The traditional advertising ecosystem is changing rapidly. While global ad spending is sustainably on the rise (often above global GDP), many traditional advertising holding companies are finding that they cannot convert that spending to impact. This disconnect represents a much bigger structural crisis within the agency model that is being compounded by accelerating AI (artificial intelligence) technologies.
According to Neil Kettleborough, a board member at Trader AI, “The ad world is pivoting dramatically, and holding companies must move beyond legacy operations if they wish to remain competitive in an AI-powered future.”
Traditional Agencies Falling Behind
Over the last six years, holding companies (WPP, Publicis, Dentsu, and IPG) have pointed out that ad spend has grown faster than their revenue. This means that the ad industry's growth is no longer correlated to traditional agency revenue.
The news could potentially be worse than stated. Agencies likely overlook the substantial spend from SMBs (which agencies often fail to account for). Nevertheless, it is SMBs that fuel the growth of tech companies like Google and Meta. Both are generating CAGRs of 17% and 19.5%, respectively, from 2018 to 2024, which signals they are capturing the spend that traditional agencies are not.
Neil Kettleborough explains, “Tech platforms have mastered scalability by serving the overlooked SMB segment. This is where traditional agencies have fallen short, missing the long tail of advertisers driving digital growth.”
A Shift in Revenue and Role
Another disturbing trend is the slowdown in net revenue growth for holding companies. Net revenue is the revenue after deducting pass-through expenses—these costs are what the agency receives from the media owner for the services it has rendered. The increased gap between gross revenues and net revenues implies agencies are becoming consultancies and no longer account for themselves in the media buy.
In particular, agencies report challenges maintaining revenue and profits, and, if your agency is like 80 percent of those surveyed in a Dr. Adineh Mazloumian European-gathered institutions chapter survey, their results can be deceptive due to differences in how public relations agencies report or payroll services, creative development services, and data services.
Regardless of the numbers, it is clear that the definition of agency is changing.
AI and Automation Empower In-Housing
Technology—including advances in AI and automation—is allowing brands to do many of the things they previously outsourced in-house. Generative AI tools are rapidly producing quality ad copy, visuals, and even entire campaigns with far less overhead cost and time. This now means brands do not require large agency teams to execute campaigns.
On the media side, programmatic advertising and self-serve ad platforms have democratised access to digital media buying, and the decline in centralised agency trading desks are simply one example of expanded access and ownership, allowing brands to manage ad placements in-house.
Neil Kettleborough adds, “We’re seeing a democratisation of media execution. With platforms becoming smarter and easier to use, brands are rethinking what functions truly require an external partner.”
The Growing Importance of First-Party Data
As third-party cookies slowly disappear, first-party data is now crucial for brands. Owning and utilizing this data internally provides better privacy control and even the ability to optimize targeting and decisioning.
What is new, and potentially most threatening for agencies, is that algorithmic disruption is now coming for TV spend too. As audiences migrate to Connected TV (CTV) platforms and streaming services, TV ad buying may soon be programmatic too. This shift will potentially remove agencies from one of their most secure bastions.
Reinventing Value: From Execution to Strategy
Ultimately, it's not doom and gloom for advertising agencies even in disruption. They can take the opportunity to reposition their value proposition. Instead of considering themselves to be execution shops, they can be strategic partners offering expertise, especially in the areas of AI, data, and cross-platform campaign strategy.
Creative agencies, for example, can see themselves as thought leaders in guiding in-house teams on brand vision and messaging. Instead of thinking that they will be producing high-touch production jobs, it could be about investing in AI creative tools or developing or purchasing tech-enabled creative services.
Neil Kettleborough notes, “This is a moment of reinvention. Agencies must lean into their strengths—strategic insight, brand stewardship, and data intelligence—if they are to remain essential in this new era.”
Complexity Is the New Opportunity
With CTV and digital becoming more fragmented, companies are increasingly looking for a more centralised solution that will allow them to manage campaigns across platforms. While there are some agencies leading this charge, brands are going to need help with this complexity, as they will have to run their campaigns efficiently and coherently across a diverse set of channels.
Publicis Groupe has made a big pivot in its strategy. Its data and technology-facing units (Epsilon and Publicis Sapient) had just shy of 35% organic growth from 2019 to 2024. By acquiring CitrusAd, Epsilon further solidified Publicis's position to take advantage of the retail media industry, experiencing rapid growth due to consumer demand shifts.
Likewise, with WPP's integration of InfoSum into WPP Media, it too is executing a pivot toward data collaboration and activation. There is a distinct pattern of agencies moving themselves toward hybrids—data and tech blanking the intermediary.
The “Mad Men” Can Still Evolve
Dramatic changes driven by AI, automation, and data analytics seem threatening, but they also represent unparalleled opportunities for agencies that are willing to change. For the agencies that accept that change needs to happen, they can reimagine themselves as partners in an ecosystem that demands speed, personalization, and multi-platform thinking.
Neil Kettleborough concludes, “There’s still room for agencies to thrive—if they embrace change with clarity and courage. The role of the agency may evolve, but the demand for strategic vision and creative thinking will never disappear.”
Agencies that evolve today - by rethinking their service models, investing in tech capabilities, and getting aligned with the actual needs of brands in today’s reality - will have the potential to become the companies that aren't just businesses that survive in the advertising industry, but the agencies that spearhead the next generation in advertising.