Agency spending is down and labor is up
Agency spending is the only one of the big four to show multiple years of decreased spending. Marketers say they want to rely less on agencies, and followed through with less spending. A commensurate growth in labor spend is likewise logical, as marketing departments grow key capabilities.
The spending differences were very small, suggesting change is slow. For all the talk among marketers of in-housing core capabilities, agencies continue to deliver value. They provide skills and capabilities that marketing organizations have not yet been able to develop.
What agencies are asked to do has changed, however. Agency spending is shifting away from commoditized activities like media planning and buying, and toward strategic activities such as strategy development and digital transformation program execution. This is where agencies want to play, because they can charge more for value-added activities and the contracts are longer-term. But it’s also where marketing organizations want to take control, creating tensions between current spending and organizational development.
Martech spending is down — for now
Martech spending as a percentage of the budget is down by around 10% since 2018, from 29% of the marketing budget to 26%. That seems significant given the 30% increase in martech budget between 2017 and 2018, but it’s not. Marketers show no signs of disillusionment with technology. On the contrary, marketing leaders continue to view martech as a tool for driving customer engagement and account growth.
Instead, the drop in martech spending is typical of the technology purchase cycle. When an organization makes a major purchase or upgrade, it means a boost in spending, followed by a drop the following year as the firm integrates the technology and optimizes in-house processes to use it.
The current decline may, in fact, be overdue. In 2018, marketers reported they use only 61% of the functionality available in their martech portfolio. Organizations lack the resources and skills to integrate and adopt the tools. A slight investment hiccup may simply reflect current efforts among marketers to better use what they have.
Paid media spending is on the rise as digital ad spend dominates
Paid media is up around 10% from the previous year to 25% of the total marketing budget, with digital media as the clear spending driver. Along with search advertising, digital ad spend comprises around 16% of the total marketing budget.
Social media platforms dominate digital ad spend, followed by display advertising and video. Amazon made a dramatic entrance and rose fast to capture more than 17% of the 2019 digital ad budget.