Why the On-Demand Economy Shifts the Traditional “Agency of Record” Model

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For anyone working in marketing, the release of Mary Meeker’s annual internet trends report is Christmas come early. Each year, Meeker, a venture capitalist at Kleiner Perkins Caufield Byer, assembles the latest research and presents an aerial view of the global internet tech industry. The 196-page report encompasses everything from the current state of global internet adoption to the rise of ecommerce to the increasing dominance of mobile apps. And if you’ve paid any attention to the flow of venture capital in recent years, you shouldn’t be surprised that a significant portion of the report is devoted to the rapidly evolving “on-demand economy.” Defined loosely, it is the growing coterie of apps and platforms that seamlessly connect a consumer who desires a service with the laborer who provides it. Uber is the company you hear referenced most often in discussions on this industry, but as the below slide from the internet trends report illustrates, on-demand platforms allow you to perform everything from booking a restaurant reservation (OpenTable) to ordering food delivery (GrubHub) to finding someone to assemble your Ikea furniture (TaskRabbit). In 2014, on-demand mobile companies received $4.1 billion in funding, and $9.4 billion has been invested in this sector since 2010. On-Demand Company Fulfillment This growing sector has had a profound impact on the labor force and the growth of what is (sometimes pejoratively) called the “1099 economy.” These are the freelance laborers who eschew traditional 9 to 5 jobs and seek out independent contract work. According to some estimates, there are 53 million Americans in this category who make up 34 percent of the workforce. Millennials comprise 44 percent of the on-demand workforce, and, according to Meeker, 38 percent of today’s millennials are freelancers. You’ll notice that, of the businesses listed in the above slide, nearly all of them are B2C. That is, they focus primarily on connecting the businesses or laborers to consumers, with the average transaction consisting of no more than $100. But as the on-demand economy continues to mature, we’re starting to see the emergence of platforms meant for connecting businesses to other businesses, or B2B. We’re going from “I want a burrito, now” to “I want high-quality content, now,” and we’re expecting to get that premium content without having to go through an expensive agency first. Whether it’s finding a high-quality designer (Behance, Visually), a niche content writer (Scripted, MediaBistro), or a book editor (Reedsy), brands are more consistently pursuing a buffet of talent rather than settling for whoever currently works for their contracted marketing agency. For decades now, large brands have traditionally relied on an “agency of record” system for their marketing and advertising efforts, meaning they signed year-long contracts with a single agency, one that acts as the point guard and provides all of the advertising services for the brand. When you consider the work that goes into, say, a Super Bowl ad, which costs $500,000 to create and then millions of dollars to run, such an arrangement makes sense. It’s the type of investment that requires a long lead cycle and the kind of heavy production that can’t be done piecemeal through a dozen independent freelancers. But when you’re putting social content out in a constant stream spread across half a dozen channels, you need to produce it quickly and efficiently. Though many advertising and marketing agencies often claim to be “full service,” there are so many sub-specialties within marketing now that it’s likely the agency is having to farm out much of its work to subcontractors. Agencies are running into the same challenges that internal marketing departments face. It’s too costly to maintain a full bench of creative talent and impossible to justify retaining special skill sets that are used infrequently. But brands want those services now and they need them now, and the economics of the old model are too inefficient compared to the real-time delivery of online marketing. The traditional agency model carries significant overhead, which requires larger markups to cover costs. On-demand platforms, by leveraging a much lighter layer between the client and the creative, dramatically reduce overhead and markups, allowing the creatives who are performing most of the work to take home a much larger percentage of what is being charged for their services. That said, the agencies are still playing an essential role in strategy, ideation, and the broader brand, marketing, media, and campaign management. By shifting toward consulting and away from production, agencies can improve margins and focus on the highest value services. Over the last year, we’ve seen an increase in agencies leveraging platforms like ours as their internal production engine and go-to resource for specialty projects and skills. In fact, PR and communications firms (which have traditionally lacked any in-house production capabilities) have already become one of our most important client segments. The shift toward the freelance economy is not without risk, for both the marketplaces and traditional models. When you talk with freelancers, the primary benefit they seek is control and flexibility. They want to work when they want, for whom they want, on the projects that interest them. This ability to “vote with their feet” will require every employer, agency, and marketplace to step up their game, knowing that a better opportunity may be only a click away. Matt Cooper is the CEO of Visually. Follow him on Twitter @matt_cooper.

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