Advertising Agencies: How to Survive the AI Tsunami
The digital revolution, driven by AI, requires advertising agencies to quickly adapt to new ways of creating and capturing value.
Ernest Hemingway's observation about bank failures that happen "gradually, then suddenly" can also be applied to the current situation of advertising agencies.
Artificial intelligence (AI) and generative AI (GenAI) are no longer a distant possibility, but a pressing reality that is reshaping the advertising industry. We are on the verge of an "AI tsunami" that has the potential to drastically change the landscape. This is not the time to stand still; it is the time to act.
With expectations that the global advertising market will reach USD 1100 billion by 2028, with digital advertising as the primary growth driver, according to the Financial Times, we are facing a formidable challenge and a unique opportunity.
The digital revolution, driven by AI, requires advertising agencies to quickly adapt to new ways of creating and capturing value. AI technology enables hyper-personalized campaigns - mass-produced tailoring - which requires a new mindset and significant investment in technology and skills.
The challenge for advertising agencies can be summarized as adapting to a landscape where data and AI are essential for success without losing the creative. The new thing is that parts of the simpler advertising/communication value creation can now be taken care of by the customers themselves through GenAI such as DALLE-3 – free of charge.
This means not only adopting new tools and technologies, but agencies must also rethink their value proposition, e.g., strategic analysis. Creativity and quality alone are no longer enough; agencies must also be able to deliver data-driven insights and results.
The challenges are many: from technological adaptation and the need for new skills to ethical and privacy issues. Agencies need to develop or acquire systems to manage AI-driven campaigns while navigating a complex regulatory landscape and maintaining a strong focus on ethics and privacy. This requires a proactive approach, investment in technology, and a comprehensive training strategy.
The transition to an AI-driven environment also entails significant cultural and leadership challenges. Agencies need to foster a culture where creativity and data analysis are seen as complementary forces, and leaders need to develop new skills necessary to lead in an AI-driven environment. This requires a conscious effort to maintain a culture that values technological innovation, data-driven decisions, and human creativity.
Tor W. Andreassen is Professor of Innovation at NHH and DIG, and Visiting Professor, IFM, Cambridge University.