COULD OPEN ARCHITECTURE KILL THE AOR?: Driven by market demand ad agencies are increasingly being forced into Open Architecture relationships with clients, instead of the traditional AOR model. Open Architecture is when clients can contract agencies on a project-by-project basis, usually piecing together work from several agencies simultaneously. Of course there’s a huge downside to this for agencies since the workload and billing becomes much choppier compared to steady AOR relationships. For brands Open Architecture is a way to make agency costs variable instead of fixed, which allows them to save money by simply eliminating projects or switching to lower cost options as needed. This trend is starting to take its toll on agency bottom lines, as was the case with IPG in their Q3 Earnings Call – AdExchanger has the details in the attached link. My guess is that we’ll see a trend of more earnings call misses from the agencies thanks to Open Architecture .
SNAP COMES BACK DOWN TO EARTH: As the realities of flattening user growth and the demands of running a profitable business set in at Snap the belt tightening begins. As reported in the attached Business Insider link, last week Snap announced it was laying off 18 employees – but that’s not too unusual in the digital media space. What is notable is where the layoffs came from . . . Recruiting. It doesn’t take a brain surgeon to figure out that if you lay off recruiters you’re not planning a major new hiring push. The other interesting comment involves individuals’ performance. According to Snap CEO Evan Spiegel, the company will hire at a “slower rate” in 2018 and that leaders will be asked to make “hard decisions” about their teams and employees who aren’t performing well. When you consider that Snap’s payroll ballooned from 600 employees in Q4’15 to over 2,600 employees just two years later, you have to wonder how it’s even possible to know who’s performing well and who isn’t. Both of these are indicators of a digital publisher who’s girding for challenging times ahead. You have to wonder if this is just a stabilization move for their business or if it’s the first perceptible sign of a decline at Snap. Only time will tell.
BY GIVING UP ON DONUTS DID DUNKIN’ JUST LOSE THE COFFEE WAR?: There’s a crazy interesting business case study unfolding before our eyes in the Coffee/Breakfast space. As described in the attached Inc.com article, Dunkin’ Donuts is in the midst of a brand transformation. They’re trying to become cooler in an attempt to counterpunch against Starbucks who now dominates the Coffee sector of QSR. First Dunkin’ dropped “Donuts” from its name, based on the logic that the word implies and unhealthy and/or old fashioned lifestyle. Now it’s cutting back on the variety of Donuts being offered in favor of a more well-rounded menu. While adding a breakfast warp to the menu isn’t necessarily a bad thing for Dunkin’, the net effect of eliminating Donuts from the brand positioning could be a bigger problem since it’s intrinsic to their brand identity. By chasing Starbucks in the cool/hipster/healthy swim lane, instead of just dominating a niche they already own, Dunkin’ is making a classic Marketing 101 mistake. They’re letting Starbucks define who they are instead of just doing their own thing well. The long-term result of this pivot could be to water down a once proud brand in the wake of a stronger competitor.
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