Forrester: Agencies must slash staff and diversify or die

Wannabe Don Drapers had better think again; marketing and advertising agencies are facing the biggest shake-up in their history, with the rise of technology – especially AI – forcing them to take on a raft of new roles with a significantly reduced workforce.

That is the bold forecast from Forrester’s 2026 Marketing Agency Predictions, which reckons that “agencies are forgoing their franchise to act as agents on behalf of clients to become marketing purveyors that operate across several business modes”.

According to VP principal analyst Jay Pattisall, a number of forces will combine to bring about this shift.

He insists that low-margin project-based engagements have replaced once lucrative retainer fees, while two decades of marketing insourcing have created a saturated market, commoditising creative ideation and execution.

In addition, consistent procurement pressure in the name of cost efficiency has forced service providers to monetise media, technology, and data, meanwhile AI and automation is disrupting agencies’ labour-based economic model, as well as their operational workflows.

Pattisall said: “The result is an industry in rapid change – and by the end of 2026, marketing agencies will be materially changed.” Naturally, those which fail to adapt will end up on the scrapheap.

With each consolidation, acquisition, or private equity investment, agencies’ vision moves further away from being providers of agnostic services and creators of culture to purveyors of enterprise platforms and orchestrators of strategy and execution.

Pattisall continued: “Put simply, your agencies will no longer act solely as your agents but also as owners of products/solutions, resellers of technology partnerships, and developers of emerging capabilities.”

Among the shifts in store for 2026, Forrester predicts that a Dentsu or WPP acquisition will trigger a wave of agency reviews, arguing that the era of blockbuster holding company deals is far from over.

Following Omnicom’s acquisition of IPG, Forrester predicts that Havas will acquire Dentsu’s international operations, although Publicis CEO Arthur Sadoun has already dismissed this.

Sadoun recently said: “With the speed of change AI is bringing, we are only interested in buying capabilities in data, technology and AI that will enable us to continue to outperform the market and deliver immediate value to our clients. Our transformation allows us to deliver AI-powered marketing to our clients, and 100% of our investment is focused on accelerating even further in that direction.”

An alternative Forrester view is that WPP may restructure for a sale to private equity or Accenture, although either scenario will prompt marketers to reassess their agency relationships.

Pattisall continued: “When the big six condense to the big three, their emphasis on technology, data, media scale, and products will further push agencies to operate as purveyors as much as providers.”

Another driving force will see agencies shift from agents to principals in media trading. In 2026, principal media – where agencies resell inventory with margins and guarantees – will account for nearly 33% of total agency billings. This model offers cost efficiency and value, especially in volatile markets.

While critics raise concerns about transparency and brand stewardship, supporters argue that discounts and guarantees with disclosure make principal media a viable option.

Forrester maintains that agencies such as Omnicom, Publicis Groupe, and WPP are already leaning into this trend, integrating AI into their media trading strategies. More importantly, it insists, agencies like Dentsu, Havas Media Network, Horizon Media, and Tinuiti have recently developed principal media offerings, crossing the threshold of buyer to owner.

Finally, automation and AI are accelerating workforce reductions across agencies. After an average 8% headcount cut in 2025, Forrester now forecasts a 15% reduction in 2026. This shift is not just about efficiency – it’s about transformation. Agencies will pivot from selling services to selling solutions.

Forrester quotes “one global holding company CEO” who said: “By 2028, we’ll double profits and halve the people.”

Consequently, chief marketing officers will be forced to adapt by renegotiating contracts to reflect the solutions that agencies now offer, rather than just the time spent delivering them.

Pattisall concluded: “Whether outcomes/performance-based, fixed fee, or product as line of business, when agencies are no longer primarily remunerated for talent delivery services, the nature of agency value changes. In 2026, the concept of human/technology equivalents will hasten the shift from service providers to solution purveyors.”