• by John Capone , September 28, 2012

As media, creative, design and PR give way to technology, software and product development, words like “digital” and “agency” mean less than ever

The future of advertising isn’t advertising,” says Rei Inamoto, chief creative officer of AKQA. It’s a funny thing for one of the most decorated advertising executives of the decade — a guy whose life revolves around selling products — to say. Or is it? Then again, it’s the sort of Zen koan admen have been lobbing since David Ogilvy tread Madison Avenue.

Before you shout, “Explain yourself, Rei!” be sure of two things: He isn’t really going to, and he’s got another one for you: “We live in a world where change is the only constant,” says Inamoto. “That’s the only certain thing that we have.”

All of that is true. It’s why magazines like this one can do a new story about “The Future of Advertising” every single year. But you could learn a lot from Inamoto. About advertising. Or not advertising. Whichever. The guy has had to put up extra shelves around his office just to hold all the Lions and Clios, so just listen. “In the 20th-century we lived in a world where media delivered stories for brands, and in the 21st-century it will be software and networks that are building stories for the brands,” he says. “It’s less about relying on tv and radio and print and ooh to spread and distribute messages and more about building software that tells stories.”

In this brave new world, agencies need to behave not like peddlers of media, graphic designers and pitchmen, but, rather, like tech start-ups. And, we’ve got news for you, bucko: The brave new world is upon us. “It’s no longer art and copy; it’s art and code,” Inamoto says. “Quite simply put, it’s the marriage between art and code that’s defining what [the industry] is today, and what will be our future much more distinctly than the one between art and copy that dominated for the past 50 years.”

This manifests in myriad ways. Ways Lee Clow merely dipped his beard in. If advertising agencies are hiring coders, developers and software engineers; if publishing companies are offering custom marketing plans; if tech companies are creating and selling ads; well then, just what makes an agency an agency? Production companies and software specialists (akqa among them) that grew to “agencies” have, to some degree, steered the direction of the industry.

The innovation of small agencies has long fueled the growth of the advertising industry. And in the late ’90s and aughts, as media transformed, that innovation came from all directions. Small shops that had specialties — and many of the creative shops were thought of primarily as production studios back then — were lighter and moved faster than the legacy agencies. And as media went through its digital transformation, some of these small shops went through their own. Firstborn, founded in 1997, was one of these smaller operations seen as a video and digital production studio — a place that made things for brands and other agencies. One of its first major pieces of work was a cd-rom for Calvin Klein. But as time went on, the agency grew and built out its core competencies. It expanded to a second floor in The Film Center Building in New York. Opened and then shuttered an l.a. office. It began to build a reputation as a “digital agency.” Michael Ferdman, founder of Firstborn, says “agency” has become just another suffix, though. “Years ago we talked about ourselves as a ‘digital agency.’ That doesn’t mean anything anymore,” he says now. “I think clients want partners that understand their business and the changing landscape of consumers and how they operate in this digital age.”

In 2011, Firstborn (which still has less than 100 employees and only a New York hq — despite a decade and a half of steady growth) was acquired by the American arm of Japanese holding company Dentsu, which had purchased 360i the year before (both agencies continue to operate more or less autonomously). “When we started, selling was never the goal,” says Ferdman. “But we grew to a certain size and an opportunity presented itself that made sense.”

Mid-size and larger digital indies of a certain vintage are increasingly few and far between. In addition to the Firstborn and 360i acquisitions by Dentsu (which bought Aegis this summer for nearly $5 billion in one of the largest acquisitions in advertising history), the list of recent acquisitions is long. Forward-looking Victor & Spoils, a new-model crowd-sourcing agency, was acquired by Havas last spring. Publicis bought Rosetta, bbh and Big Fuel. wpp’s jwt acquired Digitaria in 2010, just a couple of years after its Interpublic purchased a controlling interest in the fast-growing Huge; wpp also recently acquired Rockfish and, notably, akqa — one of the last remaining digital indies from the dawn of the digital-agency age.

But is it the same-old song with a digital beat, or is the game changing? Dentsu Network president and ceo Tim Andree, for his part at least, says the amoeba-like impulses that usually drive acquisition are in check. “We’re not pursuing a strategy of scale for scale’s sake,” he said after announcing the Aegis deal. Then he took a swipe at his new peers: “That’s the old-style holding company model.”

The moves are cyclical to a degree. The mid-size agencies of today were the smaller agencies of yesterday. But there is a squeeze going on. There are more small agencies and boutique media and marketing outfits than ever, but also fewer mid-sized ones — and the larger holding companies continue to grow. According to a report from Marketing Services Financial Intelligence, combined holding company profits in the advertising and marketing services sector — despite a sluggish economy and global recession — were up nearly 30 percent in 2011 over 2010. The firm tracked the big five (wpp, Omnicom, Publicis, Interpublic and Dentsu) as well as other publicly traded holding companies such as Havas.

