The Battle for the Service Layer & the Key Contenders

The service layer is arguably the most competitive segment of digital marketing right now. A bunch of macro and micro trends are transforming the relationship between the marketer and its service provider.

The convergence of ad tech and martech, the move towards a customer-first world, and the increasing importance of tech and data in the marketing function, has created a new whitespace where agencies, consultancies, and specialist solution providers are all fighting to own the marketer relationship.

In this post, I will outline the main contenders and assess their chances of becoming/remaining the go-to service provider for the marketer.

Holding groups still win, but only if they evolve

It’s been a tough year for the holding groups. From acrimonious breakups to consecutive down quarters, everyone seems to be sharpening their knives for the incumbents. Many of their problems are the result of market conditions, but they certainly haven’t helped themselves. Regardless of the sensationalist nonsense you read, holding groups are still well placed to survive and thrive.

Holding groups, these are the key areas you need to fix to make this happen:

- Retire the trading teams and wean yourself off rebates.
- Move your offering to real business outcomes, not non-committable metrics. You can make better margins here and consultancies won’t have this capability, as I explained in my piece about outcomes versus enterprise advertisers.
- Move your business to a pure FTE model for cost-conscious enterprise advertisers. Charging single-digit percentages on client media spend only strengthens your destructive addiction to rebates.
- Consolidate your offering and resource into a leaner proposition, including proper consultancy capabilities around tech and data
- Get a proper DTC (direct-to-consumer) offering in place. Understand this segment, and align yourself with this new breed of brand. Your linear TV buying moat will not be enough to win this business (more on this next week).
- Go all in on retail. This is similar to the above.
- Do spend big money on acquiring the best talent in the business

Consultancies need to define and refine their model

Consultancies make a ton of money around project-based fee business. I am still trying to understand how they are going to make media work with this model. They have many things going in their favour.

First, CEOs and CFOs trust their brands and competencies. This is giving them an easy platform to pitch their ‘solutions’ to senior marketers. Secondly, they have the trust factor. The ANA’s many damning reports on agency misbehaviour over the past 24 months has given the consultancy a moral sheen.

All this is good for business. But it still doesn’t address some lingering concerns marketers have about them.

Consultancies, if you can fix these areas, you might well become the masters of the new service layer:

- Your conflict in auditing and marketing services is a problem. Pick one or the other.
- You need to get your hands dirty. Eventually your clients will ask you to deliver the outcomes of your fancy powerpoints.
- Buy companies that can do the above (see the this article on companies you should buy).
- Offer media execution at cost to access the more interesting pieces of business. The ‘in-housers’ will need constant consultancy services to help keep up with the latest tech and processes. Those brand ops people in an office on an industrial estate in Guildford need your help.
- Leverage the global footprint to help clients around their marketing strategies (including dirty work like media aggregation and execution on a local level).

‘Next Generation Agencies’ are nimble and in high demand

I am seeing a lot of ad nets moving in this direction. These agile companies obviously see an opportunity to service outcomes-based advertisers. It’s a tough place to operate, but it might become a necessity as holding groups look to offer similar solutions – removing the outsourced execution layer. Do the following to stay ahead:

- Ensure your outcomes model is the best in the business. Processes, bespoke algos, unique data points, as well as proprietary tech, is always an edge.
- Hire agency people with strong brand-facing skills. Your IO people won’t make the jump.
- Stay agile. NGAs’ key advantage is being nimble. What if AppNexus decides not to work with independents in 12 months? A contingency is always required. You need to be three steps ahead of the competition.
- Be the DTC brand’s best friend. Own this segment.

The specialist implementers and consultancy segment will see significant growth

I am a little biased here, as I have a few industry friends in this area. But from what I see, it has the potential for huge growth. They need to focus on a few areas (see below) to ensure they survive. My feeling is that they will be snapped up by the consultancies and holding groups over the next 24 months.

- Aligning with big martech companies and their suite of products will ensure business. These tech companies have little interest in servicing client requirements. They just want that SaaS revenue. How do you implement, manage, and use martech to achieve specific marketing goals? You need to answer these questions.
- Offer a solution in an area where consultancies and holding groups are conflicted. Most brands want to avoid conflict. They are not comfortable with auditors offering marketing services. Conflict is your friend.
- Like NGAs, you must be nimble. Always look to offer clients new insights and services that your bigger competitors cannot.

As I said at the outset of this post, the service layer is the most exciting area of digital marketing. At ATS London on 10 September, we will be discussing this at length. We now only have a handful of tickets left. Be sure you get one to madtech’s jamboree event of the year to avoid severe disappointment.