Now that we are midway through the first month of 2018 (and I’ve had a chance to digest predictions from AdAge, Agency Mania, and others), I want to sum up what I’ve read on the most significant trends for creative agencies, with an emphasis on the outlook for agency new business.

In the second half of 2017, we saw disconcerting dips in the big agencies’ earnings and a 12% decline in new business wins during the first six months of 2017 compared to the same period in 2016 (per data from international consultancy R3, in AdWeek). A Gartner study published in November 2017 found a full third of the marketing executives they surveyed expected their budgets to be cut or frozen in 2018 (Marketing Week). Additionally, agencies have continued to face encroachment by consultancies and in-house agencies.

Considering these and other factors, industry conditions were challenging in 2017, forcing agencies to evolve faster than ever before. Will 2018 offer any respite? Don’t hold your breath.

General Industry Forecast

Continuing the trend we saw in 2017, advertising budgets will be leaner, trimmed of fat, and there will be greater emphasis on budget accountability and transparency (Agency Mania). Consistent with that, simplification efforts will emerge across the board. Whether it is technology applications or business relationships, we will see more movement towards efficiency and a reduction of operational complexity. This will be visible, for example, in the consolidation of agency networks, a reduction in the number of agencies on client rosters, and in agency M&A (Agency Mania). On the tech side, look for solutions to integrate martech “stacks” to improve automation efficiency for agencies and their clients (Agency Mania).

Another trend that will impact agencies in the coming year is the speed of new technology. In 2018, expect to see advertising delve into new environments like augmented reality, voice-activated AI devices, and self-driving cars (Entrepreneur.com). And Amazon. Another major technology disruption on the advertising horizon appears to be Blockchain (AdAge). Are you ready for it?

Agency New Business Forecast

Work will continue to move towards more project-based relationships, with fewer agency-of-record opportunities. We’ve already seen that happening in previous years, and there is no reason to expect a change. Agency Mania predicts more reviews and more roster changes initiated by brands (they attribute this to the talent gap), and point out that (like Office Depot OfficeMax’s Zimmerman Advertising hire) not all of the roster changes will involve RFPs and formal reviews.

Unfortunately for agencies, consultancies (like Accenture, PwC, IBM, and Deloitte) have been doing pretty great and will continue to gobble up agency business and talent in 2018 (Agency Mania). On the other hand, some agencies will also be competing with consultancies through their business strategy services). The net effect is, the gap between agencies and consultancies will narrow.

In-house agencies will continue to appeal to brands, but as marketers encounter challenges, they will lose some of their appeal as a cure-all. In-house agencies will evolve, with an emphasis on hybrid, collaborative models between in-house and external agencies, and they will have a greater focus on media and programmatic rather than creative and production (says Agency Mania). If true, this could mean in-house agencies end up presenting less of a direct threat and (slightly) more of an opportunity for agency new business. On the other hand, a recent Association of National Advertisers (ANA) report indicated 35% of brands are moving programmatic work away from media agency partners, so more business may yet be lost to in-house agencies before that happens.

Agencies will continue in their quest to adapt to challenging market conditions. New internal consultancies, partnerships, rebranding, and repositioning will continue to be among the ways agencies seek to position themselves for continued growth. (If you are looking for your agency’s next big thing, maybe it’s finding a way to capitalize on Blockchain. Judy Shapiro has been proposing a new “disruptive agency model” for the “agency of the future” in AdWeek. See her case for why Blockchain is “the biggest new revenue opportunity for agencies since 2005…”).

Which types or classes of agencies are expected to fare better than others? Small, independent agencies are expected to continue their winning streak over behemoth international agency networks (Agency Mania). Digital agencies will also continue to win. As budgets shift to digital advertising, advertisers want agencies that own this area (Agency Mania). I also expect experiential agencies to fare well in 2018 as brands invest more heavily in live events (for example, 63% of the senior-level marketers interviewed by Bizzabo in 2017 expected to increase their investment in live events in the coming year).

Operations Forecast

Faced with smaller budgets, talent shortages, and more project-based work, agencies will continue to tweak their business models and explore alternative solutions for staffing, work, bidding for work, and payment models. More agencies will invest in agency management software to improve operational efficiency (a quick search for top-rated software on Capterra.com reveals Marketing 360, monday.com, and BRIC are among the leading products in this area).

Such software solutions might also help support transparency, which is becoming more important to agencies as trust between agencies and brands has been so damaged that it now undermines both relationship longevity and performance. Agency Mania identifies brands that prioritize transparency as “high growth” agencies, in part because they might be able to “avoid the distractions of frequent client audits and never-ending contract negotiations…” allowing them to focus on relationship-building and delivering great creative.

Parting thoughts

With the promise of technology to support your agency operations and martech stacks, don’t forget to think about how you might use it to capture campaign results. I touched on this in my post on case studies; agencies frequently want for data to illustrate the business results of their work, which hurts them down the road. An inability to demonstrate meaningful results in 2018 (certain to be more competitive than ever) will leave your agency more vulnerable to competitors.

I read a blog post from Mark Schaefer this week on digital marketing trends. In it, he writes:

“Here is where the power is today: user-generated content, reviews, and influencers.

Here is where the money is being spent today: advertising, agencies, campaigns.

This has to change.”

I mention this as a reminder that complacency is not your friend. Agency owners can’t afford to stop thinking about how their agencies will continue to profit in the changing landscape. The winds of change are at your heels, and they are eager to scatter your money in other directions.

This is a quick take of select highlights from industry predictions. I encourage you to see Agency Mania’s excellent and well-supported list of agency predictions for a more robust review.

Is it time for some help with new business generation?

Read more:

• Agency Reinvention and Positioning for Adaptation
• What Are Agencies Doing to Win New Business?
• Notable Trends for Ad Agencies in Q4 2017
• 5 Things That Will Prevent Your Agency From Thriving In The Future

Image credits: ad industry outlook: ©iStockphoto.com/portishead1; agency/consultancy gap: ©iStockphoto.com/tomazi; operations forecast: ©iStockphoto.com/maxsattana; agencies losing money: ©iStockphoto.com/Lorado