The End of Traditional Ad Agencies

Much like newspapers, conventional advertising agencies are becoming irrelevant. When one person with a wireless connection can be an agency, a media company, or even a manufacturer, traditional advertising organizations have to change their culture, processes, structure, talent policies, resources, and even their business and revenue models in order to embrace the power of open systems being fueled by digital connectivity. The old agency businesses may still have time to correct their course, but they must start now.

The radical democratization of business over the last decade created by open innovation, crowdsourcing, and co-creation is transforming how advertising organizations work. Victors and Spoils (V&S), where John is CEO, for example, wanted to land the Harley Davidson account after the motorcycle maker split with its long-time agency. But instead of going through the typical pitch process, the V&S team created a brief and posted it to its crowd of 7,200 creatives and strategists — made up of freelancers, moonlighters from other agencies, and brand and advertising enthusiasts all opting to work in a new open model. Six hundred ideas flooded in, John tweeted Harley CMO Mark-Hans Richer about what V&S was up to, and Richer tweeted back “go for it.” V&S ultimately presented 65 of the ideas to Richer and landed the account. Whit Hiller, a Vespa dealer in Lexington, Kentucky, came up with the theme of “No Cages” and it continues to be Harley’s brand anthem two years later.

As part of the crowdsourcing effort, V&S created Fan Machine, an app that turns a brand’s social media platform into a virtual creative department, making fans central to the advertising process. Harley helped V&S launch Fan Machine by enlisting its fans to develop a new campaign. The app is one part ideation engine, one part social media platform, and one part ad agency. Harley used Fan Machine to communicate the idea-submission process to fans, describe awards and deadlines, and push a brief live. Then, fans got busy submitting ideas, voting them up or down, and sharing their own entries with their friends. Meanwhile, V&S tracked the brief, moderated the entries, collected fan data, and reported it back to Harley. Two-hundred-twenty-two ideas and 8,193 votes later, a concept from Harold Chase, a Harley fan from Tukwila, Washington, rose to the top. Harley fans loved it, the client loved it, and V&S crafted and produced it. The resulting “Stereotypical Harley” campaign was conceived by and for Harley fans and launched via twitter.

In another crowdsourcing venture, V&S helped Smartwool create fan-based advertising through a social media app that invites the firm’s fans to upload images of themselves “Stripping to their Smartwool” to Facebook. The brand makes these fans into stars by using their images in Smartwool’s advertising. Taking the campaign further, V&S has turned Smartwool’s fans into field-testers who not only star in the advertising but also help the brand in its product innovation process. Typically, outdoor companies use professional athletes as field testers to help them not only test their products but also help innovate. Using real customers and fans makes more sense as they’re actually buying and using the products.

While open innovation platforms in advertising lend themselves to creative work, they’re also being tapped in the production phase of the business. MoFilm, Poptent, and Tongal, for example, focus on video production for television and web films. In every part of the industry, the open innovation model is changing the economics of advertising by switching significant fixed costs to variable costs and sourcing creative from more relevant and, many times, lower cost sources.

Each open innovation agency (and there are many) has its own revenue model, but common to all of them is the basic proposition of expanding the agency’s capabilities by tapping the wisdom of a global self-selected crowd of creatives, strategists, and fans. In his research on InnoCentive, the first global Internet-based platform designed to match problems with creative problem-solvers, Harvard Business School professor Karim Lakhani observed that the further a problem was from the solvers’ field of expertise, the more likely they were to solve it. Since few companies have the resources to hire the diverse disciplinary expertise found in open innovation networks, agencies will have to tap these networks if they hope to compete on creative output.

They’ll also need these networks in order to compete on cost: The open innovation model can shave time and expense off the old ad development cycle. V&S begins a client engagement by inviting its crowd to help define the brand’s problem — sometimes using the brand’s own community of fans. This “defining” is the same thing that traditional agencies do, but the process is virtual, larger scale, and often both faster and more likely to produce relevant insights. During the creative development process fans can provide feedback early in the process, during pre-production, saving a lot of time and money compared to the old cycle of campaign, test, refine, and so on. When one of ten ideas catches fire, then the V&S core group of professionals, who are also from the open innovation pool, work with the new input and insights to deliver the final product.

For ad agencies to survive the shift to open systems they must not think of it as an innovation but as a transformation. As we’re still in the experimentation phase, we need fearless clients, managers, and organizations. Agencies must rethink their business models and go from being place-based organizations that sell employees’ time to creating a new operating system that harnesses the creativity that’s all around them.


by John Winsor and Jerry Wind  |   2:00 PM May 9, 2013