The 10 years before the early 2000ies showed a strong move towards agency consolidation in the marketing services industry. But the last 10 years don’t seem to repeat the trend; it seems that the level of consolidation in the marketing services has reached its peak. The largest ten global agencies still account for probably at best 20% of overall agency fees, and depending on the math maybe as low as 10%. Why did this consolidation trend stop? Here are my hypotheses:
- While agencies looked more and more internally over the last 10 years, they did not realize that new players moved into their territory and took away a decent amount of their revenue (e.g. Google.).
- Most agencies have not figured out how to keep an innovative and creative company culture while growing towards a large organization. It seems that most agency offices reaching more than 1,500 people experience a quality decline. Size and innovation appear to be a difficult marriage in the universe of agencies.
- A lot of service marketing organizations started to fragment their offerings into multiple different independent profit centers, denying their organization any scale benefit. Suddenly their focus turned more into infighting between the different profit centers instead of concentrating on performance and innovation improvements on a large scale.
- Quite a few talented creative minds got tired of their large organizations and started their own agencies. They were able to gain the business of large brands and companies, since most agencies did not develop any stickiness to their clients beyond the sexiness of the last TV commercial.
I don’t see any reverse in this stopped movement towards a more consolidated agency space, since most agency leaders don’t’ spend sufficient time on developing the right strategies to turn scale into a true competitive advantage, in both increased efficiency (with a strong focus on cost management) and an improved effectiveness (with a strong focus on strategic and creative quality). This will not change until creative and strategic marketers take the “scale benefits” discussion away from financial engineers and develop their own approach of how to leverage the size of an agency as a true benefit to their clients.