How Will AI Impact Agency Business Models & Compensation?

KeysArtificial Intelligence (AI) is poised to reshape the advertising industry.

Based upon the speed with which AI is being adopted and the potential applications across multiple advertising functions it is not a question of “if,” but “when” these changes will take root.

The ability of AI to analyze behavioral data rapidly and comprehensively to inform or make decisions is profound and will directly impact tasks including marketing planning, market research, media planning, performance optimization, and ad operations.

When it comes to content Generative AI can both generate new ideas, create, and personalize content. One result is that there will likely be a reduced need for creative department time-on-task in this area.

As it relates to implementing AI, there are a few basic questions for advertisers and their agency partners to address in the near-term:

  • How will the agency deploy AI across its various functions? When?
  • What will the impact be on the hours and people required to deliver agency services?
  • What type of talent and training are required to implement AI?
  • Will we rely on the agency or look to implement AI solutions in-house?
  • What are the costs associated with implementing AI? At the agency? In-house?

The answers to these questions will impact client/ agency roles and responsibilities, future scopes of work and the fees paid to the agencies.

From an agency perspective, particularly those whose compensation is tied to direct labor-based fees, there will be concern that any reduction in scope and or hours expended in areas impacted by AI will lead to a reduction in revenue. For advertisers, the expectation will be that there are both operational and administrative time-of-staff efficiencies to be realized.  

It is clear that AI will lead to an evolution in the agency business model that impacts service delivery, staffing and talent needs, and remuneration. According to Forrester, ad agencies will automate 7.5% of jobs out of existence by 2030. The reduction in an agency’s billable hour base will obviously vary depending on the type of agency (i.e., digital specialist, creative, media, etc.). According to some industry pundits, Forrester’s estimate of 7.5% could be on the low side of the potential for lost jobs.

Time is of the essence. According to a survey conducted by Statista in 2023 among professionals in the U.S. “37% of those working in advertising and marketing had used AI to assist with work related tasks.” How should advertisers begin the AI “readiness” planning process?

A good starting point for AI “readiness” planning is to assess historical agency time-of-staff investment by function relative to past scopes of work to allow both parties to understand the potential impact post AI implementation. This analysis should be conducted, even though agencies will likely advance recommendations for implementing a different compensation schema (i.e., value-driven pricing, outcome-based fees, etc.).

Concurrently with the historical benchmarking, advertisers should engage their agency partners in discussions about AI can positively impact brand engagement with their customers, enhancing the customer and prospect experience with the brand at each point of contact. Once there is concurrence on a customer focused outcome and an historical context, discussions regarding efficiencies and effectiveness can follow.

“When deploying AI, whether you focus on top-line growth or bottom-line profitability, start with the customer and work backward.” – Rob Garf, Vice President, SalesForce

Author Cliff Campeau

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