#DigitalSkeptic: Ad Agencies Are Being Moved Off Madison Ave. to Digital Slum

NEW YORK (TheStreet) -- Pete Hayes may be a chief marketing officer's chief marketing officer. But that doesn't mean he has any use for an ad agency.

"When I was at Advanced Micro Devices, I spent most of my time taking apart our big agency relationships," said the principal and chief marketing officer for Chief Outsiders, the Houston, Texas, marketing executive placement firm. Hayes specializes in providing top-level marketing professionals to small- to midsized firms on a part-time basis.

As he sees it, the entire Madison Avenue, Mad Men approach of a big, centralized Omnicom Group, Havas or the Interpublic Group handling all a firm's end-to-end marketing and media buying needs is simply not how the vast majority of businesses should handle their marketing in the Digital Age.

"Now it's about finding relationships with specific hitters that specialize in getting certain things done," he explained to me in one of several fascinating calls we've had over the past several months. "Sometimes you do it yourself. And sometimes you go outside. But it's a much more integrated and leaner process."

Here we go again, investors: The same race-to-the-bottom Information Age economics that has gutted entertainment, music, publishing and legal services is now loose on Madison Avenue. And keep in mind, Hayes is not merely speaking of his own multi-decade track record of managing $50 billion-plus marketing spends for firms such as Young & Rubicam and IBM. His "Less Madison Avenue Is More" approach is a core company principal, one that he and his staff of several dozen chief marketing officers bet on day in and day out to drive business.

"Which agency you go hire is about the last thing today's CMO thinks about," he explained. "Now it's about managing your inbound marketing." That is, he said, how to automate the process of making a real sale out of potential consumers who initiate their own sales process, do their own research and integrate into a company's product channel at their pace.

"The fantastic news for smaller businesses," Hayes said, "is they can get the same suite of capabilities that any major enterprise can use by integrating with off-the-shelf digital tools like Salesforce, HubSpot and Pardot."

"That is the absolute magic bullet now. Not your agency."

Mad Men Move to the Digital Slum


What's telling is, step off of Madison Avenue and, heavens, do other marketers agree with Hayes -- even those on the agency side of the digital marketing isle.

"The market is absolutely demanding this," said Chris Delany, founder and president of SEMGeeks, an integrated marketing and promotions company way off Madison Avenue, out in cozy Belmar, N.J. "How you integrate your advertising with your customer relationship tools and your public relations is what marketing is now. Just running a spot or betting on some media-buying technology or something like that is not what a client is willing to pay for anymore."

"You've got to solve a business problem for these people," he explained. "And there is just less room for the traditional agency."

Not surprisingly, old-school marketers do not share Delany or Hayes' view. "I could not disagree more," said Joe Mandese, editor of MediaPost, the analytics firm, publisher and resource provider for media, marketing and advertising pros. Mandese, my go-to source on the ins and out of Madison Avenue for the past 10 years, said that, in fact, the more vertically integrated the market gets, the more upside there is for an agency. Not less.

"Overall, I am an optimist. I think all these new roles for agencies provide them with more opportunity, rather than less," he said.

Agencies Struggle to Keep Up


But Delany and Hayes do have the numbers on their side. Delany points out that though U.S. agency revenues increased by 5.6% in 2012, to a total of $35.5 billion, that was the slowest growth since the ad agency market recovery began back in 2010. And this softer spend is being cut up into ever finer, digital slices. Yes, pure-play advertising still led the pack with $11 billion spent for the year. But CRM/direct spending is now second with $6.6 billion, essentially double the PR spend of $3.6 billion, which was third.

And if those who invest in digital advertising equities have the courage to look, they will see that even big, public advertising stocks echo this softness. Yes, New York's Omnicom saw revenue climb to $14 billion annually in 2012, from roughly $12 billion in 2009. But throughout that period, net margins stayed essentially flat at well below 10%.

All of which means the same new-age marketing hipsters who sold us on the supposed upside of digital media -- as they dismantled everything from music to modern art -- now find themselves stuck living in the same digital slum we all do.

"In a market that changes this fast," Delany confirmed, "the Web gives everybody an equal chance. Agency X selling service Y is a very tough sell."

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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