Episode 59 Transcript

Brent Trimble: We get a lot of market indicators and certainly listen a bit to the existing clients as well as partners, and we have the benefit as well, like talking a lot to the management consulting space and seeing these indicators. Most feel there's a sentiment that some clients experience a rebound occurring at or around mid-year or next year. What's interesting about this space is that we're more or less bellwethers. When clients begin to economize, consulting and marketing spending can be reduced before they start cutting into their own headcount. However, when things start to pick up again, the agency world fails at first.

Brian, starting with you, what do you sense with your current clients as you're getting into 2024 planning? The Fed and Jerome noted that rates were more or less frozen, and we can begin to maybe appreciate the potential possibility of some rate cuts next year going down and up to 75 basis points. Clear signal to the market. From your clients, what are you sensing if you had to throw a dart or cast a wager for some moderate spending increase?

Brian Williams: I go back to that word Andrew used: uncertainty. To me, interest rates don't have to be dramatically lower as long as it is clear what they will be so that businesses can price in whatever the cost of money is going to be and then evaluate various initiatives accordingly. When there's a low cost of capital and you can invest in new innovation projects, agencies like ours that often come in to help with those initiatives can do really well. We can pivot in our world of software development into tools that help clients save money. It's still a capital cost, but it's a way to lower their ongoing costs, particularly when the cost of people can be so high. I think there's opportunities on either track, and we are seeing clients be a little bit more realistic about saying, 'I can't just freeze spending forever. My competitors are going to leapfrog me if I do that. Now I understand a little bit more about what the cost is for these projects. Now I can kind of stack rank things, prioritize things better, and have real strategic discussions about what is worth a certain level of investment.'

On a macro level, we'll see things get out of that uncertainty and chaos that we had this year, where it's hard to make decisions, and we'll start to see some decision-making that will lead to some reasonable work. On a more micro level, we're also seeing the return-to - office thing create an opportunity for us.We're seeing some clients who have a return-to-office mandate in their hiring practices. They're struggling with that.As a stopgap, they're able to leverage agency talent to address the near-term work opportunities while they're ramping back up their recruiting muscles and that sort of thing.That's an interesting opportunity because, I think there's also a sense of anxiety around rehiring.You're talking about companies and people managers that are high up in organizations and have never gone through layoffs just because the tech boom cycle lasted over a decade.

Now you have people that have gone through this downturn and the stress associated with letting people go, not to mention the buildup of stress prior to that of recruiting and hiring in a very demanding environment from a culture and HR and professional development environment.There was a lot that went into people management.When you add that up, we're struggling to hire in the office. It's so nice and easy to just bring in an agency that can quickly execute on a challenging opportunity without any recruiting, onboarding, and HR.

For interviews, one- on - one, all the stuff that goes into managing a great team, it's appealing. Even though the cost is a different equation, I think that will create opportunities for agencies that are willing to work in that way, adjacent to existing teams. I think there's some opportunity there that we're seeing. We're cautiously optimistic about our numbers for the first part of next year, which are certainly looking stronger than the latter half of this year.That's some reason for optimism. I'm not ready to hang up the mission accomplished sign just yet, but we're seeing some of that. That's also what I'm hearing from other people. Although I haven't caught up with Andrew lately, maybe he's got a different point of view.

Andrew Howlett: Whether it's a blip or it's a little more of a trend, our last couple of months have certainly been busier in terms of new business coming in. Even some that we haven't won, people are asking, and people are wanting to start to spend. I think the big difference, and this goes back to what Brian said earlier about 2008, was that people didn't have money in their bank accounts. When they started to turn back on the spending, they had to spend a little to make a little bit more, then spend a little bit more to then make a little bit more, so it took a while to come out of that. By large, people are sitting on piles of cash right now. Not everybody, but there's a lot of companies sitting on a lot of cash.

The minute they decide they want to start spending again, they can, and what I'm starting to see is that people are saying they've sat on the sidelines.We can only sit on the sidelines.Especially when it comes to what we do as creative, we can only reuse creative for so long before it starts to become less useful, less strong, and becomes a fatigue in the market.We're seeing a bit of that. I think it's going to be a bit of a slow roll until I believe, and maybe it's just my optimism. There's going to start to be some new creative hits in the market in different markets and different segments, and it's going to create this. We better get going, and it could lead to the second half of next year.

