Gen AI is a supreme threat to SME agencies. But there are opportunities

Since Eight&four’s early startup days, I’ve never known such a moment of heady opportunity and head-between-the-knees inertia. As an SME agency owner of the eight&four Group – a circa 130-person digital marketing agency network – I feel acute pressure points from generative AI (gen AI) on all sides. Here they are.

The tech bros

Altman and his kin have the whole industry on its deathbed – leached away by gen AI’s never-ending encroachments. (Keep quiet those of us who question the baked-in issues of hallucination or diminishing returns of LLM’s relentless training.)

The networks

They are always a pain in the agency ecosystem for businesses like mine. With their ‘too big to fail’ risk-averse attractors and ‘too big to fire’ status, even when the service and output don’t deliver. And now, as leaders of our ecosystem, they’ve fallen fully in line with Altman et al.

BrandTech Group just closed a $115m Series C funding round to further invest in its gen AI technology (led by their SAAS acquisition Pencil back in 2022). Meanwhile, Publicis has committed to investing €300m, or about $327m, in AI development over the next three years, and WPP has said it will invest £250m a year, or about $269m.

The end-to-end marketing process is made synthetic. Automated. And no job losses, of course. It will simply ‘augment’ existing talent.

How more eyebrows aren’t raised, I’m not sure.

You hear this bullish sort of Wall Street talk constantly from the software companies too. Meta’s Advantage Plus – media buying, black-boxed, automated on platform. Goodbye, media agencies. Adobe’s Gen Studio – end-to-end automated, templated content creation (Coke apparently spends 80% less time making social media content now) – goodbye, creative production agencies. (Oh, and Adobe will plug all that content into Meta for distribution directly too, so don’t you worry your little agency head about that).

So, where does that leave the SME agency market?

The initial impacts have been clear:

1. I’ve spoken to over 50 SME agency owners who are all saying the same thing: networks are suddenly appearing on their pitch lists, often competing for less than £1m annual income accounts. This is a petty cash realm for the networks – either they’re desperate or, more likely, with a promised automated marketing ecosystem, there’s a new way to service clients. Take the core technology, customize it for the client, pop an account manager on top to run it, and suddenly £150k annual income from a client can be delivered at a viable margin. (Note, the tech’s not there yet. I’ve heard it’s a loss leader strategy at present).

2. A substantial acceleration of walled garden risks for SME agencies (an encroaching problem for years with the networkization of the industry). Publicis’ gen AI platform, ‘CoreAI,’ was famously press released as having been rolled out to Pfizer, overhauling their company’s entire marketing workbench. Rumor has it the press release was a little souped up. As I said, endless bluster. Regardless, theoretically a platform like this builds a powerful bridge between agency and client, integrating an agency further than ever before into a client’s infrastructure. A fantastic opportunity – unless you’re not the agency partner, and then a significant new barrier to entry has just been established. Realistically, the client in question could easily move from using 100 agencies to now only using one. Never underestimate the power of technical constraints to change user behavior. Just ask Microsoft.

3. An agency’s technical ability has leapfrogged to number one importance. Publicis now calls itself a software company. Remember when the advertising industry was about creativity? Now, it’s about how great your gen AI tech stack is. It’s a seismic shift in an extraordinarily short period of time. In an industry traditionally oriented to human capital, SMEs will find it significantly more challenging to rebuild their business to centralize R&D, software development, and AI infrastructure. The energy required to pivot is enormous, and one that SMEs will find difficult with less diversely-skilled talent, and shallower pockets.

Meanwhile, eight&four Group are lucky – we’re one of the original native digital agencies to emerge in the UK in 2008. We’ve always had technology at our heart, and it has felt natural to embrace the opportunities of gen AI with our existing talent. We’ve built Platform12 – the jewel in the crown being Coach, our gen AI image generation tool, which has been embraced by clients as far-ranging as Hyundai to Candy Crush.

But is this innovation enough?

We don’t have €300m spare to invest in Platform12.

And so, what are the scenarios?

The first is that a lot of the gen AI/marketing standoff is shown to be hot air. Total automation of an innately human process (storytelling) is unrealistic, and vastly invested-in tools end up only being used for about 10-15% of their anticipated use cases. Targeted use cases of gen AI are determined, optimized, and mature accordingly. The agency ecosystem remains relatively unscathed.

Alternatively, the networks win big. With the rush to automation, they are able to service a much higher percentage of the market and hoover up the long tail of marketing contracts. Aside from the larger tech-driven/invested networks, only small, niche consultancies remain.

Or, a third option is that Altman & co are proved right – and the idea of a human ideating, creating, and distributing marketing content becomes commercially unviable and then, quickly, quaint. In a couple of years, expect creative brainstorms to see a resurgence on Tuesday evenings, alongside knitting circles and sourdough starters. And see a near obliteration of the agency ecosystem, claiming several network scalps too.

Whatever the outcome, this is a moment of supreme risk for SME agencies. Larger than the offshoring movement, in-housing momentum, or network consolidation – probably combined. Proceed with caution and keep your eyes open.