One characteristic of our industry is disappearing moats. After a brief overview of the fourteen moats we've lost from 1965 to today, we'll look at what turf we really have left to defend and what the future will look like if we get this right. It'll be very different, and you'd better get ahead of it.

Transcript

Blair Enns: David, by the time our listeners hear this, you and I will have spent three, I hope, lovely days together in New Orleans, where we are attending and speaking at the same conference, but we're both hanging out for the duration. Did we have a great time?

David C. Baker: We did.

Blair: [chuckles]

David: I am casting that positive thing into the world.

Blair: You are manifesting your future.

David: [chuckles] In my life, I have never manifested anything. What are you turning me into?

Blair: [laughs]

David: We're going to have fun, aren't we?

Blair: Oh, I'm so looking forward to this.

David: Yes, a lot of good people there, and good food, and there might be a Sazerac or two.

Blair: Yes. The organization is SoDA, Society of Digital Agencies. You and I have done a lot of work with SoDA and SoDA member firms. We think very highly of them and the person who runs the organization. I haven't been anywhere in months. This is early September, and I don't travel in the summer. I'm really looking forward to this. The reason I bring that up is, at this conference, this is the talk you'll be giving, or a version of it, and it's called Defending the Castle When the Moats Are Drained. If a goat is the greatest of all time, is a moat the messiest of all time?

David: [laughs] This is not starting out well.

Blair: [laughs]

David: This is slightly different than what I'm going to talk about, but it's basically the same idea. I presented, I think, seven or eight ideas to Tom at SoDA and said, "You pick one," and he liked this one. I have never spent more time in my life doing research for a talk. I had so much fun doing this. I knew what a moat was, I knew moats had disappeared, but I hadn't really thought about chronologically what moats have disappeared in our field.

My first entrance to the field I was a typesetter on a Varityper 4560. I was typing foreign languages right to left, Syriac, Aramaic, Hebrew. Nobody even knows what those are anymore. Then you would run it through a processor, and then you would wax the RC paper. Then you think about we used to make money on separations for photographs, we used to make money on printing, go on and on and on. I should probably talk about some specific ones, but this is such an unprotected field, isn't it?

Blair: It is. Are you writing a post on this eventually?

David: Eventually, yes.

Blair: Yes, because you've got this list you've chronicled, the disappearing moats for the creative professions over the years. Do you want to pick out a few?

David: Yes, like desktop publishing, or the democratization of the creative programs with Adobe changed this world. It gave access to all kinds of people. I remember 30-some years ago, I was helping a client move from Tulsa to Nashville. It was a post-production firm. I was in charge of helping them set up everything in their new facility. I helped them lease the facility and get the equipment and everything. It was about a $1.6 million post room.

That was the time when Avid Systems were starting to rise up. You could get an Avid then for $300,000. Now you get them for $40,000. That would do everything offline and online, including some of the color grading. The audio stuff, it could do. It just blew all of our minds. Then you think about far-shoring and near-shoring. Recently, some of the statements that our non-friends at Meta and OpenAI are saying about this field, they're basically saying, "The field isn't necessary. Within a few years, they'll be gone." You read all of this stuff and you think, "Oh, shit, maybe I should have made different life choices here." [laughs]

Blair: I'm with you. Zuckerberg and Altman saying, basically, imagine that their businesses are going to replace 95% of the marketing field. Yes, good luck, boys. Have at it.

David: It's not going to happen. Yes. Think about crowdsourcing creative and consulting firms dripping down and taking work from us, and freelancers, and fractional everywhere, and now online influencers that are a part of the media mix, the downturns, the whole remote stuff, people starting up from the bottom thinking that, hey, if I just start selling HubSpot to my customers, this is pretty easy to do. There's been this onslaught over and over and over again.

I'll tell you the biggest moat that I just want to mention this one before we move on, is the geographic moat. When I owned my own firm, all of my clients were local. There were four firms. I was not the best firm in town at the time. If you were a local business, you were going to hire me, or Tim, or Kevin, or one of the others. Then that moat disappeared with the internet largely.

It was good news and bad news. The good news was now I could work with any client anywhere. I didn't have to just have a local client, but these local clients could work with any agency they wanted. That's probably the best illustration of the moat that just completely changed this world. Then you think about AI. I'm not panicky about AI. I'm actually pretty excited about it. You do wonder, "What's the future going to look like with even more moats disappearing and we're standing naked in front of our clients without much protection, essentially?"

Blair: Yes, it makes you wonder why we would get into this business.

David: [chuckles] Yes, that's what I mean by life choices. It's like, "Oh, is this what we want to do?" It just goes on and on. I don't think we're in an existential crisis, but I do think that more and more of the things that we do to make money, we're not going to be doing those things in the near future. What does that mean for us? What does our business world look like when we're not making money from the same things that we were before?

Blair: You modeled out here various types of business risks, and you cite them as a forcing function for change. Do you want to speak to that at all?

David: Yes. I'm actually right near the end of my certification for the National Association of Corporate Directors. It's a really involved, expensive process. I just finished going through all the 15 modules. I'm doing practice exams now, and then I have the proctored seven-hour exam to come up. One of the slides and one of the presentations was pretty fascinating to me. This is directed primarily at publicly traded firms. They said, "These are the 10 significant risks that publicly traded firms are facing." Of those 10, we as an industry are facing six of those. An economic slowdown or uncertainty, business model disruptions, that's a pretty big one, geopolitical volatility.

Blair: Check.

David: Pace of technology disruption.

Blair: Check.

David: Industry consolidation, yes, that's a big one. Supply chain disruptions. Not the way they're thinking of it, but I think of supply chain as really the near and the far-shoring, labor rather than materials. If all of these massive trillion-dollar companies are facing risks that they haven't faced like this before, it makes sense that us little people at the bottom might be under the same sort of risk profile and how that's changing. It just really struck me.

Blair: We have this history of disappearing moats, and then we have at least six enterprise risks. I think everybody feels like we are in uncertain times. The geopolitical thing is really big. There are wars and potential wars breaking out on multiple fronts. There's trade uncertainty. There are a lot of people unsure of when to spend, moving away from CapEx or anything like that. I know on the sales side, our clients face, probably just anecdotally, the highest level of uncertainty among their clients ever. There are just still so many deals just stuck in a pipeline or lost to no decision. It feels like we are at the cusp of a new reality. Do you want to just paint the picture of what this new reality looks like?

David: I want to think in broad historical arcs. I think it's useful sometimes to back up from where we are in this moment, we're reading the news cycles every day, and think about the bigger picture. I want to take us back to 50 years ago. Almost exactly 50 years ago, something big changed. Before that, the media was aligned with agencies. They were arm and arm. The media and agencies were aligned.

Blair: Agencies were agents of the media.

David: Yes, exactly. Clients in those early days, in the late '60s and early '70s, they wanted to buy the media directly to bypass agencies and to not pay that 15% commission. That's when the phrase recognized agencies came up. Media outlets said, "We will only give these commissions to recognized agencies."