British telecommunications giant Vodafone has become the latest major brand to move some of its core marketing functions in-house, a move that shows exactly what advertising agencies are facing.
The company will take direct responsibility for £160m ($212 million) from its digital ad purchases, according to Campaign.
It will hire its own teams to focus on online ad buying, reducing its reliance on Wavemaker, the agency that currently manages its digital budget, by around 25%.
Global brands are increasingly ‘in-house’ functions that have traditionally been performed by external agencies, largely thanks to the rise of programmatic or quasi-automated online ad buying tools.
Programmatic accounts for over 80% of digital ad spend in the United States. More than a third of US marketers said they reduced the role of external agencies in 2017 internally by buying programs.
In the United States only, nearly $37 billion was spent (pdf, p. 6) programmatic ads in 2017, up from about $26 billion in 2016. And consulting firms are increasingly advising brands on how they can make those purchases without an intermediary.
Agencies are even more worried on brands bringing the most creative advertising functions, such as campaign design, in-house.
Although an in-house creative team created the widely criticized Pepsi ad for Kendall Jenner, major brands like Unilever and soft drink makers Lucozade and Ribena have significantly expanded their in-house agencies, which can reduce costs by up to 30%.
Despite turnover, agencies aren’t going anywhere anytime soon: In 2017, U.S. ad agencies grossed around $55 billion (paywall) – compared to $48 billion the previous year.