly.
Both agencies and the brands they serve are required to manage a formidable range of variables with limited resources. That includes audience segmentation and targeting, platform selection, content formats and creation, creative mix, messaging variations, budget allocation, campaign timing, brand-building, conversion strategies, analysis, measurement and instantaneous optimisation.
To manage this, it will be essential to move beyond the humans-supported-by-technology model and switch to automation throughout processes, with humans in the loop. As expected, this will include repetitive tasks, but also non-repetitive ones such as ideation, content creation and production.
Balancing soaring costs
Beyond marketing, it’s probable that the pressure for businesses to find efficiency gains will increase with rising material costs in an inflationary environment, upward pressure on wages in response to the higher cost of living and weak economic growth.
Government actions across the West are set to amplify this challenge. In recent years, consumers have been loaded with taxes, and businesses with costs. Now, the Donald Trump administration’s on-off trade war has created additional uncertainty that could spark ongoing market volatility.
If a business cannot pass on price increases to struggling consumers, it must find cost savings to protect profitability. The widespread application of enterprise-level AI solutions across corporations will hold the promise of cost reduction and the tailwind of productivity gains.
The new breed of agency is in a position to help accelerate their capabilities.
Talent
This is not yet a “technology only” industry and may never be. Talent remains a differentiator.
The best talent goes to the most attractive sectors and companies. Marketing and advertising are unlikely to be listed in the future top 10 professions of choice for undergraduates. Data science and software engineering will be.
Many ambitious young people see Alphabet, Microsoft and Amazon as their employers of choice, but they also prefer smaller companies, where their contribution is more readily visible.
Large agency groups may have the appeal of historically reputable names, but data scientists or software engineers will often make up less than 1% of their workforce. This won’t be an attractive employment prospect for up-and-coming talent with in-demand skills in these professions of the future.
Investment capital
All companies are under pressure from investors to have an AI story in 2025, but the first wave of speculative over-investment has blown over and the story now needs to be real.
Investment capital is being allocated with more discernment. In particular, investors are looking beyond the hype for companies with a clear AI value proposition and proven technology in a large addressable market that has space for structural growth and margin expansion.
At $1tn, the global advertising sector is a vast addressable market, but only participants with a product and service offering designed for today and tomorrow’s AI world are attractive.
Large publicly traded companies are carrying legacy structures and services, with limited revenue growth and constrained margins. They are being forced to prioritise cost out versus investing for growth, and are not appealing destinations for capital.
The next-generation agencies are backed by private equity and are well-capitalised for further investment. They have the scientists, the engineers, the technology and the business model. Increasingly, they have the clients.
There are winners and losers in every game. In our game, the leaders in AI will thrive.
Nick Waters is CEO, Northern Europe, at Making Science. He was previously CEO at Ebiquity