Oct 16 2012
Basis Team

Want to Win the Race to the Bottom? Don’t Invest in Tech


(AdAge.com) - Is the advertising industry willing to look at itself and acknowledge that it has a big problem? Can anything reverse what seems like a race to the bottom and allow a rainbow to emerge?

The crisis mirrors what has happened in the newspaper business. Two decades ago, newspapers were profiting by big margins, with no incentive to invest for the future. As technology changed and profit margins shrank, these companies were left with no capacity to invest. So they laid off people. This led to diminished product quality, which contributed to even more lost revenue. Many newspaper companies got entangled in a race to the bottom.

In our industry, the digital revolution has triggered three dangerous trends that, combined, pose a similar life-threatening challenge:

  • The business of managing digital advertising is hugely complex compared with that involved with handling traditional TV, print and radio advertising. The solution for most agencies has been to hire more junior people, which increases expenses, rather than invest in advanced technology that could spark enhanced productivity with fewer staff.
  • The dominant fixed fee-for-service compensation system vs. the traditional commission-based compensation, whereby digital work was paid much higher, has meant that agencies are doing more work for less money. With somewhat larger staffs and little new technology, they have limited resources to handle increasingly complex digital advertising.
  • Digital work gets even more complex with the emergence of search, social, big data, owned media, branded entertainment and other new media. Already stretched-thin teams are required to manage, track, analyze, slice, maximize and handle countless new responsibilities.

The result?

Read the remainder of this article on AdAge.com.