For the past decade, ad agencies have spent considerable amount of resources beefing up their digital capabilities. These range from digital production teams, creative technologists, digital strategists, and the like. This primarily comes from a client shift toward digital, social, and mobile and a need for agencies to be able to deliver more integrated and holistic work that involves creating branded experiences over just advertising messages.
How has that worked out?
Looking at the recent scale of digital wins at advertising awards and the type of entries that win (Nike+ Fuelband won the 2012 Cannes Cyber Lions winner for great product innovation and the Johnson & Johnson Band Aid Magic Vision won the new mobile category), it looks like all these efforts are paying big dividends.
However, not all agencies get to do this level of work. Most agencies will typically have their digital team working on web banners, campaign microsites, and Facebook applications. Mostly done as part of a list of deliverables to support an integrated campaign message. Some might graduate into more enterprise-level work that shifts away from their core competency in creativity and communications and into the realm of software companies, developing e-commerce platforms and building content management systems.
One of the contributing factors is the existing ad agency structure and remuneration model. It works on client retainers based on man-hours and projects that need to be budgeted for and signed off by clients before work begins. Unlike most businesses, the ad industry does not heavily invest in R&D; rightly so because it is a talent and ideas business. This works well in the existing model where the outputs are strategy, ideas, and communication assets but not when you look at creative technology and design driven product innovation like the Nike+ Fuelband.
This has led to a certain level of frustration and the exodus of good digital talent from ad agencies as they find it difficult to embrace this model where the work is focused on outputs rather than outcomes that provide true value by solving a real-world problem through a product/service utility and experience. Some take their ideas out of the agency and into their own start-ups while others decide to set up their own digital shops.
Rei Inamoto, chief creative officer at AKQA raised an interesting discussion in early 2012 on how ad agencies need to act more like startups. He later spoke at SXSW on the same topic and shared his analysis and interviews with some notable advertising and start-up professionals. The jury is still out there but I believe there were some great points made including the need for agencies to be more nimble and have the capacity for experimentation and to make mistakes and learn which the current agency structure, compensation model, and processes do not allow for.
In addition, agencies needed to go beyond helping brands tell stories and toward helping brands enable stories through a culture of agile technology innovation focused on creative problem solving and making useful things.
Many agencies out of Asia have already started evolving by developing innovation labs with various models, some integrating experiments and projects with client requirements while others spinning off a new business model akin to a tech startup.
Some well-documented ones include Pilot.is, which started off developing Projeqt as a way to unify the individual websites across TBWA’s 250-office network. Projeqt has since morphed into a real-time dynamic web presentation platform with a sizable number of users from advertising and marketing professionals to educators.
Deutsch LA recently launched its product invention arm Inventionist while BBH Labs has existed since 2009 as a “marketing skunkworks” dedicated to global marketing innovation. BBH’s other brand development unit Zag has also built a commercially viable product development and IP partnership model. Even Droga5, one of the most respected creative agencies spun off De-De as a product development studio that developed Thunderclap, a crowd-powered platform that allows social messages to be amplified through crowdsourcing.
In the U.S, businesses like Nordstrom have also created an innovation lab that operates like a lean startup inside the fashion retailer to look at product innovation to help fuel marketing and the shopper experience. Just look at this amazing case study video of the Nordstrom labs team in action developing a sunglass iPad app (to help customers select sunglasses) in the world’s first “flash build” – a flash mob where the lab team shows up in the store and builds the app in real time through rapid experimentation and prototyping, all while getting constant feedback from actual customers in the store.
This shift toward creative innovation and product development will be a continuous evolution in the agency space and one in which I believe will form the foundation of the digital agency of the future. There is a real synergy between product innovation and what agencies are currently doing and this looks like the next evolution in extending what agencies can offer to their clients.
So how do agencies transition into an innovation-led product development model, especially when it is highly disruptive to the current ad agency model?
Here are five thoughts I have that might help those within the agency who are looking for such change to manage this paradigm shift:
1. Complement, not challenge the status quo
The core business of an ad agency will always be focused on communications not innovation. What needs to start is a shift in how digital is perceived and being used within an agency and this needs to be done through a progressive change in culture, structure, and processes. It starts with a group of people (usually within the digital team) coming together who share a common vision and passion for creating stuff. And it might have to fly under the radar in the beginning to avoid rocking the bigger boat.
Structurally this could be in the form of an innovation lab or marketing skunkworks project that looks at creating product ideas and developing them through fun experimentation, rapid prototyping, and learning. This is a shift from the agency culture of working on an idea till it is fully “cooked” and perfected before presenting it to a client. Rather, it works on a “lean startup” model where the focus is on agile development to get prototypes out as quickly as possible into the real world to test and refine.
The objective at this stage is to build a culture where agile iterations are favored over rigid plans and the focus is on the actual “making” of things that going beyond software and into the Internet of Things to help create integrated physical/digital experiences. One of my favorite examples to describe this is Chaotic Moon Lab’s Board of Imagination.
2. Focus on the right outcomes
The focus is not to create stories (i.e., advertising) but to enable them through a product or service. To do that, we need to look to solve a consumer problem and develop ideas and products that will help enable the solution. Furthermore, the labs team can leverage on the marketing expertise within the bigger agency to identify relevant consumer insights that may lead to product or service solutions.
3. Develop a long-term objective and business model
To ensure sustainability, the natural progression for any innovation lab is to move from fun experiments into a sustainable monetization model.
There are a couple of ways that this could be done. Akin to a startup, agencies could monetize the product or software by offering it to consumers (e.g., a mobile utility) at a price or via a subscription model (e.g., a social listening tool for brands). This provides a whole new revenue stream for the agency.
Another way is to match product ideas developed to appropriate business problems of existing clients or even use these ideas to pitch for new businesses. Rather than trying to get clients to fund the entire project, an IP-based revenue or equity-sharing model might provide agencies with a more lucrative payback along with a longer term relationship with these clients due to the nature of product partnerships.
The last model is to provide product innovation as part of a service to selected clients, as what Inventionist(the product innovation arm of ad agency Deutsch LA) has done.
4. Don’t do all the heavy lifting
Even the most talented group of digital people will find it hard to go solo by themselves trying to juggle experimentation and learning along with their day-to-day agency work. It is always best to find partners who can contribute expertise, skillsets, and connections. For example, W+K partnered with innovation studio Deep Local to get the necessary hardware and software expertise to build Nike Livestrong Chalkbot.
Agencies can also look at partnering with academic institutions that have innovation incubators such asNUS-CUTE Centre.
5. Put it all out there
Sometimes, the fastest way to challenge yourself, learn, and move forward is to put things out there for the world to see and critique. When Inventionist decided to revamp the Deutsch agency website, they decided to put their money where their mouth was and apply the same agile development model that they would use on clients.
What better way to prove to your clients that building digital products in more agile manner is ultimately the best approach than a public challenge to the agency to rebuild their website in 30 days. Out came#30Days2Beta, where the entire development process was live-streamed for the world to see in a transparent and participatory manner.
Digital products have the power to improve and drive marketing by creating real value, solve real problems, and create long-term connections with people. One of the speakers at Spikes Asia 2012 encapsulated this nicely with the thought of “Think 365 not 360.” Rather than trying to surround your consumers with 360-degree communications, give them a reason to engage with you and love your brand 365 days a year instead.