“It’s no longer just the media business that is using machine learning. It’s all four quarters of [agencies’] business using machine learning and predictive AI and generative AI. I characterize that as the shift from services to solutions,” Pattisall said.
This is significant as third-party cookie deprecation bears down on the industry. The brand language models Pattisall referenced will preserve aspects of personalization, allowing agencies to improve their dynamic creative optimization, the technology that creates several iterations of a single ad and serves the most appropriate version to a particular individual or demographic.
As a result of agencies’ AI investments, Forrester expects in-house agency work will wane. In-house agencies are trailing brand marketers in some AI applications. Just 17% of in-house shops use generative AI now, compared to 56% of U.S. B2C marketing executives, according to Forrester data.
Though agencies are moving quickly to establish dominance in AI-based technology offerings, they must consider how they’ll manage these systems in the long run.
Because governments aren’t expected to roll out AI legislation until 2026, agencies will self-govern their AI reliance in the interim. It leaves questions about if or when agencies will need to walk back strategies.
Regulation will eventually impact the category, but according to Pattisall, marketers may want concerns addressed faster. A majority (61%) of AI decision makers are worried about privacy and data collection. Given this, and the absence of any official guidance, Pattisall expects AI management concerns will catalyze as many as 20 agency reviews next year, and that agency reviews will increase in volume by 10%.
Integrated agencies absorb so-called digital shops
The phrase “digital agency” is now so commonly used that it might refer to performance-savvy shops, social media or SEO specialists, web development vendors or just your average media agency. Digital media investments have for years made up the bulk of advertising spend, rendering the moniker out of date.
“The convergence of channels and marketing experience negates all those convenient labels that we used to have,” Pattisall said.
Integrated agencies, Pattisall said, will absorb smaller digital shops and their offerings. The analyst cited Code and Theory’s recent YML acquisition as one example. “The opposite example would be Merkle,” he said, “where Merkle is moving some of its media and creative capabilities out into other parts of Dentsu and sharpening Merkle’s position as a data and CX consulting provider.” IPG agencies Huge and R/GA may have a similar fate, Pattisall wrote in the report.