When will Silicon Valley have its first ad agency? The answer lies in Madison Ave's history

It all comes down to two things timing and geography. The story of Madison Avenue is a great example of that.

Timing: The roaring 20’s?

The year when we started to see Madison Avenue be infiltrated by Advertising Agencies was the 1920s.  

Advertising Agencies were growing, riding the wave of the first big consumer boom of America. With WW1 finished and an able workforce mixed with the innovation of wartime efforts, consumerism boomed. Advertising hit its highest level ever making up 3% of the GDP in 1922.

BBDO, Y&R and over 20% of the 4A’s agencies moved into Madison Avenue by 1927. At the same time mass communication channels were coming into play with the ad funded radio joining newspapers and prints as places to advertise.

Advertising for one of the original Madison Avenue agencies BBDO

Geography: Sandwiched in Midtown Manhattan

Madison Avenue was sandwiched between the two avenues that would make Midtown Manhattan the new capitalist mecca of America.

On the west side, Fifth Avenue was the first light of things to come. The new beacons of consumerism department stores solidified this role. Saks opened up an entire block frontage department store on the Avenue in 1924, Bergdorf Goodman followed with a massive store in 1928. These massive centers could only be built in midtown as downtown Manhattan had been the heart of business for the past 300 years so property prices uptown were relatively cheap in comparison.

On the east side was the newly renovated Park Avenue, which 20 years earlier was some of the worst land in New York. It was where all the steam trains would spill into Grand Central Station. However between 1903-1914 they changed all the trains to electric and put them underground. Planting a nature strip in the middle of street where the train lines used to come up hence the name Park Avenue in the process Grand Central Station also got a face lift.

The cesspit that was Park Avenue Pre-1900

Now a huge avenue of desirable lands for businesses opened up with close proximity to a major transport hub of NY. International and national businesses looked to stamp their headquarters in this part of town as it was now the fasted place to do business with access in and out of New York with Grand Central Station being a game changer.

Madison Avenue wasn’t one of the great avenues so the prices were relatively cheap in comparison, as advertising is a service industry feeds of business, they were quick to follow the money uptown. In 1937 it reached the watermark with over 37% of the American Advertising Agencies offices located on Madison Avenue.

Industry Clusters and Thick Job Markets

Following the logic of Enrico Moretti’s work in the ‘New Geography of Jobs’ (which is a great book if you haven’t read it yet). Madison Avenue created advertising’s first industry innovation cluster with a thick job market where there is high demand for talent and a big supply, now that has spread out to Manhattan and Brooklyn.

At the moment national advertisers are happy to look beyond their local agencies and pay a premium for agencies located in one of the most expensive cities in America. In some cases they’re even happy to move their marketing arm to the city.

However the one thing that is different between other innovation industries and advertising is that at the end of the day advertising is a B2B service industry, it is naturally going to follow the hand that feeds them.

California’s Second Gold Rush

Silicon Valley and the surrounds now have some of the fastest growing advertisers in America; Alphabet (Google), Apple, Facebook, Netflix, Intel, EA Games, Tesla. As anyone who has worked on a coast to coast account will let you know, it is just not the same and a much harder relationship to form. Geography matters a lot.

Having great talent locally will always win out.

Google putting some gas on it - Alphabet Advertising Spend by Year

Silicon Valley the Creative Advertising desert

Unfortunately, Silicon Valley does not have great advertising talent at the moment. The reliance on direct response type of advertising and “growth hacking” has meant that the demand for ambitious creative work has been sidelined by a number of younger companies in Silicon Valley. On top of that, creatives will demand a matching creative community which right now is being leased from San Francisco.

However surely it is only a matter of time before the demand will create Silicon Valley’s first agency that can crack the Ad Age’s Annual A-List.

When do you think we will see the first agency crack the list?