“Seems like we are in the age of acquisition,” concludes Ferdman. “Perhaps this process will continue, but the interesting thing will be how the huge increase of software and product companies looking to get funding and sell fast will have any effect on things.” Other frequently mentioned acquisition targets include Brooklyn’s Big Spaceship and Rokkan, both of which were seen at one time as software specialists, but now are viewed as more fully integrated agencies. Rokkan ceo John Noe says, “We are not trying to chase a head count or revenue number.” The agency is driven by a desire to work on big ideas, he says, though not necessarily ones at huge scale, adding that he and his partners are not opposed in principle to acquisition.

Then there is the oddity of moves like Hearst’s acquisition of iCrossing in 2010, turning the former into a publisher that offers in-house agency services to brands. The opposite of a digital divide has opened up. Something that has invited more constituents to the brand marketing party than ever before.

If the acquirers have changed, the targets might also change. It is not so far-fetched to think that holding companies and agencies may set their sights on technology companies and software start-ups.

If words like “digital” and “agency” have been devalued, where does that leave the ad industry? Also becoming muddied are the waters between media, creative, design and pr; even the murky depths between technology, software and product development and advertising have become more turbid. And you know what muck means: mud wrestling.

Many say that the industry has become less about delivering promotional elements and more about providing solutions. There are, of course, many different ways to go about this. And, to Inamoto’s point, most of these don’t look very much like advertising.

For instance, John Noe says branded destinations, while still a component of marketing efforts, are not what marketers are hanging their hats on anymore. The questions, he says, are more like, “What can we do in the places where our audience goes everyday?” and “How do we insert the brand into a space where we can get people to start talking about it?”

In Inamoto’s take: “It’s less about story-telling, but more about behavior. Less about campaigns, but more about building franchises. Less about 360, more about 365,” he says. “It’s better to create 365 days of connection as opposed to 360 degrees of communication; 365 days of connection — you can do that through a single channel, let’s say mobile, you can do that much more effectively than spending millions of dollars on media that people might not give a shit about.”

All of this starts to sound like something to which the public relations industry might lay claim. And public relations agencies are repaying the favor. For instance, Edelman has a global digital marketing division that, at 600 employees, dwarfs many digital ad agencies.

“Because a lot of the stuff that people are doing in the marketing space is so new, there’s quite a bit of action of agencies trying to grab as much of those responsibilities as possible,” says Noe.

“Anyone can own the big idea these days,” says Kevin King, global digital practice chair at Edelman. “That used to default to the ad agencies; I don’t think that’s really the case anymore.” Edelman has been playing in this particular digital muck for years; King sees the digital group as equivalent to a full-service digital agency. “It’s not so much that suddenly we’re competing against more traditional agencies,” he says. “It’s more that we’re doing things that are new that nobody owns at this point.” With social media being less frequently separated and more often integrated (as it rightly should be), the overlaps can be tremendous, involving everything from strategy to community management to media planning and buying.

For a brand manager attempting to evaluate what sort of agency and what particular outfit is the right one, “I don’t think it’s ever been more difficult,” says Aaron Perlut, a cofounder of Elasticity. “There’s been such a blurring of the lines, even between traditional advertising and pr firms, particularly as we all converge on the digital space.” Elasticity, an independent shop out of St. Louis, is the duck-billed platypus of the marketing world. Part public relations agency and part digital marketing specialists, the agency waddled onto the scene in 2009 with its “triangulation” approach to digital media (including search), traditional PR and social media — based on the assumption that these things do not exist in a vacuum. It was founded to fill the nascent gray area in brand marketing. It may have been one webbed-foot ahead, but the world is catching up.

Perlut says Elasticity often competes against ad agencies for digital work. “The onus has been put on brands to become content producers,” he says. Weaving a creative brand narrative and producing content that supports it had been the exclusive domain of ad agencies for years, he argues, but “because of the blurring of the lines, many pr agencies and simply just ‘digital’ agencies are creeping into that space.”

But to Perlut there is the problem of misrepresentation. Just because you can pound a nail into wood does not make you a carpenter. “There needs to be some clarity around what a ‘digital agency’ really is — what that really means,” Perlut says. For example, “there’s a lot of confusion out there because you’ve got agencies that [are] pitching their acumen in social media that are very good at building a community or building a tool to create a community, but not so good at driving traffic into the community so it can then engage and use the tool.”

Although digital has been seen in terms of media as a discipline — going from seo specialists to social media practices — the slow realization that it is the ocean everyone is swimming in is causing some waves.

Despite the fact that social media evangelists are still standing on hillsides waving their smartphones and shouting about the Rapture — preaching the coming apocalypse of consumer control, the evolve-or-die-survivalists having retreated to bunkers somewhere outside of Boulder, and the M&A shrapnel raining down — the digital agency is alive and well, and likely will be for some time. It might just need to retire the words “digital” and “agency.”