Dan Gregory: On the future of agencies

Marketing sat down with Dan Gregory, founder and CEO of The Impossible Institute, creative chairman of New Republique and The Gruen Transfer regular, at the Schmart Marketing conference. In the first of a two-part interview, we discuss the future of communications and the agency model. In part two, Dan is back to discuss the new marketing, brand culture and marketing leadership.


We’re leaned over the phone-and-laptop array spread across the low table in a loud chocolatier. Dan Gregory is courteously ignoring his mobile phone as we’re in deep on a big question. His politeness is interrupted when Marketing‘s phone begins to buzz – while recording. Click. Silenced. And then his again! He takes the call. It’s the convenor of Schmart Marketing, in progress 50 metres away, across Collins Street. He’s missed his timeslot, but he needs to be there now(!) to catch the next one. He makes his apologies and Marketing composes the ones it will proffer to the convenor.

We had been discussing the future of the digital agency, before he rushed off. Later, we speak to him en route from his home to a client meeting and talk about the new marketing, brand culture, and marketing leadership. You’ll have to buy our August issue to read that, but for now…

“We’re engulfed in a digital revolution, which is the equivalent of the Industrial Revolution of the 19th century. And it’s not just the marketing industry, it’s every industry involved in this. Retail is having to evolve to the online model very quickly; banking is already moving most of its stuff into an online space. So that’s driving a lot of this… There are new tools and they’re really interesting, but what’s more interesting is how we use them, and even more interesting is what are the things that we shouldn’t be changing? What are the principles of return in terms of engaging people? We’re still talking about human beings here. And I think there’s a temptation to have change drive the work that you do, as opposed to the work that you do driving the change that you want to see…

“The rules have changed a bit, and I think we’re witnessing a not-so-slow death of interruptive advertising. We used to live in a world where advertising was producing liabilities that created value for you. So you created an ad, whether it be TV or print or outdoor, but it was disposable. You ran it for a limited period of time, and then once that campaign was over, it produced a profit – hopefully – but once it was over, it was disposable. And I think what we’re moving towards now, and certainly what the opportunities are, is to create assets. Brand assets, rather than brand liabilities, that actually have utility beyond just communications value.

Utility advertising

I think when we have a broadband bandwidth fat enough to drive a TV signal through, appointment viewing disappears. It’s no longer, ‘I’m going to watch Magnum PI at 8.30 pm.’ It’s more, ‘No, I’m going to watch every episode of Magnum, whenever the hell I want.’ And that removes the opportunity to insert ads along the way.

So it doesn’t matter what business you’re in; we’re all in the entertainment industry now, and it’s not a matter of interrupting people the way that we used to. It’s actually how do we get them to come to us willingly and voluntarily? What can we create that has people invest in our brand, invest in whatever news we’ve got to tell? And I think that’s kind of where the future is. And the tools are just broadening the palette we’ve got to play with.

That’s very interesting: the idea of the removal of the artificiality in the viewing experience driving everyone and every brand into the entertainment industry. What do you think that means for the marketing function though?

It means that we’re all a channel; it means we need to skill up very quickly in terms of content creation. I think when you can create a shared experience, it allows you to actually participate in something that allows you to learn more about brand, allows you to learn what the product is. But it actually is about ‘how do you invest some of yourself in it?’, and I think that’s important.

What’s your take on the talent that’s going to be needed? Not just in agencies, but client-side, and even publishers to a different degree. People talk about digital natives and these kinds of things, but I don’t necessarily think that that’s actually the way we should be thinking about it. What are your thoughts?

I tend to agree, and people used to panic that radio was going to kill magazines and newspapers and that TV was going to kill them, and was going to kill radio. And those things still exist. They’re less influential than they used to be, but I think that there’ll be a necessary rationalisation of those things as we go forward. I think that a lot of what we get will just be accessed digitally… I don’t think everything has to be active entertainment, I think we’re still up for a lot of passive entertainment.

I also think the need for aggregation is very important, because, essentially, what we’ve all become is a channel and we have a certain number of eyeballs that we command, and your ability to aggregate interesting content determines the number of eyeballs you get to watch you… It’s still about being strategic and having a real understanding of what’s important to people. It’s still about being creative. I just think the level of sensitivity and the level of skill in those areas is going to become more and more important.

