The Demise of the Mad Men

Posted by: Nick Leiber on March 31, 2010

With the rampant digitization of advertising and the explosive growth of performance-based marketing, the nerds are taking over advertising

This is a post by guest blogger Jeff Bussgang. It is cross-posted on his blog, Seeing Both Sides.

jeff_bussgang.jpgI don’t watch a lot of TV, so I’m usually a late adopter when it comes to great television shows. Mad Men is no exception. Although the show is entering its fourth season, I’m just getting around to watching Season 1 and I am falling in love with the show. It reminds me of the Sopranos - flawed characters that you at times root for, at times despise, interlocked in an entertaining drama that centers on the fundamental search for happiness and respect.

So while I’m in the midst of enjoying Mad Men, it was with great amusement that I hosted a dinner with a dozen or so CEOs of advertising agencies and advertising technology start-ups the other night. Last year, I blogged about how Madison Avenue was going tech (“Revenge of the Nerds”, I called it). At the time, I thought there was hope that the big ad agencies would evolve to become techno-savvy nerds and help lead the innovation charge. This year, it’s a foregone conclusion in my mind that Madison Ave’s Mad Men are doomed.

With the rampant digitization of advertising and the explosive growth of performance-based marketing, the nerds are taking over advertising. Advertising innovation is coming from technology-driven giants — like Google, Microsoft and now even Apple — as well as start-up companies that are nibbling away at the value-chain, including many of our own portfolio companies (e.g., DataXu, BzzAgent and digital Arbor).

Although many of these technology-driven companies are partnering with the major advertising agencies today, the agency CEOs at my dinner with very bearish on what the future held for the agencies and whether they would survive the New World Order. In their view, there are four reasons for this:

Wall Street Pressure. In talking to advertising agency executives, you can’t help but be struck by how much their EPS targets affect their behavior - and hamstrings their ability to invest. So long as they are slaves to Wall Street, the major advertising holding companies will be unable to undergo the necessary, wholesale transformation required to thrive in the digital age. It reminded me of James Carville’s famous quip that in another life, he hoped to be reincarnated as a bond trader so that he could wield some real power. Agency CEOs seem to wish they were Wall St analysts or venture-backed CEOs rather than trapped as holding company leaders.

CFO/Procurement. Each of the agency CEOs at our dinner bemoaned the fact that “above the line” advertising budgets were now in the hands of the procurement officer and that the power pecking order has become CEO, CFO, CMO. One of the CEOs at the dinner, Wayne Townsend of Click Squared, noted wryly that below-the-line marketing budgets has always been in the hands of the procurement officer. Welcome to the club! The problem for the agencies is that this trend means great creative (the Big Idea) and great relationships (three martini lunch) aren’t important to the procurement officer, only hard ROI.

Lack of Pay for Performance. One agency CEO pointed out that if you look at the revenue per employee at the major agency holding companies, it’s a fraction of what it is for premiere management consulting shops, like BCG and McKinsey. In the absence of a pay for performance paradigm (akin to performance-based marketers like Google, who get paid per click or per acquisition), the agencies are forced to operate like a glorified body shop, whether their campaigns move the needle on the business or not. This caps the upside and results in odd incentives, such as worrying more about getting fired than about delivering great work.

Talent. The best technology and business development talent is not flocking to advertising agencies. They are flocking to advertising technology start-ups and Google, Microsoft and Apple. Over time, the best talent wins in any industry. By this reckoning, the advertising agencies are doomed.

The advertising agencies are thus in a structural box, a classic case of Innovator’s Dilemma. Meanwhile, venture capitalists and entrepreneurs smell blood. Young companies are going directly to CMOs to mine their marketing budgets. And marketers are more aggressive about experimenting with new media, socu has Twitter and Facebook, with the help of niche consultants and technology providers.

The only saving grace for the industry may be that their remains great power in the Big Idea. Great creative can still move the needle and provides the direction for all that whiz bang, targeted, performance-based execution. The success of creative boutiques like McGarry and Bowen suggests that niche is still a lucrative one.

As for me, I’ll keep enjoying “Mad Men” and continue to invest in nerdy, little technology companies to make them obsolete, historical relics.

If you want to check out my book on VC and entrepreneurship, called Mastering the VC Game, see http://bit.ly/mstrVC.

Serial entrepreneur Jeff Bussgang is a partner at venture capital firm Flybridge Capital in Boston. Follow him on Twitter @bussgang.

Reader Comments

jeannie christensen

March 31, 2010 2:55 PM

Great article. I come from an agency background (10 years as senior/acd level Creative) and everything you said rings true on so many levels. What kills me is that barely anybody besides myself (at my last agency) realized what a sinking ship we were on. All the Madmen keep on trying to push their egos around and talk about "big ideas" when there SIMPLY AREN'T ANY coming out of agencies these days. Anyway, I ended up moving to a Cloud start-up. I'm on the fence with Procurement. They could benefit from really looking at how they're adding value or not. Here's a checklist: http://bit.ly/bBCVWU

LindyK

March 31, 2010 4:31 PM

Hi Jeff,

Great article, but I have one bone to pick with you. You REALLY need to watch TV and check out what is culturally "of the moment," even if you don't ultimately stick with it. You need to be part of the zeitgeist or at least have a handle on what is passing for it. Whether you're an entrepreneur looking for the next big thing, an advertiser looking to sell, a writer looking to connect, you need to know the cultural lynchpins.

