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Where Do We Go From Here? Part 1: A Brief History Lesson

Who is this series for?

For all of the college students, recent grads, and members of the marketing and advertising industry who have reached out over the last six months curious to know if we would recommend they go freelance, what advice we have to offer, and where we think the industry is headed – this series is for you.

In this several part series, Where do we go from here?, I will share my perspective on where the industry is headed and who should be considering freelance.

Part 1 explores the history of the marketing and advertising agency.

Part 1: A Brief History Lesson

Let’s break it down from the very beginning. In 1840, Volney B. Palmer opened the first advertising agency in the US. Based in Philadelphia, Palmer purchased a high volume of advertising space within popular newspapers and publications at a discounted price and then resold it to his clients.

W. Ayer & Son took this business model one step further and started to produce the creative for the ad space that they sold. Also based in Philadelphia, they ended up acquiring Palmer’s company and were quite successful until the 1960s.

Technology has transformed the industry several times over, but one of the greatest evolutions came with the introduction of television and radio. These two mediums opened up a whole new world of assets to sell and ways for brands to reach consumers. By 1960, 1 million people had a television set in their home.

Radio, yes, but television really opened the door for advertisers to tell and show stories. It also pushed their creativity to engage more senses, and really tap into the consumer’s psyche.

The 1950s, 1960s, and 1970s was a romantic era of Madison Avenue advertising where male egos and creative storytelling was king. This paired with the globalization after WWII transformed small independent shops into large global companies where brand clients were won over by creative directors and the majority of brand marketing spend was kept with one agency for years and years at a time.

Some of the heavy hitters during that time were: McCann Erickson, J. Walter Thomson, Leo Burnett, and Ogilvy.

Even in this Mad Men era shops closed or experienced layoffs when large clients were lost (often due to creative directors being courted by other agencies or breaking off to build their own shop.). Compared to today’s advertising world, these big changes happened less frequently because contracts would cover multiple years as opposed to by project like is often the case now.

In the late 1980s, holding companies entered the scene. The holding companies started buying up dozens of agencies and in doing so captured a huge percentage of the market share.

2019 estimated total revenue

WPP: 17.5 Billion

Omnicom Group: 15.3 Billon

Publicis Groupe: 11.6 Billion

Dentsu: 9.5 Billion

IPG: 8.6 Billion

For example, of the companies listed above who were all named after their original owners, all are now within a holding company.

WPP = J. Walter Thomson, and Ogilvy

Publicis Group = Leo Burnett

IPG = McCann

Marketing and advertising went through its second pivotal evolution in the early 1990s with the internet. This brought to the market a more cost-effective advertising medium and specialized agencies were formed that focused on leveraging the digital age through data, websites, and eventually social media. I think this AdAge article does a good job capturing this time within the industry.

Fast forward one more decade and data started to show that consumers responded best to experiences. In 2013 & 2014, Experiential Marketing News surveys reported that 65% of consumers prefer experiential to any other type of marketing.

Today, these two trends are reflecting in holding company portfolios. Holding companies now include agencies the specialize in different mediums, different industries, and geographic locations.

This changes the economics of the agency model. Agencies within the holding companies need to satisfy not just their financial needs but that of the holding company. Where does this additional margin come from? It gets passed onto the client.

So the question is, is this model sustainable and does it meet the needs of the current marketplace? More on that next week.

Part 2: The Current Climate

In Part 2, we will explore the agency model and how the global pandemic has disturbed the industry.

Part 1 Sources:

Biographical Dictionary of American Business Leaders by John Ingham
The Experience Economy by B. Joseph Pine II and James H. Gilmore
Greatest Achievements