I’m interested in the talent shortage in the advertising industry specifically. We’re at a time where you’re appearing on The Gruen Transfer, Mad Men is going nuts, we’ve got The Greatest Movie Ever Sold. Everybody’s obsessed with this world that we work in, yet we’ve got the 4As in the US launching this initiative ‘Open Advertising’, to try and improve the industry’s image, in order to attract grads. What’s happened that advertising is not a compelling proposition for a graduate today?

Well, I actually think the industry’s dying. I have a theory, and my theory is that whenever people start making television shows about an industry, it’s sort of done as an epitaph. And, I think, Mad Men is an epitaph to that era of advertising. I think the opportunities for people who are creatively talented, who are intuitively empathetic, they’ve got more avenues now. They’ve got more places they can play in, and there’s been a democratisation of access to media, so I think that’s largely driven it. I think it’s also the fact of the way the industry has worked, it’s gradually fading out. Don’t forget, this entire industry was funded by media sales. The only time advertising agencies ever made money was when they sold space, when they sold media.

Gregory at AGBC 50th

When the media commission system died, all of the agencies struggled to make money from that point on, because all of a sudden you had to charge for an idea, which was the thing that agencies used to give away for free. And, a) agencies aren’t good at selling ideas, and b) clients aren’t good at buying ideas…

And when I say the agency industry is dying, I think that the industry’s dying in its current format, and I think that’s kind of why we’re in this period of flux. It’s like every other industry, advertising and marketing is figuring out what’s next. What does the new model look like? Is it really a new model or can we save it? But I also think that there are more opportunities to exercise creativity these days. That’s my take on it. I also think it’s not particularly as well-paid as it used to be. The salary of a senior copywriter when I started in the industry 20 years ago is pretty much what it is now, which was a great salary 20 years ago, but it didn’t exactly march forward with inflation.

But I think it’s actually that there’s a greater palette for people to play with now, and people are more and more making money out of things that have greater risk associated with the greater restrictions on access. I actually think it’s a real time of opportunity, because if you are talented, if you are lit up by creating what’s new, now’s the time to be looking at what advertising becomes, and I think that’s really the opportunity of a lot of smaller agencies. Without naming names, there are a lot of big agencies around town that are down to 20 to 30 members of staff, when they used to have 100 or something, or 200. That’s the opportunity.

Do you see the role of those big agencies being more on the production and deployment function, whereas the local smaller agencies will work upstream with clients on strategy, and in that sort of space that management consultants have held for the past decade?

It depends on where their bottom line is determined. Most big agencies don’t make a lot of money out of the big flashy work; they actually make money out of a studio. It’s the engine room that produces lots and lots of pieces of artwork. I think the big agencies are going to struggle to find a business model that works, because at the moment they’re very top heavy in terms of salaried employees, but the model that used to drive their income is disappearing and changing.

They [also] seem to be shrinking in terms of personnel. They still need their senior staff, because a lot of that thinking can’t be done by junior staff. So I think it could actually go the other way as well. You could have the bigger agencies playing the role of having the really senior staff, and then outsourcing a lot of the production, potentially outsourcing to production groups outside countries like Australia – sending work to India if it’s part of an international alliance. I think that’s how a lot of them will have to compete, and I think that’s indicative of what you see in a lot of industries…

I think you’ll see more and more of that, where things are a little bit more idea driven, rather than the tail wagging the dog, because I think we’ve used the media to drive the creative when we had absolute control over the media, and we don’t have absolute control over the media anymore, so it means we need to start thinking in a different way. There aren’t three commercial TV stations, three magazines and five radio stations in the city anymore, and we’re not consuming media in the same way.

Look, you’ll always have both. I think you’ll always have both. I think the profit margins in the big multinationals are shithouse. If someone gave me X million dollars to go and start an agency now, I wouldn’t do it. I just wouldn’t do it. I think the model is wrong, and I think it’s like every other industry in the world at the moment, it needs to evolve into what’s next, and I think there’s pain-a-comin’.

