Twenty creative directors, planners, media strategists, and account executives from agencies across the country are down on all fours on the floor of a 100-year-old tenement on Manhattan's Lower East Side. They are each staring down at a blank poster-size sheet of paper, contemplating their most abject fears about their careers, their livelihoods, and their future. They have reason to worry. They are, after all, in the business of advertising.

This slight three-story brick building on the edge of Chinatown has been taken over by Hyper Island, a school based in Sweden renowned for producing the most coveted digital talent in the ad industry. That school is located in an old prison on the Baltic Sea, and students are taught that there are no boundaries when it comes to digital marketing.

Last summer, the Swedes at Hyper Island recognized that where there's panic, there's opportunity, and opened this New York branch. Like the many foreigners who settled in this downtown locale before, the school arrived with its own set of promises — to drag the denizens of Madison Avenue into the 21st century. While its students back in Sweden are "digital natives," these elder New Yorkers are "digital immigrants," who have gathered for three days of hard-core immersion in dealing with the chaos digital technology has wrought on their industry. "Something digital immigrants would do," explains one instructor, "is make a phone call to make sure someone received an email."

Most of the men and women here — average age: 38 — have worked at agencies for more than a decade. Such tenure used to be considered an asset, but these days it's more of a liability. They're all well aware that coding is now prized over copywriting and that a résumé that includes Xbox and Google is more desirable than one featuring stints at BBDO or Grey.

Step one of their therapy, of course, is admitting there is a problem. In this room where Swedish pastries litter a couple of Ikea tables, they have been told that their first assignment is to "put [their] digital stinky fish on the table." So each supplicant finds some space on the floor and rolls out that big blank sheet of paper. Eventually, everyone writes something, and after a few minutes, the group gathers in a circle — a safe space — where one by one they voice their insecurities. The first person stands up. "I walk around in fear and loathing, dazed and confused," he says. Another confesses, "I'm a person who's petrified to fail." One by one, they exhale the cold fears of an entire industry: "I feel like I'm standing here and there are a thousand baseballs dropping from the sky and I don't know which ones to catch." "I left my cushy job at a global agency. Actually, I didn't leave; I was pushed out." "I kind of feel like the digital world is a gated world. It's wide open, but I don't even know enough to walk in." "This whole 'collaboration, we'll work together as a team' breaking down of the creative director and art director team — I find it fucking difficult."

Depending on how you look at it, the next 72 hours are either a communal hazing or a primer on today's rules of marketing. Creative teams, the participants are told, now need to behave more like improv actors — "story building" instead of storytelling — so they can respond in real time to an unpredictable audience. Marketing actually needs to be useful — "use-vertising" instead of advertising — which means that you must think more like a product developer than an entertainer. While campaigns once promised glossy anthemic concepts, perfected before being shipped off to the waiting client, digital is incremental, experimental, continually optimized — "perpetual beta" — and never, ever finished. "Digital will fuck you up and the way your agencies are built to make money, staff things, price things," says the instructor. "You guys have to change your DNA, and you're going to have tough decisions." Later, there's an entire lesson on letting go of egos. Throughout the session, instructors remind the novitiates that these new rules are certain to change completely, and soon.

[ CHAOS ]

Like a beetle preserved in amber, the practice of advertising has sat virtually unchanged for the last half-century. Before 1960, ad making was a solitary practice. Copywriters toiled away on words to pitch a product, then handed them off to an art director who translated them into an illustration or photograph. Creative director Bill Bernbach (the B in DDB) changed all that when he recognized that pairing wordsmith and artist could spark genius. That simple move ignited the industry's creative revolution, raising the practice of advertising from sleazy salesmanship to some permutation of art.

