The Long Tail of the Advertising Business
By Tim Williams
To remain relevant — and profitable — agencies must regularly reevaluate their offerings to ensure they are optimizing the dynamics of the long tail of the advertising business.
The “long tail” concept, popularized by economist Chris Anderson, argues that thanks to the digital revolution, the monolithic markets of the past have been replaced by countless niche markets that offer buyers virtually limitless variety and choice. At the far left of this tail are the “blockbuster” products and services; mega-popular, high-demand items that create and drive markets. In the middle of the tail are products and services that are unique, but easier to find and more affordable to buy. At the far right of the tail are the commoditized products and services that are widely available from a variety of providers.
On a regular basis, agency leaders must take a critical look at their lineup of offerings and evaluate when they live on this spectrum— short tail, mid-tail, or long tail.
The short tail
For most firms, only 10% of their offerings will qualify as short tail. In an agency context, these are programs, products, and services that are scarce and hard to find. Only a small portion of firms have these competencies and capabilities, and in some cases, your firm may be the only one on the planet offering these types of bespoke solutions.
The 2024 version of short-tail offerings might include neuromarketing, predictive analytics, behavioral micro-targeting, micro-influencer management, and sensory branding.
The goal is to identify and develop a number of these leading-edge offerings and cultivate a short-tail portfolio that can represent at least 30% of your offerings.
The mid-tail
Most firms have 20% of their offerings in the mid-tail. These are solution sets that are high-value to clients but are available from multiple providers. These services require a high level of skill and knowledge and revolve around the areas of strategic planning and creative problem-solving. Ironically, these are the same services agencies will likely give away in new business pitches: campaign concepts, channel planning, and the development of marketing ecosystems that revolve around a big brand idea.
Ideally, this should represent around 50% of what you do. Priced properly, the margins on this work can be above average, although mid-tail work typically doesn’t allow the type of “pumped fist” pricing commanded by short-tail offerings.
The long tail
It’s an unfortunate fact that the vast majority of a typical agency’s revenues are derived from long-tail services. This is the land of production, execution, and implementation, which most clients view as commoditized and widely available from a large number of providers.
While the best agencies will argue that “God is in the details” and that production must be done with the same degree of professionalism as the higher-value strategy/creative work, this class of work is infernally difficult to price at a level that returns agencies with much of a margin at all. Routine production work is by nature extremely price-sensitive, and clients will price shop for execution partners, look for offshore options, or bring it in-house.
The economics of production work has motivated multinational agencies to create separate implementation units that can do this type of work much faster, better, and cheaper than typical creative agencies. Implementation agencies like Prodigious (Publicis) and Craft (IPG) are optimized for production/execution, and are often located in lower-cost centers away instead of knowledge work capitals like New York or London.
The challenge for mainstream agencies is to critically examine which production/execution services must be performed by the agency and configure their cost structures so they can deliver these services in a way that will make at least a modest contribution to their income statements. For most firms, long-tail services should represent no more than 20% of their total revenues unless they intend to become implementation agencies.
The fact that most agency revenues are derived from low-margin services explains much of the industry’s economic woes. It’s a nonsensical business strategy to give away high-value work to get low-value work, but many firms do precisely this.
Trimming and pruning
An essential role of leadership teams is to regularly evaluate which services fall where on the value spectrum. Your team must perpetually keep adding capabilities on the far left of the spectrum (short-tail) and discontinue offerings on the far right (long-tail). For most organizations, it’s easy to add but extraordinarily difficult to subtract. We can take inspiration from market innovators like Apple. For every new feature, product, or service Apple adds, they drop or discontinue an equal number of offerings that have outlived their usefulness.
In making these decisions, your goal is to strike the right balance between relevance and differentiation. Many offerings may pass the relevance test (meaning clients need these services) but fail to qualify as differentiating (meaning they do not help to distinguish your firm from thousands of competitors). The dynamic nature of the value spectrum requires constant vigilance.
