Future of Marketing Series: How AI Will Create Massive Disruptions in the Agency Sector

From fee models to creative quality, AI is challenging agencies to evolve.

Last November, I wrote an article detailing five ways AI will create sea changes in the marketing sector. This is the first of a series of articles expanding on those themes.

AI is ideal for automating repeatable tasks, including those actions outsourced to marketing agencies. Many billable by-hour rote tasks performed by junior staffers will be replaced by more functional and precise AI automation, what some call task rabbits. These AI apps make tedious, time-consuming human work easier to execute.

Current AI point solutions— from writing assistants to video editors — aren't good enough yet to drive widespread disruption or agency displacement. Still, they are already saving time, creating new efficiencies, and increasing productivity. What happens when they become more functional with each passing AI model upgrade?

While current AI solutions may not cause major disruptions, rapid improvements in AI functionality and capability will likely change within a year or two. Writing assistants, video production tools, graphic design apps, and other AI systems will advance to match or exceed human creators' output quality in many routine marketing tasks.

Corporate Marketing Comes to Understand Cost Per Action

As AI evolves, corporate marketing teams will embrace AI tools to generate content, design assets, and execute campaigns with increasing efficiency, consistency, and measurability. A catalyzing result is knowing how AI can save time and costs on different marketing actions, including those outsourced to agency partners.

Further, marketing leadership will know agencies can deliver more than their old, somewhat vague retainer commitments. They will also ask how AI can generate more measurable and specific outputs and reduce costs. Agencies are often a target for cost-cutting initiatives. AI presents new opportunities to reduce costs and hasten marketing productivity in every function across the department, including the creative, digital, go-to-market, and communications functions agencies often provide. The severe cost control mechanisms facing CMOs add to the pressure to reduce unnecessary overhead at every opportunity.

It will become harder and harder to demand ambiguous five-figure retainers for a general quota of social media posts, advertisements, go-to-market campaigns, press releases, video clips, and more. Hourly rates will become marginalized, ultimately forcing reduced quality in the traditional model, which will hasten the agency AI crisis.

In addition, marketing organizations will look to pay for performance or output, which could create misaligned objectives.  By marginalizing results and outcomes, marketing becomes commoditized, creating a base level of acceptable performance. Creative innovation will suffer because reducing human production costs – labor – is the most common way to achieve margins. Developing great creativity is often a trial and error, a wandering process, but to paraphrase Indiana Jones: The Temple of Doom, “There’s no time for love, Dr. Jones.” Cost demands may force creatives to simply pick the best AI output and evolve it.  

What Will It Take to Thrive

The biggest, resourceful, and specialized creative agencies will likely thrive in such a world. The rest of the agency sector, primarily mid-size and small consultancies, will battle on the margins. Can they justify their creative costs?

At the same time, a new breed of agencies will arise, those that are unencumbered by past models or who can shed them easily. These new agencies will be human-driven agencies working hand in hand with AI machines in new hybridized creative processes. This is the AI co-pilot model oft discussed in generative AI circles.

Forrester dubbed this hybridization “human/technology equivalents”, or H/TEs, in their report, “Solving The “Do More With Less” Marketing Paradox: Human Plus Technology Equivalents.”  In the report, Forrester analysts Jay Pattisall and Keith Johnston said, “H/TEs represent a leap forward to solve the CMO’s “do more with less” paradox because smaller, smarter marketing agencies control the marketing costs, increase content scale, and improve productivity and accuracy.”

While we agree some agencies are run by brilliant creatives, and they will meet the moment. However, most small agencies nationwide are boutiques and regional players started by smart marketing entrepreneurs with traditional and digital marketing models. In most cases, cutting-edge creativity is rarely the differentiator when compared to larger global agencies. Instead, costs, geography, domain knowledge, or simply relationships fuel smaller agency businesses.

To survive and meet the new standard, agencies must embrace AI, become more productive per hour with better results, and consider offering performance-based pricing. Agencies that fail to integrate AI into their workflows will quickly become non-competitive on quality and cost. We anticipate there will be a fair amount of trial and error in new pricing models as the marketing sector navigates the new AI reality.

More strategically, the expanding capability of AI tools poses an existential question that cuts to the core of traditional agency value propositions. By 2026, agencies that fail to leverage AI will struggle to retain clients and will likely face a business crisis.