The ad business became an assembly line as predictable as Henry Ford's. The client (whose goal was to get the word out about a product) paid an agency's account executive (whose job was to lure the client and then keep him happy), who briefed the brand planner (whose research uncovered the big consumer insight), who briefed the media planner (who decided which channel — radio, print, outdoor, direct mail, or TV — to advertise in). Then the copywriter/art director team would pass on its work (a big idea typically represented by storyboards for a 30-second TV commercial) to the producer (who worked with a director and editors to film and edit the commercial). Thanks to the media buyer (whose job was to wine-and-dine media companies to lower the price of TV spots, print pages, or radio slots), the ad would get funneled, like relatively fresh sausage, into some combination of those five mass media, which were anything but equal. TV ruled the world. After all, it not only reached a mass audience but was also the most expensive medium — and the more the client spent, the more money the ad agency made.

That was then. Over the past few years, because of a combination of Internet disintermediation, recession, and corporate blindness, the assembly line has been obliterated — economically, organizationally, and culturally. In the ad business, the relatively good life of 2007 is as remote as the whiskey highs of 1962. "Here we go again," moans Andy Nibley, the former CEO of ad agency Marsteller who, over the past decade, has also been the CEO of the digital arms of both Reuters and Universal Music. "First the news business, then the music business, then advertising. Is there any industry I get involved in that doesn't get destroyed by digital technology?"

Thanks to the Internet and digital technology, agencies are finding that the realization of their clients' ultimate fantasy — the ability to customize a specific message to a specific person at a specific moment — is within their grasp. It is also one very complex nightmare. After all, digital isn't just one channel. It's a medium that blooms thousands of other mediums. Brad Jakeman, who formerly led advertising at Citigroup and Macy's, says the explosion of platforms like search, geotargeting, the iPad, and mobile apps means fragmented media budgets and fragmented consumer attention. "The irony is that while there have never been more ways to reach consumers, it's never been harder to connect with consumers," explains Jakeman, now chief creative officer at Activision, the gaming company. The death of mass marketing means the end of lazy marketing. At agencies, the new norm is doing exponentially complex work. Think of the 200 Old Spice YouTube videos whipped up by Wieden+Kennedy in 48 hours. "Creating more work for less money is the big paradox," says Matt Howell, president of the Boston agency Modernista.

And the Internet has turned what used to be a controlled, one-way message into a real-time dialogue with millions. "Our power has been matched and, in some categories, rivaled by user influence," says Nick Brien, CEO of Interpublic Group's McCann Worldgroup, who notes that sites such as Engadget and Yelp can make or break a product. The opportunity for marketers is that instead of having to pay for their message to run somewhere, they can "earn" media for free, via consumers spreading YouTube clips, Groupons, and tweets as if they were trying to saturate their networks with photos of their newborn. Says Jon Bond, cofounder of Kirshenbaum Bond Senecal + Partners who left his agency last year to launch a startup: "Marketing in the future is like sex. Only the losers will have to pay for it." But the dark side of a transparent marketplace is that marketers have never had more of an opportunity to rub consumers the wrong way and be publicly skewered. The days of lathering on a brand message that a product may not live up to are long gone.

All of this has made life much more confusing for the client. At a time of shrinking budgets, chief marketing officers don't know where to turn. They have little confidence that old-world agencies know how to navigate the chaos, and they don't know which newcomers to trust. "It's the most treacherous job in corporate America, blamed for everything and credited for nothing," concedes Jakeman, who notes that the average CMO tenure is down to 22 months.

With clients in a tailspin, the very role of agencies is in question. Many CMOs are shunning "agencies of record" relationships — the plum long-term, retainer-based deals that have been the bread and butter of full-service firms. After an agency review last year, Angelique Krembs, marketing director of PepsiCo's SoBe brand, opted to work with only shops that specialized in digital, PR, or promotional work, excluding all generalist firms. "I didn't see it as us ditching a creative agency. We were going beyond traditional," says Krembs, in words that can hardly be reassuring to the old line. "We realized it was unlikely we'd find everything we wanted in one place." That's apt to become the norm as a generation of senior marketers emerges from the digital side, rather than from classic marketing educations at P&G or General Mills. For example, the recently appointed president of marketing at Sears, David Friedman, was recruited from the digital agency Razorfish.