That could be incredibly strong for agencies.Brian mentioned that in the short term, we need some staff right now, but also bigger initiatives that the agencies are always hired for.It could be a really strong second half of the year going into 2025. Because again, the cash is there.We do know that it's just a matter of whether they decide to open up the vault and start spending it.

Brent Trimble: The consensus from both of you is sort of cautious, pragmatic optimism, but the big difference is, to your point, in the 2008 crisis, the absence of cash and the lockup of the system and access to cash and capital. Here, the capital exists; it's just a more cautious spending behavior exhibited by the clients. Mid-year looks good, and then you're already seeing kind of an uptick. That's for the folks who are participating today; they'd be curious to hear what others are seeing, but that seems to be at least a pretty good sentiment. Pretty good consensus across the board.

Andrew Howlett: For those who are watching right now, I'd be curious in the chat if people are seeing it, just an up arrow, down arrow, or flat arrow, because it is something that we're seeing. I'm not going to call it a trend yet because it's only a couple of months, so it could just be some end of year or some things. Like Brian said, I'm not ready to make big statements. I am curious to know if this is something that everybody is seeing—this little bit of a thawing in the market.

Brent Trimble: In the research, and this is a sort of very tight, compressed type of pulse check on the market, a lot of the agency principals responded and talked about technology, and of course, Brian, you're kind of a pure technologist. Most of the SoDA agencies have at least a significant technological footprint. We've canvassed a few partners, and I participated in a few of these seminars, and AI comes up in a different context than previous hype cycles of technology, thinking back to NFTs and things like blockchain and distributed ledgers and so forth, and the impact on the environment.

As it pertains to the agency business, whether you're a generalist in creative communications or more into software product design and development, I've been surprised at the velocity of adoption.Even with some nascent or client agency types who might not consider themselves more technologists, maybe they play more in the strategy realm.We've seen adoption in this planning and strategy function; in the content arena with platforms like Jasper, creative and production seem right for things like adaptation and using all the tools at disposal there, development. There's been some interesting tools, and media has been using machine learning and predictive propensity models for quite some time.

Seeing those is fine, but I'd love to hear from your shops, respectively. Where are you placing AI bets? There'll be a follow - up where we'll talk a little bit about this in the client context, but I'd love to hear your view on that.What disciplines, maybe some tools, and how are you using them to enhance productivity?

Brian Williams: Creative agencies and technical agencies like ours, by definition, have to be early adopters, or at least early evaluators of trends and technology. That's a big part of the value we bring to our clients. It's absolutely baked into our DNA; the way we think is constantly internally talking about what these new tools are and where these trends are going. I would say Viget has a bit more of a skeptical eye, NFT's, and blockchain things. We were a little bit more of a skeptical shop, not jumping on the latest trends all the time, not retooling and repositioning ourselves to be like the agency for X, where X is some new trend. I think that's part of what provided a lot of stability and longevity. We've probably missed some opportunities to take off like a rocket ship, but that's okay with me. We're much more about the long term than the short term.

Last summer, as part of our quarterly check - ins, we did an exercise to look at AI trends in three categories.One was the tools that we use and how those tools will evolve, either new tools popping up that didn't exist that are entirely based on AI or, where we landed on it, tools that are going to bake in AI functionality, and we'll slowly boil the frog with that.That seems to be where things are going.Whether it's a Google Suite or tools like Zoom or Notion, building those AI enhancements into the tooling is, I think, great. We will adapt as we do with any kind of software along those lines.

The second category was tools that we're building and software opportunities, where there were questions like, "Do we need to hire certain skill sets to be able to tackle this stuff?" Our approach to software development has always been very much open-source API-driven and connected, bringing pieces together that already exist. Most of the functionality will be built into the software that clients are hiring us to build. We're going to be able to incorporate.The AI functionality is provided via cloud - based tools and integration points.That was encouraging in the sense that we weren't going to have to completely rethink the way we approach software development.

