The Five Biggest Threats of AI to Marketing and Communications Agencies
The AI Challenge to Agencies - What AI has to say about AI.
Today, AI is probably the single most discussed… and often feared… issue facing agencies of all types and sizes.
To better understand the likely potential effects of AI on the agency business, Prosper Group went directly to one of the largest generative artificial intelligence chatbots – Open AI’s ChatGPT. According to Wikipedia, ChatGPT is the fastest-growing consumer software application in history and its website is among the top five most-visited globally.
We recently asked ChatGPT “What are the five biggest threats to marketing and communications agencies (public relations, public affairs, advertising, integrated, digital) posed by AI?”.
Below is what ChatGPT had to say. As you’ll see, we’ve also added some of our own thoughts on what’s happening (or could happen) and what agencies can do about it.
(Our thoughts are included at the end of each section as “Thoughts/insights from Prosper Group”. Everything else except the “Summary” at the end is from ChatGPT, virtually verbatim.)
Next week’s mailing will share ChatGPT’s response to the critically important follow-up questions “What are the market opportunities which AI might present?” and “How can marketing and communications agencies best defend themselves against AI?”.
Per ChatGPT: These five threats to agencies from AI are structural… not just tactical inconveniences.
1. Systematic fee compression and devaluation of core services
An existential change in how these agencies have been doing business. Sweeping changes in billable activities include but are not limited to press releases, copywriting, design exploration, media planning, research synthesis, reporting, even junior-to-mid strategy work.
Clients feel that AI means faster, cheaper and we can do the work ourselves.
What agencies need to do:
Visibly demonstrate human value.
Up their level of strategic thinking.
Move away from labor-based value to judgment-based.
Thoughts/insights from Prosper Group:
There appears to be an opportunity for niche agencies to demonstrate even deeper knowledge and judgment to clients in order to prove the agency’s strategic importance.
Once you have identified your industry or specialty niche, it would be wise to deepen your competitiveness by identifying sub-sectors of knowledge within each major industry your agency serves.
Example: A biotech agency could be healthcare first, niched in life sciences with assigned leaders for sub-categories such as disease states, diabetes, oncology, rare diseases, etc. The pitch could then be “We know healthcare, we are steeped in life sciences and we have an expert who leads all work in oncology.” This type of niche and sub-niche positioning will enhance market relevance and competitiveness.
Then, to demonstrate such deep sub-sector knowledge, you a) develop intellectual property, high-value offerings and proprietary processes which reflect your firm’s deep understanding and prove your brand proposition and b) underscore the knowledge, experience, intuition and judgment you deliver to clients through senior-level involvement that complements the power of AI.
We believe that as the large publicly-traded holding company agencies become more of a generic one-size-fits-all data platform and less “agency”, there will be a huge competitive advantage for deeply niched, strategic agencies to be true partners to the client C-suite.
2. Client disintermediation and in-house AI enablement.
As work migrates to in-house “AI-augmented teams” within the client’s organization, agencies will be reduced to becoming even more executional, more oriented towards short-term projects and relegated to execution overflow.
Long-standing client/agency relationships will weaken.
Agencies will be seen more and more as lower-value producers rather than higher-value strategic advisors.
Thoughts/insights from Prosper Group:
We believe you can already see this move to low-cost implementor (with rates reduced in exchange for large but low levels of work) of AI/data platforms at the global agencies. Along the way, they’re losing (and may have already lost) their trusted role as strategic counselors while stock prices have fallen (e.g. – WPP is down 80%).
Long before the advent and rapid spread of AI, client perceptions of the higher-level strategic value of large agencies have been declining for at least the past 20-25 years. Client procurement departments have driven these firms to low-level tactical work on a large scale and AI will significantly accelerate this unfortunate trend.
There appears to be a real opportunity for deeply niched independent firms to step in and fill the senior partner role with clients.
That said, those aspects of AI which make the agency more efficient and compelling should be embraced. Agencies should explore the potential of AI in core areas including a) upfront data-delivering insight, b) cost savings for junior-level work, c) incorporating AI as much as possible in the delivery of high-value service offerings and d) determining if “AI + Senior judgment” opens up the possibility of new revenue. (Most agencies will need to hire a qualified consultant for “c” and “d”.)
Given the client mindset that AI automatically means cost savings, the long-time practice of hourly billing may no longer serve agencies well. It’s likely that productizing offerings with fixed-value pricing may be needed at some point.
3. Strategic commoditization and “Good enough” creative.
(Note from Prosper Group: The following statements from ChatGPT are directed primarily towards advertising/creative agencies.)
AI provides rapid generation of competent, on-brand, channel-specific creative on a massive scale.
Agencies must now be better than that particularly for social media, content, performance media and more.
If an agency cannot clearly articulate why its thinking produces materially better business outcomes, creative output alone will not justify premium fees.
Thoughts/insights from Prosper Group:
Creative agencies need to have a specific, meaningful and effective creative philosophy to guide the work which they develop and produce for their clients.
This work needs to be more creatively distinctive, connect powerfully with the right audiences and do a better job of driving measurable results.
4. Talent model breakdown and cultural erosion.
AI will destabilize agencies internally:
Junior staff will skip learning the fundamentals.
A mid-level hollowing of talent occurs.
With AI, quality control becomes harder, not easier.
Institutional knowledge erodes.
Roles are threatened.
Morale declines.
Agencies risk becoming assemblers of AI output rather than builders of differentiated intellectual capital.
Thoughts/insights from Prosper Group:
Agency commitment to ongoing training that ensures your talent develops in the age of AI will become even more important than it is today (perhaps especially for teaching fundamentals in the earlier stages of careers).
Training is key to providing talent with the tools for their career development and growing into strategic thinkers and leaders on their clients’ accounts. This process could be stunted by AI, so developing a professional development program to transform mid-level leaders into strategists will be critical.
The widespread adoption of AI by clients will accelerate this need long-term.
5. Loss of strategic authority and trust.
Clients often confuse information (AI) with judgment and over-trust AI outputs.
(With AI), agencies will be excluded from early decision-making.
Agencies become reactive rather than influential.
Thoughts/insights from Prosper Group:
Despite the pressure on revenue and profitability which AI will exert, agencies will need to do a credible job of demonstrating they have the deep knowledge, experience and ability to bring senior talent to the table to help clients overcome their biggest challenges.
This may require a re-examination by agencies of whom they are built to serve, what weakness AI may have for their target clients and how the agency can fill that void. As noted earlier, we believe that can be achieved via super-niche knowledge, strategy and judgment delivered by senior-level teams.
Summary (and how Prosper Group can help).
To meet the AI business challenge, agencies of all types need to develop a strategic growth plan that regularly reviews and evaluates:
Their current brand proposition, service offerings and productization/IP opportunities.
Staffing and structure.
Recruitment, training and retention of talent.
What type of client work resides in the world of AI.
New compensation models as AI becomes a bigger piece of agency life.
Prosper Group has many years of proven experience in helping agency owners overcome tough challenges and navigate through the periodic tidal changes that fundamentally alter how agencies do business. AI represents the most recent game-changing evolution in the life of agencies… and it won’t be the last.
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