Squeezed by clients, agencies are also beset by a host of new competitors attacking from every direction. Technology companies have commoditized much of the "art" of that old assembly line. Producing an ad doesn't have to be an expensive multiperson affair these days, given that commercial-quality high-definition video can now be shot on cameras that cost less than $2,000. Consultancies like Accenture and Sapient are branding themselves as digital agencies. Tech titans like Microsoft, IBM, and Google are rolling out tools that replace agency analysis with digital measurements that can predict the best targets for a campaign and quantify its success. Google, arguably the industry's most polarizing frenemy, is helping agencies use its planning and analytics tools, while at the same time automating their media-buying jobs. "With infinite ad inventory on the Internet, you just can't have people do [media planning] anymore," says Dan Salmon, an analyst at BMO Capital Markets who covers advertising and marketing services. "It's now being done by a piece of software."

Technology startups also digitize away agency roles. MediaMath, DataXu, and X + 1 are racing to deliver automated ad-buying platforms; Buildabrand.com has reduced the branding process to an algorithm that produces customized logos in five minutes; Lotame is doing audience data management, which tracks every dollar spent and how it performs. Web 2.0 stars like Facebook and Foursquare are starting to work directly with brands, sometimes cutting agencies out of the conversation entirely.

The attack on the industry is also coming from agency expats. Former Crispin Porter + Bogusky exec John Winsor recently opened Victors & Spoils in Boulder, Colorado. Victors & Spoils has virtually no staff and "operates on the principles of crowdsourcing" — currently the most vilified term in the agency world. Since its launch last year, Victors & Spoils has lured marketers at General Mills, Oakley, Virgin America, and Harley-Davidson, which just ditched its agency of record of 30 years. "Many agencies are hanging on to this idea that creativity is theirs to own and sell," says Harley CMO Mark-Hans Richer. "[Victors & Spoils] offered a great place to start versus sitting across from a creative who spent weeks crafting the perfect idea and gets upset if you want to change a word." Says Victors & Spoils chief creative officer Evan Fry, who's also a Crispin alum: "I think the new model is scary because all of us in the ad industry want to feel, at least from a creative point of view, that we have something no one else has. So if you're really good at it, you had to go to Creative Circus or Portfolio Center; you had to pay for it. Then you had to toil to get into a good shop. Then you had to get lucky to get on the good briefs. For someone to come out and say, 'We think a lot of people can offer great ideas' means, 'What, I'm not special?' "

For the enterprising client that can see clearly through the chaos, this new world holds promise. Kraft, for instance, has assembled a growing Rolodex of 70 new specialist partners. This isn't some fringe brand — it's Kraft, the country's largest food marketer, which spends some $1.6 billion on marketing every year. The company is so open to new thinking that it recently hired a startup called GeniusRocket to develop a new campaign for the relaunch of its Athenos Hummus.

GeniusRocket is what an ad agency looks like when it's stripped of Madison Avenue skyscrapers, high-priced creatives on payroll, sushi dinners at Nobu, and two-week shoots at the Viceroy in Santa Monica. The firm is nothing more than a bare-bones website that crowdsources broadcast-ready TV ads from a pool of loosely vetted talent from Poland to Guam. A CMO accustomed to handing over millions of dollars to an agency for a campaign designed around a single spot can now hand GeniusRocket $40,000 — and get seven spots, each of which will be syndicated on 20 web platforms for tracking, testing, sentiment analysis, and wide distribution. GeniusRocket gleans a 20% to 40% commission, and the rest goes to the creators. "It seemed like an interesting, cost-effective way to get some new creative ideas," says Marshall Hyzdu, the Kraft brand manager who hired GeniusRocket. "We fell in love with one spot.