The third category was roles that we have and how AI is going to impact either individual skill sets that we've developed and sold to clients or the approach to staffing. The big thing there was thinking about juniors and early-career people. If you take on development tasks that traditionally you might bring on an early-career developer, let them go rework a ton of data or go investigate some new approach to something, where it's a great learning opportunity for them.They're not generating a ton of value, but they're gaining valuable experience.Now you're seeing a lot of that happen through AI tools, similar to writing. I use ChatGPT all the time. It's like a collaboration partner; think about this, research that, and give me some feedback on that.It's super valuable for that sort of thing, but it's basically cutting off what would have been traditionally a collaboration point with another human being within the organization.The downstream impact of that is going to be a lack of development for young talent.That's going to be an area that will impact agencies and clients down the line. I think we're going to have to be proactive about the impact that has.Those are the three things that we thought about and that we continue to keep an eye on.

Andrew Howlett: Still, one of Brian's words, "skeptic, " and I think I've been most of this really light blonde, or as some will call it, gray hair, has come from all the different swings and the new trends and the new tools and new technologies that always end up being incredibly important. But early on, there tends to be this over-exaggeration or over-indexing on "This is what it is." I like a little bit of what we're hearing from clients right now.

Years ago, it was like, "We need a viral video." What does that mean ? What do you mean ? What are we trying to solve ? I think that's where we're hearing from people like, "We've got to integrate with AI." What do we have to do with AI ? What are you trying to accomplish ? What are you meeting ? I think it's a little bit of making sure that we're implementing it right. We're experimenting where we can and trying things out because we need to understand them. We have to, of course.

For us, we're a much more visual and creative studio. We have been using the tools, but we've spent a lot of time.We even brought in our attorney just to make sure, our intellectual property attorney, to give us some very strong advice on what we should and shouldn't be using some of these visual AI tools for. Absolute ideation, absolute storyboards, mood boards, and those kinds of things. But when it comes to a final delivered product, we need to be very much in control of that, so we don't put ourselves and our clients in jeopardy. I think that's the next big thing. We're already seeing it.There are massive lawsuits out there when it comes to imagery.These companies that have made their living over their whole time protecting intellectual property are not going to go quietly.They shouldn't, right? That's one of the things.I think that's where you look. The Adobe tool is trying to start to solve that by saying they know where they're pulling this from.

Where I see part of the future, at least where we're going to be involved when it comes to AI, is going to be more sandboxed experiences of AI. It's taking assets that they know that they've created or that we've created for them that they own.Some of that imagery might even be served up on a dynamic basis to their customers, whether it be in banners or whatever, but it's coming from their own assets. They know that they own those assets, and now they can see what the moods are like and what the look and feel are like, which really comes back to making sure it's very important that people have a strong brand and strong style guide so that they don't deviate too far from it. Such that when AI is taking a look and trying to pull some imagery, particularly if they get to the point where they're letting it go direct to their customers before it's reviewed on a personalized basis, they don't have these weird outliers that, all of a sudden, some imagery that comes up that just does not match what their brand is at all.

That's where I see it, from a creative perspective, and that's coming; that's already starting. We're seeing that, but I am watching everything.We are watching everything.I'm encouraging the team to dive in and use, learn, and experiment early and often and come up with ideas. We have a weekly learning program where people come and share their learnings and the way that they're experiencing things well with AI, and that's been very useful.

Brent Trimble: The IP point you brought up is massive. I think that's interesting and not immediate beyond the novelty and beyond, to your point, the trendiness. AI has been a part of the agency landscape for quite some time, even more on the performance media side. We've all used it. RankBrain started with some machine learning components and certainly some of the media tools. The thought of an enterprising junior producer, art director, research analyst, or someone on the strategy team just uploading reams of client IP into an engine and unleashing it into the wild is something that really is key. It's good on you for bringing in and consulting with IP counsel.

On the flip side, what I'd love to hear as we get to the end of our hour here is related to client spend. We are seeing some activity in the chat. It looks like Melanie said that they are seeing an increase in brand awareness campaigns in the media. There was a little bit of an uptick there. When we go to clients inevitably purchasing, potentially procurement, have you experienced any challenges, opportunities, or directives from clients? It helps us be experts in AI and how it's going to influence our marketing stack and our tactics.I'm going to assume both, Viget and Struck, that you're able to do that and counsel with clients.When it comes to purchasing, are there any challenges or pressures from the clients ? Tell us how AI is going to help you make us more efficient and translate that to investment and spending.

