The main threat to agencies is not a competition, its their client. The lack of transparency, which translates to “we can do this cheaper in-house,” is the reason why companies start building in-house media teams.
As soon a company engages with an advertising agency, there is a natural, intrinsic competition, where the company thinks can perform better, and the agencies need to outperform them.
The advertising channels aren’t helping either: they are making it easier and easier for companies to run media, leaving agencies more vulnerable than ever.
The solution agencies have found so far are:
1) Creativity: by providing better/more compelling creatives, they can provide something companies can’t easily replicate.
2) Taking all the risk: spending their own money to get results, and charge companies based on those results.
Both models have a core flaw: if companies can get better/cheaper creative people, or can get better/cheaper results, there is no reason to keep the agency.
There is a third, semi-explored option: technology. But technology alone is a sunk-cost: if the technology can’t outperform in-house teams or save enough time to allow the agencies to price lower (which won’t do), it is useless.
It is a combination of technology and expertise: agencies who can build technology around vertical expertise will have and unfair advantage.