The sector faces an ultimate challenge. If AI can handle an ever-wider breadth of marketing content production, media and influencer pitching, and social media content creation, and increasingly, if companies choose to in-source thanks to ease of production, what unique value do agencies provide?

Can Agencies Respond?

It’s a serious challenge, and the only defense 19 agency experts could offer in a Forbes round-up article was the human-in-the-loop creative quotient,. While creative and strategic thinking is the true saving grace for keeping agencies around in some fashion, can agencies leap from campaign to thought partners? This is a huge challenge for agencies that often give strategies and creative ideas away for free as part of their pitch process to clients.

Adaptive agencies will find ways to successfully incorporate AI into their talent stacks while still providing human insight, creativity, and strategy. Larger agencies are already investing monies, some haphazardly, to come to speed with AI. For example, we covered one such agency of in our Cognitive Path from last week, focusing on actual use cases for AI image generators.  International advertising agency Fred & Farid started a new boutique agency called AImagination, which uses AI image and video generation to cater to CMO needs for “speed, cost, and efficiency.” Clients include The North Face in China and cognac brand Louis XIII in France. 

Other large agencies and conglomerates like WPP, Publicis, and Omnicom have already embraced AI in some form, building their own data science centers, teams, and initiatives. They empower their agency workflows with machine learning automation, predictive analytics, and generative AI, build AI-centric apps, and invest hundreds of millions of dollars to bolster their AI capabilities to sell to their marketing clients. Here are just a few quick examples:

·      WPP is building an AI-enabled content engine with AI powerhouse NVIDIA, and is investing more $300 million into its AI strategy.

·      Publicis is also investing $300 million into its AI capabilities to “become an Intelligent System company capable of connecting every data point”.

·      Omnicom built a first-mover collaboration with Getty Images to provide early access to the image licensor’s AI image generation engine and integrated it into the Omni operating system.

Some survivors will double down on the enduringly human aspects of great marketing - insightful strategy, imaginative ideation, and innovative problem-solving, albeit using AI to enhance and strengthen their offering. In this scenario, AI offers a suite of tools offering greater personalization, targeted campaigns that better reach customers and prospects, and greater overall precision in media-buying, SEO, and GTM campaigns.

In the best-case scenario, large agencies will evolve to compete with professional services firms like Accenture and Bain to become the marketing organizations' AI firms of choice. In such cases, high dollar retainers, full-time employees (FTEs) fees, and always-on support become the norm. Payments for monthly software as a service (SaaS) fees are also included in monthly fees. It is possible that agencies that embrace data science professional services will evolve to become vendors to the larger client enterprise.

Those agencies that stubbornly resist AI or fail to retool their value propositions risk rapid client erosion starting as early as late 2024. Independent agencies that cannot evolve will close their doors or be acquired through M&A consolidation driven by AI disruptions. Also at risk are highly specialized digital agencies and consultants who specialize in aspects of digital marketing, for example, social media marketing, website development, content marketing, SEO, video production, etc. Every part of the digital agency’s core focus will come under fire from AI.

Dramatic Change Wrought by AI

AI is creating dramatic change in the agency sector, forcing increases in productivity, changing value offerings, and even causing a re-evaluation of compensation. Those who remain will be the most strategic partners, those offering unique creative or hybridized AI-co-piloted offerings, and/or teams capable of building and managing enterprise AI systems and data science projects.

Agencies that achieve this level of AI-savviness – either with enhanced creative offerings, data-science-oriented players, or a combination of both – can still carve out a strong value proposition. But make no mistake - turbulent change is rapidly headed toward the agency world, and the time to adapt is now.

If you own an agency owner or principal looking to meet the moment, look for ways to use AI to scale, produce more, and/or offer outcome certainty. If you are an employee, embrace AI in your workflow either as an individual or, better yet, as a change agent within your organization, strengthening productivity and reducing margins.

Marketing organizations should closely work with their agency partners to ensure they adapt AI and learn how those new methods create more value for them. If it is unclear how agency partners use AI to produce results or how new initiatives are strengthening results and/or reducing costs, then marketing organizations must engage in frank conversations.

Regardless of the outcome, marketing organizations should get more from their agency dollars in the future, thanks to the emergence of AI-empowered services. Now is the time to change procurement and sourcing strategies to ensure modern marketing techniques are in play and that corporations are appropriately indemnified.

Fellow CognitivePath Principal Analyst Greg Verdino contributed to this article. All images were created on Midjourney.