If you thought advertising agencies spent their days making ads, think again. These days, they’re as likely to be making chocolates, ready meals or personal alarms as they are commercials. Media fragmentation and diminishing attention spans have chipped away at the value of ad agencies’ bread and butter, and it’s become clear to many within and without the industry that they’re unlikely to build a profitable future solely on the foundations that have served them well in the past: press ads and 30-second commercials, no matter how clever, won’t be enough.

So, as well as working on their clients’ campaigns, growing numbers of agencies are applying their creativity — and their insight into what makes consumers tick — to dreaming up, producing and promoting products of their own.


Brooklyn Brothers, for instance, in New York and London, is the maker of Fat Pig organic chocolate, as well as a children’s book and a drug for angry pre-menstrual women called Premcal. A highly successful agency in New York called Mother has a range of Mother-branded scented candles and coffee-table books, and Crispin Porter & Bogusky, the brains behind the hugely successful Xbox game for its client Burger King, has developed the Twist range of eco-friendly cleaning utensils (below).


Neil Munn is CEO of Zag, the arm of ad agency Bartle Bogle Hegarty (BBH) set up and devoted to just this kind of venture. BBH is hardly failing in the traditional agency game — it has Barclays, Diageo and Unilever among its ‘regular’ clients — But Munn says the phenomenon of ad creatives creating their own products is a natural progression from generating great ideas for clients. Zag, he says, devises products that fit what he calls “brand lags, where we see shifts in consumer activity not being met by brand activity”. Zag is this year launching in the US and Brazil.


Zag in Britain has launched the Pick Me range of vegetable ready meals, having observed that while consumers are keen to eat their recommended five-a-day portions of fruit and veg, brands reacting to that had all been in the fruit area — Innocent smoothies, for instance. Veg was still boring. Pick Me’s range of “veg withedge”, which includes Vegalicious Masala and Nutballs, is now in major UK supermarkets and is expected to generate €10.6m in sales this year. Zag’s other big success story, attractively patterned personal alarms for women, called Ila, which emit a woman’s scream rather than a siren when activated, are selling out in Marks & Spencer department stores in Britain. The brand lag there was that while concern about personal security was rising, particularly among women, no brand was prominent in providing a way of addressing that.


Is there really a future in advertising agencies doing non-advertising work, or might this just be a fad? There are some in the industry who have no doubts on that score. The head of Ogilvy Group UK, Gary Leih, says the whole point of ad agencies is to support client brands, not set up as the competition. Stephen White, CEO of EMM International, a consultancy advising advertisers on how to evaluate their agencies, is another sceptic of adu-facturing: “I think these are tremendous groups of men and women who have the courage and the naïveté to think that this is going to last.” At best, he says, these business off-shoots will prosper briefly, and then get swallowed up by the big international agency groups.


Other agencies are developing new brands along with their clients, splitting the costs, the risks, and the profits, and doing away with the traditional retainer-based fee system.


“[We are] so completely confident in our insights, creative content and activation that we are willing to put our profit on the line,” says Creative Feed, a New York agency that's working with its client Sonim Technologies to produce a Land Rover-branded mobile phone "as rugged as the vehicle". 


Anomaly, with offices in New York and London, is generally credited with having started this trend. Its first big hit was the Jawbone Bluetooth headset for mobile phone users, created by a technology company but with Anomaly taking a royalty payment for every unit sold in return for handling marketing and planting the product with celebrities. The agency also has a skin-care range called Eu, in which ownership is split three ways, between agency, chemist and private investors.


Robin Dhara, founder of PR agency Red Robin, which represents Creative Feed and another pioneering agency in this field, Erasmus, says this phenomenon is gathering momentum as advertisers look to get more commitment and less risk from agency relationships.


“If you look at every web site of every PR or ad agency they say ‘We will operate as your true partner’,” he says. “We all know that’s not true; you do it for the pay cheque. But it’s no longer a master-servant relationship … and this is truly results-based.”


Energy drink Relentless is a joint venture between Erasmus — which calls itself an “ideas company” rather than an ad agency — and Coca-Cola Company. Launched three years ago, Relentless has 20% of the UK’s energy drinks market and is a serious rival to Red Bull, with rollout in other markets planned. 


Alex West, founder of The Future Department, a cooperative of creative talent from many disciplines, including advertising agencies, says this trend is partly driven by desperation on the part of agencies to find a new business model, and partly by clients’ desire to change the way agencies are paid.


“Clients over the past couple of years have been working with smaller, brighter agencies working in non-traditional formats, and these chunks of business are getting ever-bigger,” says West. “Particularly in this market, agencies need to find new revenue models and prove how successful they are and the good ones will … add value to the client business rather than being paid a retainer to plan someone else’s profit. Where that leaves the big (agency) networks, I simply don’t know.”


At Zag, which is part of what is still, primarily, a traditional agency, Munn says traditional ad people are not an endangered species. The idea that the new way of working will eclipse the old is not one he subscribes to.


“It’s exciting, but still small,” he says. Zag has just 10 full-time staff in London compared to 400 at the agency part of BBH. “But it will be significant. This is a long-term strategy play for BBH, it’s not a sideshow.” 


He adds: “You might say the traditional agency-fee model is under a significant amount of pressure and that’s true, but there’ll still be plenty of opportunity for best-in-class communications.”