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As seen in Business Insider

vladislav muslakov

  • A growing number of specialist ad agencies built for data-driven, programmatic advertising are starting to gain traction and put pressure on the traditional ad giants.
  • Firms such as YellowHammer are finding success working with disruptive startups that typically don’t work with pricey agencies.
  • A few large ad-agency holding companies such as Kyu and Dentsu are starting to snatch up some of these independent firms, as the industry shifts toward a more analytics-centric future.

Sam Appelbaum knows all the SKUs.

That is to say, the advertising entrepreneur and his team are familiar with every product variation sold by Boll & Branch, including the solid hemmed-sheet set and the waffled robe. “SKU” is retail-speak for stock-keeping unit, or individual product ID codes.

Appelbaum runs YellowHammer Media, a specialist digital-ad agency that has worked with the luxury-sheets upstart for five years. And YellowHammer’s job, besides making lots of lovely creative ads that showcase beautiful linens, is to make sure all of those SKUs sell and that all of the money Boll & Branch spends on media gets a good return.

It may sound pretty obvious, but this level of in-depth product knowledge and sharp focus on driving a client’s business haven’t always been common among ad agencies.

And smaller brands like Boll & Branch — data-driven upstarts aspiring to be the Warby Parkers and Dollar Shave Clubs of their respective categories — aren’t typically coveted by giant ad agencies.

Sam Appelbaum, head of YellowHammer Media

Yet these smaller brands, and the tactics they use, could represent the future of marketing.

The Interactive Advertising Bureau recently issued a report detailing “permanent changes” in American industry that are changing the way brands are built. Have a direct relationship with consumers is so crucial for companies that it’s created “an arms race for first-party data” that is influencing marketing strategies “among major incumbent brands across all categories.”

That leaves large traditional ad-buying agencies with several problems:

  • Most are built to service giant, big-spending marketers, which still by and large do things the way they always have done — like running national advertising campaigns aimed at the masses and often selling products through brick-and-mortar channels.
  • Even as ad-holding companies have rushed into buying ads programmatically for brands that sell directly to consumers, they’ve mostly focused on catering to the biggest marketers.
  • That’s left an opening for independent, performance-oriented agencies to snatch up business from disruptive startup brands, which don’t spend on the level of legacy marketers and operate quite differently.
  • Incumbent ad-buying firms may need to buy their way into this market or reinvent themselves.

Boll & Branch sells high-end sheets online.

Boll & Branch

An advertising revolution is underway, and not everyone’s ready

There’s little question that the future of giant, do-everything ad agencies is uncertain. That’s particularly true when one considers the hundreds of new brands upending virtually every industry by selling everything from glasses to mattresses to bed sheets and makeup directly to consumers using digital media.

The Interactive Advertising Bureau recently put out a sweeping report— called “The Rise of the 21st Century Brand Economy” – which warned marketers that if they don’t reinvent their businesses they’ll be gone sooner rather than later.

“Big brands are being nibbled to death,” IAB’s president and CEO, Randall Rothenberg, told Business Insider.

So, it seems, are ad agencies.

Giant ad agencies are circling startup programmatic specialty firms

Do advertisers need their own version of disrupter ad agencies? Recent evidence says maybe so.

Consider the Japanese holding company Dentsu’s 2017 acquisition of Leapfrog Online, an agency versed in digital marketing and data. Or last month’s deal for Kepler Group, a four-year-old firm versed in using software and data science to help Fortune 500 brands master more direct digital advertising.

Yet there appears to be a gap in the market. Take the aforementioned YellowHammer, part of a new breed of programmatic-first, data-centric ad agencies that are making inroads in an area where traditional media-buying giants are still finding their way.

The 10-year-0ld firm mostly works with the kinds of advertisers that big agencies ignore, like the hot-sauce subscription seller Fuego Box, the bracelet startup Lokai, or Boll & Branch, which Insider named one of the “biggest viral-marketing successes of the last few years.”

To hear Appelbaum tell it, his agency operates almost like an arm of this client’s business, and is as invested in its success as the company. That’s in part because YellowHammer gets paid more the more sales it drives for its ad partners.

‘It’s an unfair fight’

Emma Cookson is the former New York head of the ad agency BBH. She’s now a partner at You & Mr. Jones, which calls itself a brand-tech company, and has invested in several digital and social-marketing firms.

Cookson has been analyzing these trends and found that so many of the fundamental conditions needed for big marketing success have been upended.

“It used to be impossible to build a brand without massively expensive TV advertising,” she said. “You clearly now can.”

Newer brands can outsource production, distribution, warehousing, and logistics in ways huge marketers can’t, she said. And “being an e-commerce-only brand is a huge advantage. All of this has led to the big traditional companies being under major pressure … it’s an unfair fight.”

Emma Cookson, partner at You & Mr. Jones.

You & Mr. Jones

So direct-to-consumer marketers require very different needs from their agency partners. That is, if these companies even want to be called agencies, which Cookson calls a loaded, negative term. Instead, she calls them “agency-like objects,” built around using data, social media, and performance-marketing tactics.

They “really live what their brand stands for in every touchpoint,” she said.

Smaller brands live or die based on whether their ads work

“If you think about a marketing manager at a giant company like Pepsi, he or she has their finger on this faucet of ad spending,” Appelbaum said. “But they don’t live and breathe the company. They really don’t care.”

Companies like Pepsi have so many variables affecting their success, Appelbaum argued, that it is hard to tie sales back to individual ad efforts. Especially since most people don’t buy soda online.

“Their goals are nebulous anyway,” he said. “It doesn’t matter to them as much. So what they want from their ad agencies is very different. The level of service … this is less about fancy PowerPoints and really nice dinners.”

A different mentality

Boll & Branch CEO and founder Scott Tannen explained it simply: Startups don’t use agencies because agencies are expensive. “But to brands like us, agencies are only expensive if they’re not performing,” he said. “They make money when we make money.”

While their business models have varied over the years, giant ad agencies have often made money based on how much their clients spend. That’s why TV, typically the most expensive medium, was often favored. Or agencies would be paid a flat fee on a certain number of man hours.

Some marketers are pushing their agencies to build in real business metrics into the way they are paid for their work, but that seems to be the exception, not the rule.

But for newer brands versed in digital marketing, performance is everything, said Brian Schwartz, partner at Fuego Box. “If it works it works, it doesn’t it doesn’t,” he said. “We’re happy to pay agency fees if it works.”

Besides a different incentive structure, Tannen said, a new breed of data-and-analytics-obsessed agency has a different mentality.

“Big agencies understand what it’s like to work with Fortune 500 brands and make it bigger,” he said. “YellowHammer tries to take something small and make it bigger. And they don’t have any precious notions of how things used to be.”

Traditional marketers sometimes get stuck in how things used to be, Appelbaum said, which leads them to treat digital advertising too much like TV advertising, where the goal is often to reach as many people as possible for the lowest price possible.

“They end up using fuzzy goggles,” he said.

To be sure, Appelbaum said there are downsides to working with these kinds of brands. Many of these direct marketers have moved to take more of their media buying and creative production in-house, a trend that’s hitting giant ad agencies as well.

Plus, startups are by nature volatile. “The No. 1 reason we lose business is that our clients go under.”

Still, over time, the clients should theoretically get bigger and more stable. They have to.

“We’re making a bet that what these brands want is what every brand is going to want,” Appelbaum said.

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