Changes in Advertising Agencies and Changes in Customer Needs

Hello, I’m Leo Sato (@slamdunk772), the CEO of applemint, a digital marketing agency in Taiwan!

Today, I’d like to share with you the changes happening in the business of advertising agencies in Taiwan!

At first glance, it may not seem relevant to you, but if you can reference the changes occurring in advertising agencies, you might get a better idea of what we should be doing.

This blog is based on the book “The Next Business Model After Digitalization of Advertising Business in 2030.” (published in Japan) If you’re interested after reading this, please check it out! (Though I doubt anyone will…)

Now, let’s take a look at the fierce battles in the advertising industry in 2023!

Entry of Consulting Firms

Did you know that there has been a significant influx of consulting firms into the advertising agency business in recent years. Prestigious consulting companies/accounting firms like Accenture, Deloitte, and PwC are actively engaged in digital marketing.

Originally, consulting firms and accounting firms only provided advice on management and finance and were unable to execute practical tasks. However, that’s a thing of the past now.

Accenture acquired a famous New York creative agency called “Drog 5” and the CEO of Drog 5 became the representative of a related company of Accenture, responsible for digital marketing.

The commercial produced by this related company for the Super Bowl won the Cannes Advertising Gold Award that year.

Consulting firms, due to their business nature, are in a great position to advise on various management issues, including digital, creative, and design issues. Previously, when digital or design issues came to light, many companies turned to advertising agencies like Dentsu or Hakuhodo. But now, with consulting firms being able to handle both management and design, companies are increasingly turning to them for comprehensive solutions.

Consulting firms have expanded their business scope to include digital work, and in recent years, they have rapidly expanded their performance through acquisitions and aggressive hiring of digital talent.

On the other hand, companies like Dentsu and Hakuhodo, traditionally referred to as advertising agencies, are also appealing their ability to provide marketing consulting, and revenue from marketing business has been growing in recent years.

They have also strengthened their digital capabilities. Dentsu acquired a digital-strong company called Septeni and made it a subsidiary, while Hakuhodo has a company called DAC, which is famous for its digital expertise, under its umbrella.

Due to these changes in the times, competition in the advertising agency industry in 2023 has shifted not so much between advertising agencies but rather towards consulting firms. Currently, there is fierce competition between consulting firms and advertising agencies for clients.

Changing Role of Advertising Agencies

The basic revenue model of advertising agencies is to assist clients who want to advertise by providing advertising space offered by advertising companies. Advertising space can be digital media or traditional media such as television and magazines.

Dentsu and Hakuhodo have traditionally monopolized the purchase of advertisements for Japan’s mass media, establishing overwhelming power in Japan.

However, the era is now digital. Google and Facebook do not limit the sale of advertising space to just Dentsu and Hakuhodo (haha).

The volume of advertising placements has already surpassed traditional mass media, and advertising = digital is becoming increasingly prevalent. With the wave of AI coming in, automation of digital advertising has begun.

As a result, some clients have started to internalize digital advertising by hiring their own digital talent. While digital advertising used to require considerable specialization, thanks to AI and automation, the barrier to entry has been lowered.

So, in short, the work of advertising agencies is decreasing more and more.

However, speaking specifically about Taiwan (especially Taipei), digital talent tends to leave very quickly, so even if it’s internalized, if the staff leave, it can’t continue, so there seems to be work remaining for advertising agencies…

By the way, to internalize digital marketing, it is necessary to have a highly sophisticated system where digital marketing can continue even if someone leaves (especially in Taiwan). Many companies fail at internalizing digital marketing by only superficially understanding it.

Now, in this era of AI, it’s quite a threat for us who mainly focus on digital marketing. The entry of consulting firms is also not a favorable environment for us.

So, what should we do? In conclusion, I think that advertising agencies in the future should not specialize only in “advertising” but rather provide total support. If clients feel that digital advertising services no longer hold value, it’s only a matter of time before they leave. We need to support Japanese companies in Taiwan to improve their management and overall business in order to continue with digital.

Assistance in Offline Sales

I believe that a combination of online and offline is important to get businesses on track in Taiwan. However, offline activities are often troublesome and don’t always yield monetary returns.

As a result, many Japanese advertising agencies in Taiwan tend to avoid such troublesome tasks. However, if you don’t do them just because they don’t make money, as mentioned earlier, client performance will not improve and they will eventually leave.

Therefore, in October, we plan to assist a client with short-term store openings and digital advertising to attract customers to those stores. While such measures are not frequent, if successful, they will increase the number of successful cases for our clients and expand our role.

Honestly, I was a bit hesitant to take on resource-intensive offline work. However, I believe that as “small and medium-sized enterprises” without any backing, we should accept our position and be willing to get our hands dirty.

Furthermore, it’s only a matter of time before clients no longer see value in digital advertising services with lowered hurdles. So, what’s important is not what we can do but whether we can deliver results.

The other day, I had lunch with a senior employee of a Japanese company I used to work for when I was in Japan. Listening to my senior’s story, I realized that there was no fluidity in talent, and similar people were doing similar things repeatedly.

Large companies may survive because they have a lot of retained earnings, but there will be no growth. In fact, when I looked at the stock price of this company over a 10-year period, there was no growth at all…

The larger the company, the more difficult it is to adjust to services that clients perceive as “valuable”. After being introduced to this book by a friend who is a president of a company, I felt a sense of crisis that if we don’t change, companies like ours will be swallowed up by large corporations.

So, we immediately held a retreat and told our employees that we would help both offline and online activities as much as possible!

That’s all from me! Thanks for reading!