The Future of Ad Agencies Goes From Bad to OK

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By: Dwayne W. Waite Jr.

So far, our self-proclaimed demise of our advertising agencies is unfulfilled, much to the dismay of the experts and gurus calling for it. Yes, the agency model in AdLand has suffered more than just battle wounds. It has been beaten, ridiculed, and nearly cast off. Those advocates for the Digital Age question the need for agencies, while those executives focused on "return on investment" want the same work for less cost; a way to create a performance-based compensation model.

But let's give the agency model its due; for the beating it has taken, it has not gone down yet. Matter of fact, it's gaining some strength back.

IBIS World has updated its 2013 Advertising Agencies Industry report based on the positive 2012 numbers and the industry's 2013 projection. The research firm projects that agency revenue will grow to $33.2 billion in 2013, and profit will amount to 10% of total revenue, quite the hike from the 3.9% in 2009.

But the agency life is not without its challenges.

The report highlights the issues agencies have been having with the switch to more digital and less tangible services. Big shops have switched to merging and acquiring digital shops instead of building in-house specialty departments. This answer of industry consolidation rather than growth shows that the number of new firms in AdLand will continue to grow at a very slow pace. Also, due to the increasing concentration within the industry — meaning fewer firms, bigger players — the top four entities in the agency world will account for a little more than 25% of total market share.

Yes, but in economic terms, the industry still has "a low level of concentration."

Interesting.

We shall see if this updating of the report was warranted. Agencies seem to be gaining speed on the digital age. Let's see what they can do.

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About the Author

Dwayne W. Waite Jr. is partner and principal at JDW: The Charlotte Agency, a marketing and advertising shop in Charlotte, NC. He enjoys consumer behavior, economics, and football.

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