Brian Williams: I think we're seeing a bit of asking what types of tools we're using to be as efficient as we can, so that the client is certain to be getting as much value as they can. Things like using tools to capture notes and action items out of a virtual meeting where, 5 years ago, you'd have a project manager, whomever captured all that manually, and the client paying an hourly rate for that. The savvy client will ask about what they're paying for there, or on the developer side, if they are getting some value out of AI tools that I hear can help developers write code 10 times faster, or whatever the largely nonsensical point of view is. There's some good questions being asked there.

Now I think there's an opportunity for education. Explain to the client what tools are ready and which aren't.Get to me; that's part of the business, and it's the evolution we've gone through for 20 or so years. In our business, that is a good client. You want a client that's engaged, pays attention to these things, understands what the tools and trends are, and can ask a good question.I heard I could use these open - source libraries to build this interface layer using something like React.Do you guys use those libraries or not?Are you writing it from scratch?Being able to talk about that 10 years ago, or whatever the timeframe was, it's not that different now. Those are healthy pressures. As long as you have reasonable clients that recognize that, you might hear some hype about certain tools that help you do things in a certain way that dramatically increase productivity. It's not always true, but there's usually some balance there.

Andrew Howlett: I'd agree. A lot of it comes down to the more pragmatic and practical use of AI. It is the virtual assistant listening in and giving you the notes from your meeting, stuff like that, that you help them understand that this is amazing. Thank you so much; it's great. I think in the other pieces, we've had people ask us some of those questions, and we said we're happy to help you explore that, but what budget do you want to put towards that at this point in terms of exploration for your business? Typically, people are saying get back to you on that. We're not quite there yet. I think they'll want to get there.

I also think AI is getting layered into everything already.The tools that they are already using, if they aren't already, whatever the client is, will start to have AI baked into them anyway. They won't have to worry as much about what their investment might be in terms of building something or having to develop a way to harness it themselves.I think that'll be a piece of it as well. They're going to start to see the benefits of it regardless, because whatever tools they are already licensing or processes that they're already using technology for, we'll just have it in for them if it's not already started.

Brent Trimble: It sounds like, from your experience, it's more like you're helping clients. You're definitely biased over on the expertise side, helping them get smart about the platforms and sharing where it makes sense in either the martech stack or the creative and strategic product. There's some utility to your point around collecting notes and research, but you haven't really encountered it yet. Maybe that procurement team with the saying "really sharpen the pencil down to a razor." We'd like to see massive headcount reductions, and some of these statements work because we know you can do things faster.

Brian Williams: Yes. That will come in the form of a healthy, competitive marketplace, right? Agencies that somehow are adopting AI faster can work so much better and more quickly, and all those kinds of things will come along and eat our lunch if we're not being smart about how we're adopting them. Agencies that aren't thinking that way and recognizing that competition is coming and embracing it like we always have are going to struggle. However, companies like Struck and Viget have been around long enough. We have a lot to lose by over-betting on and promising on what these different tools can do, whereas the upstarts can try things out, and if they fail, they're on to the next.

Part of being an established agency is being savvy about how quickly you're adopting those things and evaluating them. I welcome it; I think there are a lot of exciting trends. I think there's lots of really powerful stuff that's going to happen. I think the ultimate impact is not going to be job loss and a dystopian nightmare. It's going to be huge productivity gains, and everybody who's good at adopting tools the right way will gain from those productivity gains and benefit from them. So, I'm an optimist for that.Although I guess there is this dystopian, Terminator 2 level, take over the world type stuff, that seems a little bit unrealistic.

Brent Trimble: It sounds great. It's been a great discussion, and as always, I think our participants and SoDA put out great content. We're happy to bolster this conversation with the content that we share today, which I encourage participants to download. It's great to hear from some veterans about real forward-thinking perspectives in the space, both on where you think 2024 is going to go and investments in technology, capability, and adaptation. I'd say that where I sit is certainly on the technology side, but working with a lot of agencies and consultancies is just tremendous resilience through these bumpy times and a hallmark of the space.

I appreciate the time and the insights and would like to share with you some yuletide hope and cheer that spending will rebound, and maybe Jerome gave us a little bit of a Christmas miracle in the Fed minutes yesterday.We'll see. We'll see how that pans out.Thanks, guys.It's been really good. Yeah, thank you.

Lakai Newman: Thank you all for joining. As a reminder, we'll share the recording along with any information and contact details for future discussions. Have a great day.