That’s an interesting point though that you raise – if that was the way the industry went, you would be then faced with an issue of where would the talent come from in a decade’s time? It’s somewhat where the industry is now: planning in Australia hasn’t been invested in and now there’s a dire shortage. I think the advertising industry’s in a bit of a ‘caught in the headlights’ phase.

Absolutely. I think everyone’s in that phase at the moment. I talk to a lot of different industries around the world, and there is a real sense of ‘Shit, we don’t know what’s coming next’. And most people don’t like being in that space. It’s actually a space where there’s a lot of opportunity, but it makes people who have got really good at doing things in a particular way nervous… One of the interesting things about advertising is it’s never been good at charging for time.

If you consider other professional services, lawyers and accountants, they’ve actually been better at charging for time in the past. Now, having said that, I actually think that the time model is a little bit broken and most of the big accounting firms and the big law firms that I’ve spoken to are basically saying, ‘We’re desperately trying to find a way of charging, other than time, because it’s not economic anymore.’

I actually think the agency model, in terms of the margins they’re making at the moment, is completely broken. As a business, if I had money to invest I wouldn’t invest in an advertising agency, because I don’t think that model’s making money at the moment. The margins are just ridiculous. So I think what you’ll see is, you’ll see a shift potentially more to that professional services/consulting/senior business consultant model with global capabilities in terms of production, but I might be wrong…

The other thing that I think is a potential change that you’re starting to see a little bit of now is people, more and more, taking creativity in-house. And, certainly, a lot of the work I’m doing at the moment is… my model at the Impossible Institute is not a consulting model; it’s a training and facilitation model. What I do is help organisations develop their own collaborative and innovation capacity. For a couple of reasons: partly because, I think, when it’s an idea that the people have generated themselves, they get greater buy-in, and there’s a greater chance of success, but I also think it’s a little bit back to that old maxim, ‘If you teach a man to fish, they eat forever’…

There are a lot of companies client-side that have taken creative people inside, and have taken production people inside, and have actually taken greater control of their communications function and the actual production of it. So I think that’s another trend that will be interesting to watch as well – that every industry will need to have its own creative and communications skill set.

What do think has driven that? Do you think that’s a function of the financial crisis? Or do you think that’s a function of digital media, and needing to be able to take a communications piece to market as quickly as possible?

I think it’s a combination of things. I think that the latter is probably driving it a little bit more. In just the 20 years I’ve worked in advertising, the lead times have disappeared. What you used to get three months on, you’re lucky if you get three days on…

And, look, it’s not every organisation, but it’s happening enough that it seems to be something that people are at least considering. I think there is a need for a greater level of, not so much control, but authenticity in the communication. And it’s easier to do that from within an organisation…

It’s one of the advantages of working with a client for a long time. You actually get to know the truth of who they are, and that is then infused in the communication, because what we do isn’t about engaging people with clever, funny ideas; it’s about engaging people around a particular organisation or brand or product experience.

It’s also a function of technological evolution. If you have a look at some of the videos that are put up on YouTube that are shot and edited by teenagers now, and you look at the production values, you think, ‘Man, that was really expensive to do, even 10 years ago.’

Now, having said that, the quality is there in terms of production values, not necessarily there in terms of thinking and strategy and creativity. So those are skills that it’s really hard to outsource to India or China, for example, so I think those skill sets are still going to be critical to success, and those are the skill sets that I think you’ll find the agencies will look to compete on…

So it’s not going to be the case of, ‘Well, I’ll just drop over a chunk of money on a high rotation media spend, and just beat people over the head with my message until they submit’, because you’re not really going to have that option anymore, because people will TiVo through those kinds of ads. They’ll more and more look for media content that doesn’t have advertising of an interruptive form built into it, which is fine. You see different companies experimenting, ‘What if we created a video game? What if we created a television show? What if we created a documentary?’ They’re experimenting with other formats. And the ways of creating brand interaction, that aren’t necessarily what we’ve considered an ad in the past and, certainly, the rise of experiential advertising is an example of that, and I think digital is really just an extension of experience.

Internationally, we’re seeing agency networks are dissolving their chief digital officer roles. We’re seeing clients create digital officer roles. What is your take on the digital officer? Do you think it makes sense to label someone ‘the digital guy’ in 2012?