"For an agency to be on the cutting edge, it must have heavy overhead," Hyzdu points out. "Versus GeniusRocket, which is a lean team focused on new ideas. I wonder if that becomes the new model." That kind of thinking sends shivers through the business. "I've gone to see all the big cheeses at all these big agencies, and the reaction to us tends to be in one of three buckets," says Mark Walsh, GeniusRocket's cofounder and CEO and a proud bottom-feeder. "If the executive is over 57, he says, 'Thank God I'm getting out of this business.' If they're in their forties, they say one of two things: 'You're Satan and you're out to kill me,' or 'You're Satan, but can you help me and not tell anybody?' "

"There's never been a better time to be in advertising," says Aaron Reitkopf, North American CEO of digital agency Profero, referring to the unbound possibilities of digital, "and there's never been a worse time." Reitkopf left his CEO post at Kirshenbaum Bond Senecal + Partners a year ago and spent some time visiting agency heads while figuring out a next step. "At the beginning of our conversations, they would put on a brave face, but once you began to quiz them about the future, the door would close in the office," he says. "They'd look at you and say, 'I can't possibly know what the future looks like.' " There's only one thing everyone agrees on, Reitkopf says, and that's that there is too much excess: too many people, too many of the wrong kinds of people, too much bloat, too much inefficiency. And this in an industry that has laid off more than 160,000 people in the past two years. "Ohhhh," nods Reitkopf, "the carnage is going to be awesome."

[ OPPORTUNITY ]

Surviving that carnage, of course, is the real reason people sign up for Hyper Island's grueling three-day sessions. "You go in there not wanting to admit you're an alcoholic and by day two, you're like, 'I am a little bit of an alcoholic,' " says Kevin Moehlenkamp, chief creative officer of Boston-based Hill Holiday. Moehlenkamp attended the inaugural U.S. class last fall, which was held for the industry's top creative execs. "Before, I was a bit of a creative elitist. I thought digital was just another medium." TBWA\Chiat\Day chief creative officer Rob Schwartz attended that same course. He remembers that the group of top competitors arrived with cautious bravado. "Everyone was arms folded, it was very tense, and there was a lot of nervous laughter," says Schwartz. "The room had a Twitter feed, but 70% of the room didn't know what Twitter was."

Moehlenkamp and Schwartz say Hyper Island pushed them from digital observers to participants. "Before, I felt open to the conversation, but I wasn't in it," says Schwartz, who admits he had even been afraid to blog. "What they teach you is that with digital and social media, either you're on the shore or you jump in. The class gave me the confidence to jump in." The 20-year industry vet started blogging and says he has discovered that data tools — which creatives have always shunned as an enemy of artistry — help him stay ahead. Above all, he does not want to be left behind. "My fear was missing out on what could be the next creative revolution," he says. "I was too young for Bernbach. I didn't want to miss out this time."

Many in the business do realize that this moment of unsettling disruption is filled with possibilities. "The headline is, we're on the verge of a creative revolution," says Brian Martin, a consultant who has spent more than 25 years in the industry. Advertising's first creative revolution happened soon after television went mainstream. Digital has reached a similar saturation point. "It's an exciting time, not doom and gloom," says McCann's Brien, who is charged with turning around the atrophying behemoth. "It unleashes creativity." You might even argue that the revolution is the agencies' to lose. "In our business, whenever there's a disruption, our clients need guidance," says Brien's boss, Interpublic Group chairman and CEO Michael Roth.

For three years now, Joe Grimaldi, the longtime chief of IPG-owned Mullen, has been trying to drive change at his agency. Mullen is a Boston-based 40-year-old traditional agency with 550 employees, clients such as Timberland and LendingTree, and a lukewarm reputation for its creative work. Grimaldi decided that his agency had to unlearn its bad habits and develop agile, flexible ones. "We want to be an interdisciplinary company with adaptability built in," says Grimaldi, an Italian immigrant raised in Queens.

