Response from Google’s Gemini app:
Over the next five years, the advertising agency holding company model is likely to see the elimination of its centralized, siloed, and high-overhead functions in favor of more integrated, technology-driven, and agile structures. The traditional holding company, which operates as a collection of independent and often competing agencies, is being challenged by new market dynamics.
1. High-Overhead and Redundant Back-Office Operations
The most likely elements to be eliminated are the redundant and inefficient back-office functions that exist across multiple agencies within a single holding company. This includes:
- Finance and accounting: Instead of each agency having its own finance department, these functions will be consolidated into a single, centralized operation for the entire holding company.
- Human resources: Recruitment, payroll, and benefits administration will become a single shared service, eliminating the need for separate HR teams at each subsidiary agency.
- IT infrastructure: Agencies currently operating on disparate systems will be integrated onto a unified technological platform. This will not only reduce costs but also improve data sharing and collaboration.
2. Siloed Service Offerings and Competing Agencies
The traditional model of a holding company owning dozens of separate, specialized agencies (e.g., a creative agency, a media buying agency, a PR firm) is becoming obsolete. The new model will favor a single, integrated operating company that offers a full suite of services under one roof.
- Separate creative and media agencies: The historical separation between creative teams that develop the message and media teams that place it is a relic of the past. Clients now demand seamless integration and a single point of contact for their entire campaign. AI is also making media buying more automated, further devaluing the old model.
- “Branded” silos: The holding companies’ tendency to maintain separate agency brands to serve competing clients will be replaced by a single, cohesive brand or a small number of brands with clear, non-competing specializations. This will help to reduce internal competition and improve collaboration.
3. The Traditional Role of Media Buyers
The role of the traditional media buyer is under direct threat from automation and artificial intelligence (AI).
- Manual media buying and planning: With AI-powered tools and programmatic advertising, a significant portion of the media buying process—from ad placement to bidding and optimization—can be automated. This will greatly reduce the need for large teams of human media buyers and planners.
- The “black box” of media buying: The lack of transparency in media buying has been a long-standing issue for clients. The shift toward automated, data-driven platforms will increase transparency and shift the agency’s value proposition from transactional media buying to strategic consultation and data analysis.
4. Legacy Business Models and Fee Structures
The classic fee-for-service model is being replaced by more performance-based and value-driven compensation models.
- The “billable hours” model: The old model of charging clients for time and materials is giving way to new models based on outcomes and a brand’s long-term success. This shift aligns agency incentives with client goals and moves the focus from effort to results.
- Arbitrage and markups: The practice of agencies marking up services, particularly media, will be difficult to sustain as clients demand more transparent and direct relationships with media platforms.