The Death Of The Agency? How Startup Studios Are Disrupting The Advertising Ecosystem

The advertising industry is on the brink of a pivotal revolution


The advertising industry is on the brink of a pivotal revolution. The waves of which will disrupt the world of advertising for agencies across the globe. The cause of this change?

Startup studios that have their fingers on the thumping pulse of digital marketing.

So what exactly is a startup studio?

In a studio, multiple movies are built simultaneously while adhering to a repeatable process. Startup studios apply this approach to the creation of their product/services. Instead of launching startups sequentially, they’re launching multiple startups in parallel with in-house experts and resources.

Due to their unique approach, startup studios are outmanoeuvring bloated agencies that are stuck in their dated marketing practices. They’re able to build faster, better, quicker, and validate early, ideally raising companies to independence in just one to two years.

Economist Joseph Schumpeter said the most significant advances in economies are often escorted by a 'creative destruction'. A process which rapidly shifts profit pools, restructures industries, and overthrows - or replaces - incumbent businesses.

Driven by ear-to-the-ground studio startups and innovative entrepreneurs; the advertising ecosystem is now undergoing this 'creative destruction'. And anyone and everyone remotely involved in advertising will feel the effects.

Agencies Are Dying Quickly And Adapting Slowly

35 years ago, the consensus was: 'A home computer? Why would I ever want to buy one of those.' Never mind buying anything online.

And, eight years ago - like the predictions of an over enthusiastic tech geek - people mocked the iPhone. Yet, here we stand in 2016 with millions of iPhones sold.

The advertising landscape has changed dramatically. The hours people spend on their mobiles, social networks, and inboxes dominate the time spent reading newspapers, magazines, or patiently viewing an ad.

Despite this evolution, ad agencies and brand advertisers still cling to their rhyming jingles, perfect 30-minute spots, and clever slogans like a drifting sailor at sea clutching the floating scraps of his boat. This has weakened them.

They Fail To Adapt

Until recently, there hasn’t been much change in the advertising formula agencies practice: Use a platform with a large, interested audience and broadcast your product to them within times allotted.

To see how ineffectual this method has become, look no further than the 2015 NBA finals, where near 20 million people tuned in to watch.

During the finals, advertisers raced to get their messages heard by a profitable audience. But in the timeouts, viewers tuned out their TVs. Instead, they whipped out their smartphones. Talking about the game with the rest of the world on Facebook, Twitter, Snapchat, and Instagram.

So, the jealousy rousing selfies and snapshots of the stadium with brand logos in the background, gained more attention than any perfectly polished ad or script could.

This single event shows how agencies have been operating under the same model for decades. They’ve become rigid, and slower to adapt. Resulting in them getting overthrown by young startups that identify with - and understand - current consumer behaviour.

They Try To Apply Redundant Practices To The Internet

Instinctively, agencies resorted to broadcast advertising on the internet. They spammed out advertising banners/billboards on websites, irrelevant pop-up ads and rehashed TV commercials. All of which, aren't really that effective.

The phenomenon known as 'banner blindness' reinforces this:

Conversion guru Jack Nielsen ran a usability study where they asked users: 'Does Siemens have any special deals on washing machines?' Given that the biggest item on the homepage — in both screen space and font size — is an offer of £100 off 'selected Siemens appliances' doesn’t seem hard to answer, right?

In the study, users failed the task. Even after scrutinising the page for extended periods of time. One user even reported 'I didn’t have time to read it. It keeps flashing too quickly.'

The main reason they didn’t pick up info from the ad is banner blindness. A phenomenon that describes how 'Users almost never look at anything that looks like an advertisement, whether or not it's actually an ad.'

Agencies and brands trying to 'push' on the internet don’t stand a chance. The internet gives consumers more control, and they’re not going to consume marketing content if they don’t have to. Which is why smart startups, brands, and advertisers use content, social conversations, and communities to 'pull' people towards their products and services.

They Fail To Respect Each Platform

It’s not uncommon for an unknown app to shoot from a blip to a central platform that becomes a thriving social and cultural force. Youtube serves as a solid example.

Within a decade, Youtube has rocketed from a blip, to the hub of video content on the internet with billions of users that influence mainstream culture. It’s also become a powerful marketing platform, when used correctly.

