Madison Avenue's Urgent Need: AI Risk / Opportunity Assessments
AI is a two-headed Janus -- one face looking to the future and the other at the past. The AI future is positive, but what about associated jobs and revenue? An AI risk assessment is urgently needed.
Credit: Adam Douglas Thompson, The New Yorker, The Cartoon Bank.
AI investments by Microsoft, Google, WPP, Publicis and Omnicom dominate the trade news these days. However, Microsoft and Google’s investments are certain to add growth to their existing search and research capabilities, whereas for the holding companies, and the media / creative agencies that they own, the outcome from AI initiatives is mixed and not entirely certain.
“The use of AI for creative work in the advertising industry is more of an opportunity than a threat to traditional agency work,” Mark Read, CEO of WPP said to the Financial Times nine months ago. Yesterday, he was more nuanced. After announcing an AI development investment of £250mn for 2024, he was quoted by the FT as saying, “It is ‘too early’ to say whether these [AI] moves will lead to more or fewer jobs in the sector. It’s much easier to see all the jobs that AI will disrupt than all the jobs it will create. But it’s going to make creative people even more important because it can level the functional playing field and make the idea itself even more critical.”
The AI issue is complicated for the holding companies. A majority of their income has been derived, for the past 30 years, from the sale of agency man-hours to their clients, and many man-hours are sure to be replaced by AI. Mark Read acknowledged that a company with scaled AI-driven production could produce “a thousand more assets at a thousandth of the cost” for a client.
Given the high scrutiny that holding company organic revenues receive from Wall Street, the potential AI impact on revenue is a fraught one for holding company C-Suite executives.
Yet, they are doing the right thing by finding the dollars to invest in AI, even if it means jumping through operational and organizational hoops to find and liberate the funds — and even if there are unforeseen risks that will need to be overcome. Hats off to the holding company c-suites for embracing this new direction and taking on the opportunities and risks.
What is particularly hard for the holding companies, though, is to predict the impact of AI on the work and revenue from their existing clients. For mysterious reasons, agencies have historically resisted the notion that they should document, analyze and measure their scopes of work in a rigorous and uniform way, and charge their clients for the work they do rather than for the estimated man-hours associated with the work. I described this problem in Madison Avenue Manslaughter (3rd Edition) in 2019 and developed ScopeTrack® and ScopeMetrics® to provide agencies with the necessary SOW tools and metrics.
Agencies resisted “scope of work documentation and pricing,” obsessing instead on mastering the changing nature of their scopes of work, from traditional to digital / social work for their clients. Yet, the changing nature of their SOWs created the very AI vulnerability that they face today.
An agency of 50 creatives, 30 years ago, completed only 350-400 ads in a year. Today, 50 creatives are likely to crank out as many as 10,000-15,000 executions, most of them social / digital / online, most of them adaptations of original work created for other media channels.
These adaptations, and the workload they represent — 20% to 40% of a creative agency’s man-hours — can and will be handled by AI.
However, the actual “AI vulnerabilities” vary considerably by client. Client A’s “AI vulnerabilities” may represent only 3-5% of an agency’s associated man-hours, whereas Client Z’s “AI vulnerabilities” may well exceed 50-60%. Client Z will need an urgent pricing transformation, whereas Client A might be put on the back burner.
Scope of Work documentation, analysis and pricing is an AI strategic imperative for holding companies and their agencies in 2024. To be truthful, SOW management ought to have been a priority for the past several decades, but that’s water under the bridge. AI creates a new urgency.
Today, there is a pressing need to come to terms with the man-hour and revenue threat of AI. The effort needs to be led by agency C-suite executives and encouraged / supported by their holding company owners.
Consequently, investing in AI is one priority; doing a nuts-and-bolts Risk / Opportunity Assessment of current scopes of work is another.
Agencies, like Janus, need to have one face looking to the future…and the other at the past.
I also agree with both of you. However, it's hard to imagine that Publicis, along with other groups, is investing heavily in AI development only to offer it 'for free'—meaning, essentially charging clients the usual rate for man-hours. Or are they? There must be a strategy for recouping this investment, whether through higher hourly rates or, preferably, a more innovative pricing model. The latter would undoubtedly be a much better solution.
The uncertainty about whether AI will create or disrupt more jobs is valid. But here's why I'm an ardent supporter of AI: It transforms ideas into reality, making innovation more accessible than ever.
Sure, AI isn't perfect – yet. Every day, it evolves, getting closer to a point where distinguishing it from human intelligence might be challenging. The rapid advancements in AI are not just about replicating human tasks. They're about augmenting our capabilities, allowing us to achieve more with less.
This is where the real game-changer lies: the elevation of creativity. AI levels the functional playing field, but it’s the originality of ideas that will stand out. Creative minds become the driving force, their ideas more pivotal than ever. This isn't just about replacing jobs; it's about enhancing human ingenuity, making every brainstorm, every creative spark, more potent.
In essence, AI isn't just a tool for execution; it's a catalyst for creative revolution.