Yeah, good question. I think we’re actually in that transition mode. There was still a divide between above the line and below the line, previously. We’re still in that stage of people distinguishing between digital and non-digital. Look, realistically, long-term, I don’t think that digital officer role will fit, because I think the idea of doing anything that isn’t digitally conscious will actually disappear, because the idea will just become a ridiculous position to take. I think you’ll have digital so integral to your response that distinguishing between who does digital and who does non-digital work is almost an irrelevance, if that makes sense?

We’re still in that transition time. Let’s not forget that Facebook is only six years old, so it’s a very new space… Necessarily, you’ll have early adopters who have done really well in the digital space, who are now having to skill up in the broader brand space, and that’s where you see agencies, like New Republique coming into their own. They’ve got someone who’s very brand savvy, but also incredibly synced in the digital world, and I think that’s the reality of what we’ll see. I think a lot of the bigger agencies will very quickly want that divide between digital and non-digital to disappear, because the more that divide disappears, the more they’re able to say, ‘Well, of course we do digital, it’s just part of brand.’ And it saves them from having to completely reinvent themselves.

You talk a lot about the idea of assembling these bespoke teams, rather than working with the large networks, in order to get the best of the breed. What sort of sustainable model do you see for the professionals involved in that kind of situation, and how would the clients interface with them?

Yeah, I think that’s a really critical question, actually. In some ways it’s a little bit of what we’ve done with Coke over the past 20 years. Coke has always had multiple agencies on their roster. They’ve had media agencies, they’ve had media communications strategy groups like Naked, and we’ve worked with a lot of those agencies for a long period of time now. Initially, it was an experience of, ‘Come on guys, we all need to play nice in the sandpit’, but I think it’s a model that’s working now.

The thing is, everyone comes from their own agenda. If you’re in a small agency, you want that model. If you’re in a big agency, you want all the business. I’m not really in an agency anymore, so I don’t really have an agenda. It’s just interesting to me to watch. What I have found, though, is that typically while you will find good talent in a big shop, you won’t find good talent in every department in a big shop, whereas in smaller agencies you’ll find people who are really good and specialised at one particular thing, but they need outside help on something else.

I do think part of the reason you needed a big agency was the production end, because, typically, if you think about a traditional piece of business, you’ve usually got a suit, a planner and two creatives working on your business. Right? Now, it doesn’t matter what size agency you are, that’s typically what gets assigned. And no matter what size agency you are, there are only ever about four people working on your business.

Why a big agency mattered, was when you needed a lot of back end, in terms of print production, in terms of TV production, those sorts of things were critically important. You actually needed a big network for that… I just think their big production arm, isn’t going to be located in North Sydney anymore, it’s going to be located in Jaipur or somewhere like that…

There are a lot of marketing thought leaders like you, who have worked in agencies or worked client-side and have broken off to start small independent firms or go solo. I think that is kind of a margin argument at its core; it’s a frustration argument as well. I would be interested to know though, if you could talk to your 18-year-old self now would you say, ‘Go and work in an agency?’

No. Well, actually let me qualify that. What I would say is, “Get as much experience and as many different roles as you possibly can in as short a period of time, and ultimately look to go out on your own.” The problem with advertising agencies at the moment is the only way an advertising agency makes money is when they sell to someone else. I mean that’s crazy. Imagine having a business model that works that way. In almost every other industry I speak to, when I tell people that, they go, ‘Why would you do it? If you’re not making margin?’ Because it’s a gamble, right? The gamble is, you start an agency, 10 years later you’ll go the sell for as much money as it’s humanly possible and you hope that another Photon comes along. Well, that may not happen. That’s a huge gamble. I look a lot of the big multinationals and I go, ‘Jesus, you’ve got some really thin margins, and no one’s coming along to buy a big multinational. You’re already bought.’ Having said that, I do think that the need for creativity, the need for engagement, the need to draw the attention of the consumers, the need to have people warm to your cause – I think it’s actually an incredible skill set.


In part two of our interview with Dan, we discuss the new marketing, brand culture and marketing leadership.