Advertising's New Idea: Don't Push the Product; Pull the Consumer Instead

"Traditional agencies are set up as factories to produce advertising, which is a dying industry," Greenberg told me this week. "We're in the business of stimulating consumer engagement, which is where things are going."

Greenberg's got the evidence: This year, R/GA has added about 175 new employees to the 400 it had last year, many of them software programmers and technologists.

Of course, Greenberg and others have been predicting the "death of the 30-second spot" for more than a decade, and companies are still spending more money on them than ever. But the big growth is now in other areas, with the advertising industry scrambling to keep up.

These days, there is hardly a traditional agency that doesn't have a chief executive who can give an upbeat and energetic rendition of the "new world" speech, point to some successful campaign using digital or interactive media, and identify some new subsidiary focused on product design and innovation. But even they acknowledge that the transformation has been slow, reflecting not just resistance within the agencies but also caution on the part of clients.

Certainly, one reason is that outmoded fee structures, with their fixed retainers, media commissions and hourly rates, give agencies all the wrong incentives.

"In simple terms, we charge premium prices now for commodity services and then give away the creative stuff, which is where the value-added is," explained David Jones, the young, cosmopolitan chief executive of Euro RSCG Worldwide. "We need to figure out a way to drive down the price for the commodity parts and get paid for our ideas."

But so far, few agencies -- or clients, for that matter -- have been willing to go as far as the upstart, entrepreneurial agencies such as Naked, Nitro and Anomaly (where do they get these names anyway?), which base all or part of their fees on the growth in their clients' businesses. Such arrangements turn agencies from outside contractors into business partners, which in one way is where the industry began.

"Fifty years ago, Leo Burnett and David Ogilvy would sit down once every week or two with the heads of client companies and talk through everything -- products, competition, finances, whatever," said Chris Clarke, chief executive of Nitro. "These were truly creative business partnerships between agency and client, which is precisely what we are trying to create today. It's back to the future."

Steven Pearlstein can be reached atpearlsteins@washpost.com.