Brands continue to take their advertising in-house in droves — and it's terrible news for ad agencies

• The number of marketers with in-house agencies has accelerated over the past five years, a new study by the Association of National Advertisers has found.
• A whopping 78% of ANA members reported having some form of an in-house agency in 2018.
• In-house agencies are not only burgeoning, but also getting more specialized, with such entities handling everything from content marketing and video production to data analytics in-house.
• Still, the need for agencies does not seem to be completely gone, with 90% of respondents still working with external agencies in some capacity or another.

It's not a great time to be an ad agency.

An increasing number of brands have been taking their ad buying production capabilities in-house over the past few years — and the trend shows no signs of slowing down.

In fact, the number of marketers with in-house agencies has only accelerated, growing substantially over the past five years, according to a new study by the Association of National Advertisers (ANA) conducted in August 2018 among 412 brands.

A whopping 78% of ANA members reported having some form of an in-house agency in 2018, with nearly half of the respondents (44%) setting the agencies up in the past five years. In comparison, 58% and 44% of them had set up internal shops in 2013 and 2008 respectively.

As brands seek greater cost effectiveness, transparency and control over customer data, they have been setting up their own internal operations focusing on a range of services, including strategy, creative and media planning and buying for both traditional and digital media.

Verizon, JPMorgan Chase, Chobani and Booking.com are among a whole suite of brands that have gone down this route in recent years.

"Traditional agencies are becoming increasingly challenged as marketers move more work in-house while encouraging their external agencies to provide differentiated services and increased value," said ANA CEO
Bob Liodice. "We expect the current trends to continue, with accelerated client movement to in-house agencies."

In-house agencies are getting more sophisticated

As more brands bring ad work in house, the work is getting far more specialized. 

There has been "a marked increase" in the amount of specialty services offered by in-house agencies in the past five years. For example:

• 75% of respondents said that they handle content marketing in-house, compared to 34% in 2013.
• Similarly, 59% of brands who responded said they handle data analytics internally, up from 42% in 2013.
• 79% said they have in-house video production capabilities, with almost half (49%) establishing these production capabilities within the past five years.
• 55% said that they handle at least some degree of media planning and/or buying in-house, while 30% of respondents said they had in-house programmatic capabilities.
• Brands are also bringing several specialty services that have cropped up recently in-house, such as influencer marketing (39%), experiential marketing (38%), and commercial production (22%).

Verizon set up an internal creative shop to make its brand narrative and experience more consistent.

"Having a consistent voice, look, and feel is crucial to the customer experience across all of our touchpoints — mobile, digital, retail," said Andrew McKechnie, Verizon's chief creative officer. 

While for gaming company, EA Sports, bringing media buying in-house was necessary to exert better control over its advertising.

"We have more flexibility with how campaigns are set up, managed, and measured, and are better able to align them with the goals of our business," said Belinda Smith, its director of global media activation. "We also have a better line of sight into whom in the supply chain we’re paying for what, and if those services are worth it to us."

But external ad agencies may still have a need to fill

To be sure, while it may be getting harder for ad agencies to sustain their businesses, there still seems to be a need for them. According to the survey, 90% of respondents continue to work with external agencies in some capacity or another.

This is because it hasn't been all smooth-sailing for brands' internal agencies. Some of their biggest challenges are related to managing growth, workload and resources efficiently, according to the report. 

90% of respondents said that the workload of their in-house agencies had increased in the past year, with 65% saying that it had increased "a lot."

Beyond bandwidth, sometimes the in-house agencies may not have the necessary capabilities and skill sets internally either, leading to the work going to an external agency. 

And sometimes, things don't always go as planned. Vodafone, for example, is having second thoughts about taking programmatic ad-buying in-house, Digiday reported last week. The company had announced that it would buy most of its online ads itself three months ago, and while it has started to buy its own search and social media ads, it continues to rely on its agency for display ads. 

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