You might decide after a cursory viewing it's not for you, but at least you understand the lingo. A professor lectured me some 25-odd years ago after I was not watching the TV shows that were changing the style of television (e.g., Miami Vice). She said I could not possibly understand the direction of culture if I didn't at least make an attempt to follow these lynchpins. I still remember that conversation and I did what she said - and you know what, she was dead-on. :)

Domenick Celentano

April 1, 2010 7:33 AM

The nerds appear to be taking over, but that is the misperception of what you call "Digitization of Advertising" and Performance Based Marketing". What is written about are all of the tech tools used today in Marketing… I say Marketing because Advertising is a sub segment of the Marketing Mix.

Some industries have been dealing with performance based metrics for years. Anyone who markets through the Food, Drug and Mass Merchant channels have been dealing with Category Management for the past 20 years. Nielsen and Information Resources have sizeable revenues providing data and services to brands in these channels. Category Management is solidly performance based.

Social Media is now a credible part of any consumer marketing program. Metrics are "built in" to Social Media. And the really smart brands take advantage of Social Media for Product Development and providing Delightful Customer Experiences. Just look at Campbells and Godiva as major brands successfully using digital.

But… the Nerds as you articulate are executing with the tools of digital… tools are tactical as you know. The Marketing Strategy determines the tools for Tactical Execution and the "nerds" are not part of that process. It they are part of the Strategy Development, that is a company who will likely fail in their execution.

So like many other industries, Advertising agencies will need to embrace these Mega Trends to survive and grow… just like many other industries. Maybe most won't survive… but so what? Woolworth, Digital Equipment, Eastern Airlines…. They are gone. That is evolution in business.

All the best.

Domenick Celentano
Silberman College of Business
Fairleigh Dickinson University
http://fdu.domenickcelentano.com/
www.domenickcelentano.com
http://managementofsmallbusiness.blogspot.com/

Brad Dehart

April 5, 2010 12:31 PM

Hi Jeff,

Interesting article about the "nerds taking over advertising." One paragraph in particular stands out to me, and I wanted to share a counter-point with you. I’m a marketing practice lead for ICG Commerce, the procurement outsourcing specialist, and the CFO/Procurement paragraph struck me as a rather negative, one-sided viewpoint of the procurement/marketing relationship.

As I expressed earlier this year in an article for AdAge, there are right and wrong ways for procurement and marketing to work together, and you seem to have encountered agency executives that have clearly run across the wrong way. At ICG Commerce, we have a team of highly experienced marketing professionals and when we are asked to get involved in advertisers’ relationships with their agencies, we work to understand all the intricacies of the agency relationship and focus more on establishing successful relationships, efficiency and maximizing budgets rather than cost-cutting.

Everything we do in support of these relationships is in alignment with our clients - CMOs and their teams. Yes, we do generate savings, however, contrary to the perspective of those agency executives at your dinner, many large advertisers as well as their agencies have been working with experienced marketing procurement teams for years (many of us will be at the longstanding ANA Conference this month). However, it is true that in today’s "new normal" procurement and marketing will increasingly be used in the same sentence, and the only thing to do is improve the process and work together for a mutually beneficial relationship. I know you don’t cover procurement/marketing on a regular basis, but I would be happy to discuss further if you have any remaining questions or qualms about the two working together.

Best,
Brad Dehart

Frank

April 6, 2010 5:40 AM


Right on the Money!

Our payment and revenue structures are also under attack. The commission structure which rewards expenditure before performance is under review,tech companies like Google work on a performance basis ...

Chris O'Hara

April 9, 2010 10:35 AM

As an employee of a venture-backed media software company, I have talked to about 300 small to mid-sized agencies over the last year. They are feeling a lot of pressure on the digital side from data companies, networks, exchanges, etc. Increasingly, they are wondering whether their clients will continue to turn to them for answers, rather than the Googles of the world.

The one thing the big tech players can't provide is the next big idea (and especially not the Wall Street constrained holding company shops, as you so rightly pointed out). But regional shops are still producing really great local advertising. Last night's Baltimore ADDY awards featured LOTS of great stuff.

We are laboring under the assumption that all advertising (or most of it) will continue to be local, and giving smaller shops really great technology to manage their digital practices will be a winning formula. The key (at least for us) is to do it in a way that doesn't REPLACE an agency's expertise, but rather augments it.

What good is using a black-box technology if you can't figure out how it make your client's campaign better? At some point, agencies have to regain expertise. If they can marry great ideas to the means of execution, that's a winning formula.

Chris
SVP, TRAFFIQ.com

Ronnie Lebow

April 20, 2010 3:42 PM

My partner and I are a long time creative team that have been working for ad agencies since the Mad Men days. Lately, working as freelancers for a few different agencies, we fully came to terms with what is happening.

We are now looking to combine our expertise of traditional television with the in-demand innovation of digital media.

Let's face it, websites will become infomercials and companies will have interactive, on-line channels.

Amazingly, many can't see that the (traditional) ship is on fire and we rats are fleeing in droves.

Thanks.
Now off to find us some nerds...

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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