Nothing has come easy. "We brought people in from the outside to lead digitally," says Edward Boches, who for years was Mullen's chief creative officer, "but they always tried to change us into a pure digital play. Then the ad types who wanted to do brands and big ideas would say they're jerks who dis us, who think we're dinosaurs." That was only the beginning of the misfires. "In the early days, digital was always an afterthought, so we didn't acknowledge the true cost," says Boches, with his thick-as-chowder Boston accent. "We sold wrong, we neglected to put digital-savvy people in our new business roles. Instead of building digital things that had utility, we approached it from a messaging mind-set and put messaging into the space. It took us a while to realize that project management in the digital space is completely different."

For years, the agency had been located in a palatial mansion outside the city. People were isolated in offices and by long hallways; different disciplines never crossed paths. Last summer, Grimaldi relocated the agency to an open office in downtown Boston. Now, social-media people, creatives, media planners, technologists, and user-experience folks are sprinkled next to one another at modular desks. And Boches has ditched the CCO title for something more nebulous — chief social-media officer. "It's really hard, to be honest," says Grimaldi, who's trying to get his staff to thrive by having more points of view.

There are signs that Grimaldi is succeeding. Earlier this year, Mullen launched Olympus's new PEN E-PL1 camera following a new mantra: "Everything we launch, we launch for free first." The campaign, which included the first augmented-reality 3-D camera demo, helped increase year-over-year sales by 55%. Mullen had to lay off 100 workers during the recession, but this year, it has hired about twice that after some impressive client wins. The agency recently caught the industry off guard after being awarded the business of two extremely progressive social-media clients, Zappos and JetBlue. Says Marty St. George, JetBlue's SVP of marketing and commercial strategy: "I don't think any of us expected Mullen to win. But we all noticed through its pitch process that you couldn't tell who the creative people were from the media people or the planning people. They all finished each other's sentences, regardless of what we were talking about."

[ MONEY ]

St. George says the most surprising aspect of JetBlue's agency search was how many firms still believed that the key to solving any business problem was the 30-second spot. But maybe he shouldn't have been surprised. Agencies still yearn for the fat 15% commissions they used to score off of a client's media spend, a spend ballooned mostly by television commercials. The industry isn't even close to adjusting to the truism that digital dimes don't replace analog dollars, the very problem that bedevils music labels, publishers, and television networks. Today, agencies really have no clue as to how they should get paid. "We still don't know how to monetize what we do," admits Peter McGuinness, CEO of Gotham, which, like Mullen, is owned by IPG. "We don't monetize ourselves properly, so we don't hit our margins."

In many ways, the end of the rich old model is the agencies' own fault. In the 1980s, agencies decided they could benefit from economies of scale, as well as manage client conflicts of interest, by merging. Not incidentally, this trend also gave the agency owners a way to cash out. The result was an industry centered on four major holding companies: WPP, Omnicom, IPG, and Publicis. But the move has backfired. "Agency leaders were making more money than the clients," says Martin, the industry consultant. "That's when the clients began to realize, 'Gosh, we must be paying them too much.' "

Clients forced the agencies into a service-fee model instead, which is far less lucrative. "It's like lawyers," explains BMO Capital's Salmon. "The fees are based on head count and time spent working." Grimaldi explains why this is so much tougher than the old model. "If a creative team now takes six people instead of two, just think about the burn rate of that room," he says. "Unfortunately, not everything generates as much money as it used to. There are only so many hours you can bill." Now those hours are getting squeezed from every direction. The clients employ procurement officers and cost consultants to negotiate down the fee on everybody in an agency. And given today's hypercompetition, agencies can sink up to $1 million and four months pitching for a new account they might never win. "When the smoke clears," says McGuinness, "we make no money."

Given this madness, the agencies still cling to those expensive TV buys. Bob Garfield, advertising-industry pundit and author of The Chaos Scenario, says, "Agencies have worked out very complex compensation formulas, which are nominally fee based, but if you track compensation against media spend, you will see that the lines are parallel." The less a client spends on media, Garfield continues, the less an agency makes. Some agencies are scrambling to address this by reinventing their compensation structures. "We are paying the price of belonging to an industry that does not know how to protect its own interests," wrote TBWA Worldwide chairman Jean Marie Dru in an Advertising Age manifesto entitled "Endless Pressure on Price Traps Agencies, Clients in Death Spiral." "We are our worst enemies."