The interesting thing about a platform like this?

It exposes why agencies die, and studio startups thrive. The typical agency response to a platform like Youtube would be: 'We’ll need a script, an incredibly crisp 30-second video shot, and a link to our product, that’ll do the trick'

We’ve all gratefully clicked enough 'skip ad' buttons to know how effective most of these ads are, right? What actually works here is relevant, socially interactive content that consumers gravitate towards. Something that goes against - and is a complete mystery to - most agencies.

Luxy Hair - a store selling hair extensions for women, is a fine example of studio startup thinking that respects each platform, and wins customers as a result. In their early days, paid/broadcast-style advertising didn’t produce results. But, the company now has thousands of worldwide fans and does seven figures a year. How did they manage this? By creating Youtube tutorials that were valued by their audience.

Making video based tutorials educated their audience and bridged a connection with them. Their tutorials have generated over 173 million views, and have resulted in a ton of business. This is the type of adaptive thinking that causes startup studios to outpace agencies.

What exactly is a startup studio?

The startup studio concept is relatively new. The concept was coined with the creation of Rocket Internet in 2007 and its popular success story. The basic idea behind the startup studio can be broken into three major principles:

1. Creating new companies from scratch

2. Launching multiple startups in parallel – avoiding creating startups one after the other

3. Capitalising on in-house experience and resources to launch startups with a higher success rate

This helps startup studios:

1. Build Bigger: Startup studios make it possible to address larger markets because of the shared knowledge and pooled resources provided. Essentially they birth an idea, and raise it for the next one to two years until it runs as an independent company.

2. Build Quicker: Thanks to parallel production processes and a devoted team of experts working everyday. If they find one button isn’t working, their already pulling at one to two other levers.

3. Validate early: Startups are by nature risk ventures. And because startup studios work on multiple products simultaneously, they can find and kill bad ideas quickly. This increases their speed, minimizes risk, and increases productivity.

4. Build Better: The studio’s team is made of experts in their respective fields working together. The studio’s network as a whole is a super advantage that aids and accelerates grow.

In his book Anatomy of a Startup Studio, author Attila Szigeti describes startup studios as:

“The conventional startup formula is to have an idea, build a product and start selling and growing. The problem is that 9 out of 10 times this approach fails. The startup studio model promises to address this challenge. It’s similar to the movie studio model. In a studio, you are building multiple movies simultaneously. This is thanks to a generally successful, repeatable process. The entrepreneurs behind startup studios believe they can do something similar with startups.”

How Startup Studios Are Disrupting The Advertising Ecosystem

Some of the most well-known startup studios include:

1. Rocket Internet Over 30 startups including Foodpanda. Rocket Internet’s specificity is to copy existing and already successful business models in markets who yet remain to be penetrated. Interestingly, Rocket internet related companies took 65% of all startup studio related funding between 2008 and 2015. Even then, investments in startup studios increase at around 48% each year since 2011.

2. eFounders Since 2011, eFounders has gone ahead with nine projects, including Mailjet, Mention, PressKing and Front. Five of them are completely independent and VC-backed.

3. Betaworks 13 startups specialized in social web including bitly and digg.

4. Expa 8 startups including Kit.

Research even shows that since 2011 studios have founded 15% more companies year over year. Which means they’re creating more jobs, reaching more consumers, bettering the economy, and changing the advertising ecosystem.

In a way, startup studios are product design teams that are focused on identifying, and launching, a fast to find product-market fit. Because they have groups of experts creating multiple startups at the same time, they are able to offer better products and services than incumbents.

Through in-house talent, focus, and rigorous trial and error, they’re more agile and efficient - because they actually walk the talk. They adapt and innovate at a rapid pace because they’re in the trenches, every single day.

Startup studios also usually focus their product development on a segment of the millennial demographic. Which means their customers are open to trying new brands and sharing experiences openly via rankings and reviews. The result? Startups on steroids: momentum builds fast behind startup studio companies whose products and services are stronger - and they leave agencies coughing in the dust.

If you like the idea of a startup studio, keep your eye on as we enter the world of startup studio with our latest Whisky Subscription service startup WhiskyLoot



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