Traditional agency business model - viable, or needing change?

This is one of two stories I chose for the spring 2008 edition of our agency's "Advertising & Other Creative Stuff" e-Newsletter. I think it's an interesting look at how the big ad industry players are rethinking, or atleast talking about rethinking, their role in the modern world of brand marketing.

Publicis Groupe CEO Maurice Levy and Dentsu Chairman-CEO Tateo Mataki told the International Advertising Association's World Congress that traditional ad agencies will have a role in the advertising world for years to come, but their role is going to change.

So what will the advertising agency of the future look like? The two executives presented somewhat differing views. Mr. Mataki said Dentsu is increasingly looking to become entrepreneurial in ways that allow both it and advertising clients to capitalize on brands and then share profits from developing new revenue streams instead of just relying on fees from doing traditional advertising. "The business model in which the agency's sole function is to create advertising and buy media is no longer viable," he said. "We need a new model. We need to develop relationships where both parties share risks and rewards equally. Rather than just accepting assignments, we must be proactive. To manage change, we must take risks."

What's wrong with that way of thinking? Often the folks on the client side of the desk want the agency to take a bit more risk than they should. Will this usher in a trend of advertisers asking agencies to become more like "principals" or "partners" in their business? Probably.

My take on this? I want the advertising industry to evolve, rather than clinging to a business model that may be quickly becoming obsolete. However, as an advertising agency owner I can see some rough sledding ahead, with advertisers choosing an agency based on its risk-taking potential rather than its true qualifications.