Virtually every CEO in the business is now railing for one of two solutions to the problem of, well, not making enough money. First, they want to be financially rewarded for performance, and thanks to all those new data-analytics tools, for the first time ever, their effectiveness can be measured. Says IPG chairman Roth: "We should get higher [compensation] if it works and lower if it doesn't. That's how this industry can return to the profitability level." It's a nice thought, but those tools aren't infallible: While Wieden's innovative Web campaign for P&G's Old Spice garnered tons of publicity, Ad Age speculated that the boost in sales may well have been due to a coupon.

Then there's the industry's biggest fantasy about compensation. "We have to figure out how to get paid for the big idea, and what that idea is worth," says McGuiness. What's a big idea? Something as ubiquitous as MasterCard's "Priceless" campaign that arguably could transform a business. "This is a holdover from 20th-century marketing," says Brian Collins, a former Ogilvy exec who now runs an innovation consultancy. "People who think that way are supremely well equipped to work in a world that no longer exists." Plus, as Garfield points out, "in the whole history of mass advertising, the number of transformative ideas that have created wealth via advertising you can count on one set of fingers and toes." Garfield sees this big-idea payday as the last wish of an industry that's drowning. "In a world where media spend is in inexorable decline, and where advertising per se is an endangered species, [agencies] don't know where to turn," he says. "The realization of the nightmare is under way. And that nightmare is the utter collapse of the business model."

[ ADAPTATION ]

In its fight for survival, the advertising industry is at war with itself. Generalists are competing with specialists. Interactive shops are vying to become full-service agencies, while traditional shops are yearning to become digitally integrated. "The Great Race," as Forrester Research dubbed it in March, drives a more intense competition over an already shrinking pie, and there won't be room for everyone. En route to the center, agencies are chasing one another to the bottom. "I spoke to a high-level CMO the other day," says Profero's Reitkopf. "She said, 'I work with a holding company's promotions company, its social-marketing company, its response-marketing company. Every time we're in the room together, it's fine, but the minute I walk out to get a cup of coffee, someone will follow me and tell me they can do what the other agencies do for cheaper." Adds Harley CMO Richer: "Agency networks supposedly combine all these experts together on your behalf, but it only really happens when the business is at risk of walking out the door. Before then, these creative entities are locked off in separate P&Ls. They're not built to solve clients' problems, they're built to satisfy individual P&Ls."

Publicis Groupe chairman and CEO Maurice Lévy admits this. "Historically," the Frenchman says, "one way to manage a holding company — which still is the case for other holding companies — is to stimulate each agency to compete with each other. The stimulation was about rivalry and competition within the same group. They felt that this was the best way to drive growth."

These divisions were exacerbated in the 1990s, when holding companies spun their media departments out of creative agencies into stand-alone companies, creating new entities such as Omnicom's OMD and WPP's Mindshare. The goal was to hold onto a client's media spend even if the client took its creative business elsewhere. But marketers like Johnson & Johnson's Brian Perkins are now begging media and creative shops to bundle back up. "When media and communications planning have become more important than ever," Perkins wrote in Ad Age this year, "why are our media agencies further (physically and philosophically) from the people who create advertising?"

Lévy is aggressively trying to bridge that gap. He recently created Vivaki, which is largely an internal effort to get its media agencies, Starcom MediaVest and Zenith Optimedia, to collaborate with its digital agencies, Digitas and Razorfish. The carrot he's employing is deeply traditional: a change in fiscal incentive structure. While each agency has its own P&L, the pay of top execs also depends on Vivaki's P&L of the combined companies. "In the beginning, it was a really hard pill for me to swallow," says Bob Lord, CEO of Razorfish, which was acquired last year by Publicis. "I built my career at Razorfish being the most aggressive, saying we can do everything for the client. Now it's supposed to be okay to say, 'Well, we are weaker in CRM, and we can learn from Digitas.' That's a hard thing for people to accept."

