Advertisers taking marketing services away from agencies and bringing them in-house was a hot topic before the coronavirus crisis, but some analysts are asking if some brands will ease back on in-housing because of Covid-19.
Goldman Sachs said in a recent note that it has seen some evidence that advertisers are looking more favourably on external agencies to keep a lid on costs and permanent headcount.
"In-housing has been seen as a major threat for the ad agencies over recent years, enabled by the shift to digital and increased automation of media buying, although data and anecdotes on the amount and scope of work being actually taken in-housing suggests that this risk has rather been overstated so far," Goldman Sachs said.
"We believe the current crisis could reduce the risk of in-housing at least in the near term, as corporates may prefer to maintain or increase their cost flexibility."
Goldman Sachs cited Pernod Ricard moving some services from in-house to agency earlier this year as an example.
However, there is no one-size-fits-all approach.
Some brands have invested in-house. Others might have an on-site agency, in the client's office, staffed by a mix of in-house and external talent. Many marketers still rely chiefly on external agencies.
Covid-19 is also changing assumptions about on-site working. Goldman Sachs added generally about agencies, rather than specifically about in-housing, that they "could also look to increase the use of work from home, leading to savings in occupancy costs".
So will brands really reduce in-housing because of the virus crisis?
Sarah Golding
Chief executive and partner, The & Partnership London
Too often, this whole debate has been overwhelmingly simplistic. In-housing is either the future and agencies are dead, or in-housing leads to creative people going native, so it won’t work and everyone will come back to agencies. The reality is far less blunt and will be impacted upon by longer-term trends than Covid-19. A modern marketing client needs flexibility in how they set up their own resources and agency centres. And how the client uses both will vary, driven by their cost bases, internal structures and executional needs.
The only unchanging truth in this debate is that the best agency partners offer clients the ability and agility to flex as they see fit, giving them access to a central agency team and to top-class embedded talent. Agencies need to be adaptable and practical partners to clients, not just strategic and creative ones."
Matt Adams
Global managing director, Brainlabs
We have seen a shift with clients that have in-housed by moving to a hybrid model, albeit temporarily. Over the past three months, we have seen clients coming to us to support their in-housing efforts, where they have seen incremental demand through the period of lockdown and are struggling to cope with capitalising on this demand, whilst having additional challenges around remote working. We have stepped in to support major UK brands, providing extra bandwidth or fixing technical issues. In some instances, we have taken back all the digital activation from the client for a few months whilst they fix their internal challenges and then dock it back ready to go again.
The headcount issues that direct-to-consumer or ecommerce brands are having is not hiring great people quick enough and we place top talent at clients to fill this demand – the issue raised by Goldman Sachs would apply more to large corporates, where decisions on headcount are made by non-marketers.
Wayne Blodwell
Founder, The Programmatic Advisory
We have seen an uptick in the number of brands who are considering in-housing paid media since the introduction of the current crisis. This is largely driven through a need to be more agile and to reduce costs in such a challenging business environment.
Yes, it's difficult for these brands to get the costs signed off for internal hires and to make the actual hires, therefore it might actually be easier to rescope arrangements with their agencies, but those who view paid media as a bottom-line business driving activity are certainly considering bringing it closer to their business and, ultimately, I think we'll see more of them in-house than before the crisis.
Rob Dreblow
Global head of marketing services, World Federation of Advertisers
In-housing is a strategic decision, rather than a trend that companies follow. The truth is that some corporates will increase and others will decrease. Our experience of discussing this issue with some of the world’s largest companies across social, search or programmatic is that it’s much easier to secure approval for agency/consultant appointments than it is for bringing fixed-cost, full-time employees into the business.
As big corporates seek to flex their resources to manage the economic fallout from coronavirus, we may find that the strategic case required to justify in-housing will have to be even stronger to attract support from the chief financial officer.
Larissa Vince
Chief executive, Now
Anecdotally, I've heard this from a few clients over the last weeks and months, so I think Goldman Sachs has got it about right. As companies look to decrease their overheads, the flexibility of an outsourced agency relationship is going to be appealing from a fixed-cost point of view – not to mention the additional benefits of access to a greater breadth and variety of talent, more objectivity and that external perspective that you just can't get in-house.
James Sanderson
Managing director, Wunderman Thompson Inside
The accepted risks associated with creating a client-owned "in-house" operation prevail: attracting and developing top talent, the lack of positive tension a trusted third-party agency brings, insight and access to the right tools, technologies, partnerships and specialist skills.
It’s a bad time to go at it alone and gamble with marketing performance. Add to that a centrally imposed headcount freeze (or reduction) and the daily shifting of the sands of consumer confidence and behaviour, now is the time for clients to depend on agencies.
It is, though, no longer a binary agency versus in-house choice. Some agencies such as our Inside practice place permanent agency teams on site [in client offices], delivering the advantages of in-house teams (better speed, agility, efficiency, access to data, at a lower cost), but they are still a core part of our [own agency] business.
"Borderless working" is the new opportunity for agency and clients, and that includes client-owned operations. After all, in the US, 78% of Association of National Advertisers members already have an in-house team.
David Indo
Chief executive, ID Comms
Amongst the many behavioural changes we've noticed during this pandemic, one of the most prominent has been advertisers’ increased focus on examining and interrogating internal media operating structures. The crisis has been a catalyst for improvement in current media management processes; internal operational change has been actioned, providing greater clarity on the role and remit their agency partners will play in delivering media value in the future.
The process of deciding "what to build" and "what to buy" has become a far more strategic decision, rather than simply a tactical one. It’s too early to say whether this will ultimately result in less in-housing, but decisions being made by advertisers are being driven by an overarching desire to ensure greater accountability of media value generation.
Christian Polman
Chief strategy officer, Ebiquity
While we’ve seen a steady march towards in-housing, Covid-19 is causing a rethink. Brands are having more open discussions with agency partners and looking for more flexible options. We’ve always sounded a word of caution to brands looking to fully move to in-housing and this is a good opportunity to rethink and consider all options. In-housing is not a black or white decision – there are different pros and cons for marketers depending on their strategy, focus, scale and complexity.
Coronavirus has amplified the need for a robust business case for in-housing, as well as an environment ripe for fresh thinking. While the motivation for some brands is to take control, there are simpler ways of achieving this outcome without additional risk.
As flexibility and agility accelerates, brands are revisiting alternatives to in-housing. Agencies have retooled their approach in light of leaner marketing budgets and faster planning and production cycles. The end result may be a healthier agency ecosystem that delivers the flexibility, and results, brands require.
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