These are the 5 forces that are rapidly killing advertising agencies

Disney/Lucafilm

• Ad agencies are facing several existential threats, according to a new Forrester report.
• This includes everything from CMOs taking more media and creative in-house to consulting firms coming after high-margin agency services.

The Chief Marketing Officer's purview is expanding beyond building brands to driving sales and business transformation. As a result the future of ad agencies has never been more in doubt.

Indeed, ad agencies are facing an increasing number of severe external threats, confirms a new report by market research firm Forrester. And the traditional agency business model just won't cut it.

Here are the five forces that are causing chaos in ad land:

CMOs are increasingly bringing agency work in house

A growing roster of marketers such as Booking.com and Chobani are taking ad buying and ad production in-house in a bid toward cost effectiveness, transparency and greater control over customer data.

• According to a brand Forrester survey from May, 64% of respondents said that they use in-house agencies for some services in 2018 - an increase of 52% from a decade ago.
• Unilever recently said that ended up saving 30% in marketing spend after shifting some production resources to its in-house agency.

The trend is gaining steam, said Scott Kauffman, chairman and CEO of MDC Partners.

"Clients ought to take ownership of automated process, commodity-priced functionalities," he said.

Companies need to serve customers around the world

In this digitally connected age, CMOs require teams that can execute globally. This puts pressure on agency holding companies to work across their agencies' different profit centers

While several holding companies have global presences and are making greater efforts to foster global collaboration, this is an area where consulting firms are seen as having an advantage.

• One brand marketer, for instance, told Forrester that a global partner to help build best-in-class capabilities and scale isn't realistic in the current agency structure.

CMOs are aggressively managing and cutting costs, especially on the media side

As they look to prove the impact of every dollar they spend, brands are steadily eyeing cuts to agency fees to drive down the cost of marketing.

Meanwhile, traditional agency revenue models like media, production and operations are grappling with the threats of transparency, automation and competition themselves.

This undoubtedly puts pressure on agencies to trim and justify costs, forcing them to discount labor costs, restrict the scope of work or manage margin through fees.

That creates a vicious cycle, where client trust is affected and the quality of services delivered is compromised. Yet the number of fees marketers are saddled with keeps growing,

"The cost of marketing is significantly increasing from the expansion of touchpoints, the price of media, content, data, technologies, and agency fees," says Colin Kinsella, CEO of Havas Media.

Consultancies are encroaching on high-margin marketing services

Global management consulting firms like Accenture and Deloitte have been increasingly encroaching on agencies' turf in recent years, buying their way into advertising through creative acquisitions with added experience in business transformation.

• Accenture Interactive is now the world's biggest digital ad agency, and has seen 50% growth and $4.4 billion in agency service revenues in 2017.
• Another recent Forrester survey found that 73% of marketers are open to using consultancies for digital marketing work, including 14% who said they were "very open."

More stakeholders are driving company growth agendas than before

• For instance, an agency executive said that marketing owned only half the "content" budget at one global technology company.
• 50% of global marketing decision makers see revenue growth as a top priority for their organization, ahead of improving differentiation or brand reach in the market.

This has weakened the role of agencies as well as the agency-of-record relationship, as brands begin to rely on other partners for services typically provided by agencies in the past in a bid toward greater efficiency.