Of course, the willingness of Lévy and other holding-company CEOs to experiment is based on their continued belief that one-stop shops will outlive and even outpace any disrupter. "We have to be ahead of the curve in all areas," says IPG's Roth (who earned $6.3 million in 2009, down 40% from the year before). "We'll do it by investing in or partnering with these new types of companies and making them part of our offering." In other words, holding companies will ultimately do what they believe they do best: They will chase the next shiny object, hedge their bets with acquisitions, and perhaps make their already monolithic structures even more colossal.

Rosemarie Ryan and Ty Montague have a smaller vision of the future. Until June, the two were the North American copresidents of JWT, the WPP-owned behemoth, armed with a combined 40 years in the business. Then they quit. Montague and Ryan decided to build a new kind of marketing business with no old-world waste and inefficiency. Co, which Montague describes as "a brand studio built for 21st-century CEOs and CMOs," is a tiny group of consultants from the agency, technology, and business-strategy worlds that can "deploy the right team for the right action at the right time for the right outcome."

Its ability to scale up and tackle a wide range of client problems will come from the eclectic network of 44 specialist companies they've lured to play nice with them, from digital agencies like Big Spaceship to crowdsourcing firms like Victors & Spoils to bigger companies like McCann Worldgroup and Horizon Media, the largest U.S. independent media-services company. "We want to be as small as possible and as big as necessary," Montague says. "It's not about scale; it's about scalability. Even though we have only five employees, right now we have 1,500 people we can put against an opportunity." Says Bill Koenigsberg, CEO of Horizon: "Getting a piece of business doesn't mean they have to hire an army. There's a nice elasticity there."

Co's financial model is to be paid a retainer, a flat project fee, or equity, depending on its client; it does not get a cut of what its specialists bill. "We are, by its nature, helping to build businesses that we do not own," says Montague. Since it doesn't own any of those specialists, Co has no vested interest in treating a client's business problem with any particular solution. Its goal is to move from the ghetto of marketing into the world of pure problem solving, so Co plans to work with only clients who promise C-level access beyond the CMO. "The answer can come from marketing, but it can also come from R&D or product innovation or design," Montague says.

Earlier this year, technology observer Clay Shirky argued that "complex societies collapse because, when some stress comes, those societies have become too inflexible to respond." Societies like the Romans and the lowland Mayans fell because further reductions became too uncomfortable for those in power. "Collapse is simply the last remaining method of simplification," writes Shirky. After disintegration, he explains further, the members of a society disperse, experimenting with new ways of doing things. "When the ecosystem stops rewarding complexity," he writes, "it is the people who figure out how to work simply in the present, rather than the people who mastered the complexities of the past, who get to say what happens in the future."

Co may be an example of how the members of this collapsing industry could make it simpler and more logical. "I think all of it [the industry] needs to get smaller to get better again, on some level," says Ryan. Co may or may not succeed, but what makes its model so intriguing is that the company doesn't have to make a big bet on a single possible future. "I don't think anybody can look you in the eye and say, 'This is what the business will look like in 20 years,' " says Ryan. "If they do, they're lying." Co's only plan for growth is that its founders will hire other tiny teams of four or five people. In other words, Co's only growth plan is another pod.

That may be a vision for the industry as a whole. With all the defections of top agency talent over the past year — Alex Bogusky from Crispin, Gerry Graf from Saatchi, Kevin Roddy from BBH — it's easy to imagine a new advertising ecosystem of pods built around industry stars who have left their lumbering institutions behind. The holding companies will still exist, but around them could emerge a chaotic pattern of startups, independent talent, and connectors who thrive with minimum overhead. That kind of industry would be a fraction of the size of the current one. It would create opportunities for the most talented and hurt everyone else. It would be harder work, with fewer assistants and fewer million-dollar paydays. But this smaller business would be aloft on its new creative potential rather than sinking under the weight of its past.

[DISCUSS]

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