Andrew Walmsley on Digital: Fortune favoured the brave

Andrew Walmsley
Andrew Walmsley

The web initially threatened marketing intermediaries, but not once savvy ones proved their worth.

If you've ever bought a house through an estate agent, insurance through a broker, or a holiday on the high street, you've probably thought about getting a better deal direct. It's tempting, especially when many intermediaries do little other than control access to information.

Back in 1966, as US interest rates tipped over the maximum returns permitted on deposit accounts, investors took funds from savings institutions and shifted them into directly invested government bonds. A new term was born - disintermediation - as savers cut out the middle man.

The phenomenon really caught on with the explosive growth of the web in the late 90s, as commentators predicted the removal from the value chain of layer upon layer of intermediaries. Everybody would sell direct to consumers, and terms such as retail and wholesale would wither and die.

But although we can all point to growth in direct sales, particularly in finance and travel, for the most part what has actually happened is that the intermediary layer hasn't died, it has evolved. Insurance brokers evolved into or Moneysupermarket. Travel agents morphed into Expedia and LateRooms.

As many old-style intermediaries have disappeared, others have grown up to replace them by finding new ways of creating value for consumers - using the capabilities of the web to improve choice, speed or pricing.

This change is coming to the media business, too. Sir Martin Sorrell, in his recent address to the International Advertising Association, observed that the media sector continues to be disintermediated by low-cost business models.

'The seeds of this problem were sown when the people who created the new media decided to give it away for nothing,' he said. 'Old media will never be as profitable again as it has been.'

The irony for Sir Martin is that the reverse is true for marketing services. For years, media agencies and creative shops had been engaged in a headlong battle for the lowest fees. As they competed to cut income, so the pressure increased to cut corners and seek less transparent revenue sources.

Ultimately, it came down to accountability and value. Even though econometrics could show the value of an agency, a good negotiator could always throw doubt on the numbers. And, regrettably, many procurement departments are motivated purely by cost - often lacking any connection back into the business objectives of their organisation.

The pressure was therefore ever downwards. But the emergence of digital didn't disintermediate agencies. Instead, for the smart ones, it presented them with a new direction.

If you weren't scared of accountability, data, technology and new ways of trading, you could build a new type of agency. One that was focused not just on cost, but on value - not input metrics such as TVRs, but output metrics such as sales revenue.

For the first time it was possible to demonstrate incontrovertibly the value the agency brought. To show how adding to the team (and increasing the fee) could get better results.

For many marketers, that has utterly changed their relationship with their agency. For others, who haven't changed, it's same as it ever was. Their agencies compete to reduce fees, because their own outfit hasn't got the means to measure value. So the process of re-intermediating the marketing services business is far from complete.

Far from disintermediation and lower profitability, it will be a process that will deliver better value for clients, and better margins for agencies.

Andrew Walmsley is co-founder of i-level

30 seconds on...   Sir Martin Sorrell

  • Sir Martin Sorrell is the chief executive of WPP Group, a position he has held since he founded the company in 1986.
  • He was educated at Haberdashers' Aske's Boys School in Hatcham, London before graduating from Christ's College, Cambridge and going on to receive an MBA from Harvard University.
  • Before founding the WPP Group, Sorrell was group finance director at advertising agency Saatchi & Saatchi from 1977-1984.
  • The Foreign and Commonwealth Office named him an ambassador for British business in 1997, and in 2000 he was appointed to a committee briefed to rebrand Britain abroad.
  • Sorrell is a patron of the National Advertising Benevolent Society, the marketing communications industry charity.
  • He received his knighthood in the 2000 'Millennium' New Year's Honours list, which also included actor Sean Connery, supermarket chief Kenneth Morrison, and rock musician Noddy Holder.


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