AI Could Reduce the Number of Independent Ad Agencies by 20%

Forrester believes that "artificial intelligence will not lead to the disappearance of advertising agencies." It will change how the agency business operates and where its revenue comes from.

Now, the value of services largely depends on the ability to combine specialists, technology, data, workflows, and AI agents to achieve measurable business results. Companies that manage comprehensive marketing processes will have the advantage.

As advertising content production moves in-house at brands, services related to developing AI strategies, managing organizational change, and restructuring marketing processes will be in demand.

Takeaway: agencies will have to sell not the volume of manual work, but the ability of technology and people to deliver measurable results.

How Much Will AI Cost?

Forrester allows that agencies' spending on AI tools could exceed the cost of the employees companies planned to replace with automation.

Most agencies use AI on a SaaS subscription model — Software as a Service. This format does not always make it possible to assess the actual cost of running a neural network.

AI services are relatively inexpensive right now because technology companies partially cover costs through investors. However, providers are gradually shifting to pay-per-actual-use of AI, which could increase the cost of the tools.

Agencies and advertisers will have to compare the total costs of automation with spending on staff. Savings on personnel do not guarantee savings on AI.

Why Will Brands Produce Content Themselves?

Companies continue to expand their in-house content production units. Neural networks are expected to speed up work and reduce its cost.

67% of marketing leaders at B2C companies name developing internal creative and production capabilities as one of their priorities for the coming year.

Brands may reduce demand for traditional agency services in creating advertising materials. External contractors will face stiffer competition from in-house teams, and advertisers will begin demanding higher technology expertise from agencies.

Takeaway: in-house creative teams will become an alternative to external agencies for brands in producing mass advertising content.

What Will Large Holdings Get?

By 2027, about half of the revenue and volume of services provided by global advertising holdings could pass through their own marketing systems, according to Forrester.

Such platforms will combine data, technology, workflows, and automation tools. They will help advertisers promote products and services more effectively, increase sales, and maintain a consistent style of communication with the audience.

In the researchers' view, an agency's success will depend less and less on headcount. Instead, the ability to leverage new technologies, organize work, and demonstrate to clients the impact of advertising on sales and other business results will come to the forefront.

Takeaway: proprietary technology systems will become a major advantage for large advertising holdings and their clients.