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On Friday, WPP's Chief Executive Mark Read confirmed that Walmart had decided to take its digital advertising in-house and away from WPP's agency Triad, a blow given the likely value of the Walmart business.
It's the latest move in a trend that reflects the greater control brands want over their advertising teams: The Association of National Advertisers in the U.S. found that 78 percent of its members had some kind of in-house agency in 2018, versus 58 percent in 2013.
Some brands are looking to in-source different elements of their marketing, including digital advertising, creative or design and media buying.
The current agency structure grew out of a model that focused on getting big, national TV ad campaigns made, says Charlie Makin, a media agency veteran and founder of digital agency Pintarget. "This is completely inappropriate for the digital age, where marketing clients need to be producers and manage multiple channels, some in-house, some on long term contracts, some short term," he told CNBC by email.
Unilever, for example, has digital content creative arm called U-Studio in 2016 and it now operates in 18 countries. The company worked with consultancy Oliver, a company that specializes in starting in-house creative agencies within brands, to set it up. Unilever still goes to external companies for big creative and strategic ideas, and it is this blend of in-house, quick turnaround work and external bigger ideas that is a model that other companies are exploring.
Brian Cooper worked at Oliver for two years as its chief creative officer, helping to set up 65 on-site agencies for brands. He says these types of agencies are great at volume-driven work such as creating slightly different versions of an ad to fit the size specifications of, say, a printed publication, or creating multiple, highly-targeted versions of online ads. But Cooper warns this type of agency is not so good at "value" work.
"People who are good at doing volume are good at churning stuff out at good quality, fast. But they're not very good at coming up with ground-breaking ideas that are going to shift the brand forward," he told CNBC by phone. Cooper left Oliver in 2018 and is now executive creative director at London agency Aesop, a company that is focused on the big ideas side of advertising.
He has come across clients who expected in-house volume-driven agencies to come up with new creative ideas. "But those skillsets are much more expensive … Their expectation is that they get it for the same price," he says. "Agencies have to choose. Am I a value agency or am I a volume one?" he said.
While in-housing "volume" work can be cheaper (Unilever's 2017 annual report noted that U-Studio was "creating content for brand teams faster and around 30 percent cheaper than external agencies"), brands must be aware of the set-up costs of either a creative design arm or one that buys media.
Indeed, WPP's Read said some brands underestimate the challenges of setting up in-house teams in terms of recruitment and training on an investor call Friday. It's something that rings true for Nick Manning, senior vice-president at consultancy MediaLink, who wrote a January paper for the World Advertising Research Center mentioning the investment needed for such teams.
Manning added that brand clients he advises are considering "the extent to which they should reorganize themselves," noting that a different model of in-housing will apply to each business.
Manning also warned that corporate culture doesn't always work for in-house creative teams.
For Verizon, which set up an in-house creative agency in 2017, getting the best out of teams means treating internal and external people in the same way. "You're not going to get the best creativity if you have all your agencies external or internal all pitting against each other," Chief Marketing Officer Diego Scotti told CNBC by phone. Both teams are managed by Verizon's Chief Creative Officer Andrew McKechnie, who joined from Apple.
But it doesn't always work for large companies to set-up in house teams. Intel, for example, set up "Agency Inside" in 2015, managing about 60 to 70 percent of its marketing efforts. But as it is "recalibrating" its marketing, the agency was closed late in 2018 and its Creative Director Teresa Herd has since left the company.
Getting an external perspective and expertise is still important for clients, said Sophie Lewis, chief strategy officer at ad agency VMLY&R (a WPP agency), and she has seen few examples of in-housing working well. "There are some examples of in-housing working. (U.K. broadcaster Channel 4's) 4 Creative, for example, and Gap, back in the day, as well as most of the fashion and perfume houses," she said in an email to CNBC. "But in general, you won't get the talent, and if you don't get the talent, you don't get the ideas," she added.
Personal investment start-up Wealthsimple is currently running a tear-jerking ad campaign focusing on life-changing moments, created by an in-house team that worked with director Jonathan Alric. Wealthsimple's executive creative director is Mike Giepert, a former staffer at high-profile ad agency Wieden + Kennedy. Giepert's former creative partner at the agency is now chief product officer at Wealthsimple, and the editor of its online magazine is the former editorial director of GQ. This combination means that the team has a focus on "human storytelling," Giepert told CNBC by phone.
Giepert, who joined the company in 2016, says he liked the idea of building a brand over time, rather than working on short ad campaigns that might only sell one product. "We are (all) partial owners in the company (and) we act that way. I think we believe that every single campaign that comes out is building to creating this great brand," he told CNBC. He now has the ability to make great ads, rather than working for large corporate clients where sometimes the focus was on how the agency could "nudge (clients') giant battleship a degree to make more interesting work."
For hotel reservation site Booking.com, running a lot of marketing using in-house teams makes sense because of the volume of online ads it needs to create. It has done its own search-engine advertising in-house for around 10 years, and in 2017 took the rest of its digital media buying in-house. It's part of online travel giant Booking Holdings, which spent more than $1 billion on Google ads in the third quarter of 2018, according to analyst estimates.
Some of this will be spent on bidding on search terms such as "hotel in Los Angeles," and this type of marketing will be a major traffic driver to its websites.
But Booking.com's Chief Marketing Officer Pepijn Rijvers said that while setting up in-house functions does carry a large outlay — he has around 50 people working on media planning, ad design and audience research — it's an investment that has been worth it.
"The velocity of allowing you to learn from campaigns, adapt, adjust and repurpose, all those things add real business value to the top line … and those things far outweigh potential cost savings," he told CNBC by phone.
Booking.com creates "millions" of ads a day using computer programs, which can reach people via "contextual targeting." "Dependent on the content that you are reading on the web … We know what you're looking at (and) we also know what your IP location is of the device that you're on," Rijvers said. Ads are constantly tested and adapted in-house based on the information the company has and the company still uses external agencies for big creative ideas.
All of this means (in theory) better targeted ads, but it also means companies want more control over data, especially since the General Data Protection Regulation (GDPR) came into effect last May, rules that gave consumers more control over the information businesses hold on them.
GDPR has also meant that some companies are bringing data marketing in-house, and because of the risks involved if something goes wrong, the C-suite is now more invested in data, says Manning at MediaLink. "It's actually at the heart of a company because the risk profile associated with it now is so great, particularly if you have a data breach, particularly if you infringe GDPR you can't afford (to take that risk). Data has now become a board level area of interest, as opposed to just being a marketing area."