With brands taking more work in-house (from social and creative to tech), digital agencies may be taking a moment to consider their offering. For our Deep Dive into Digital Advertising, James Addlestone of agency Journey further argues that they shouldn’t kick against the in-housing trend, but consider what it says about agencies and their place in the world.
A shift toward in-hosting digital marketing has changed the role that agencies are playing for brands. We’re only at the start of the change curve. In the coming years the digital agency will change, and digital agencies that don’t adapt will die.
A few converging trends are causing this shift.
What are digital agencies for?
Digital agencies’ role and relevance are based on two factors. First, being able to generate of scale through fixed costs spread over a larger client base. Secondly, attracting talent with a broad range of insight and experience, by virtue of servicing multiple clients simultaneously.
Economies of scale have arisen for digital agencies through a few avenues. At scale, greater flexibility exists around resource so ‘dead time’ is reduced. Technology has also often required training that is expensive to replicate with smaller teams. Agencies can procure and build expensive technology spread over multiple clients, and access insights across multiple clients without having to invest in extensive research. It’s quick to refine a process when it’s repeated multiple times over multiple clients.
But over the last few years the likes of Google and Meta have been making it easier to self-serve, seemingly negating many of the benefits of agencies.
For example, with the advent of smart bidding, it’s seemingly easier to set up high-performing paid search campaigns without requiring a specialist agency. Insight tools have become more accessible and cheaper, with in-channel insights easier to surface with a third-party tool. A desire for greater ‘control’ of the brand has led to a perceived need to bring customer-facing content in-house, with the greatest shift in in-housing being in social media and creative.
Finally, the apparent ‘agency monopoly on talent’ (which was debatable in the first place) was predicated on the best employees wanting to work at agencies, with the agency culture and lifestyle that went with it. With many agencies suffering from a culture crisis following lockdowns and changes in desired lifestyles, this is changing.
How should agencies respond?
For agencies, there are two responses. The first I call the ‘ransom approach.’ This is where an agency will identify ‘capital’ they hold over the client and essentially use this as ‘ransom’ for as long as possible. The agency may have specific knowledge of a client’s data infrastructure, or have a relationship with a third party that will grant the client privileged access. When it comes to contract renewals, they will point to the value the client derives through the agency, maybe sweeten the deal with discounted services, and hope for the best.
I call the second the ‘value-add approach.’ This is where agencies reflect on the reason behind the shift and find a way of adding genuine long-term value to the client that couldn’t be derived from in-housing – for example, the fact that they have the fortune of working with 20 clients in the same industry, and can provide consultancy and contextual clarity around performance within their industry. Or that they have a world-class training program to which they could introduce clients.
This is the opposite of the ‘ransom approach’; Rather than looking at capital to protect, it instead focuses on where collaboration would be mutually beneficial. Agencies should welcome in-housing as a chance to help navigate a difficult challenge for clients (and get paid for doing so).
So how should agencies shift their services? This is by no means an exhaustive (or mutually exclusive) list, but I believe the following avenues are possible for most agencies:
1. Pure play marketing strategy
There will always be a need for strategy consultants who understand the digital marketing landscape to offer high-value consultancy by virtue of serving multiple clients. There will always be individuals attracted to this industry who thrive on solving customer-facing technology challenges, and therefore choose to work for agencies rather than in-house. Agencies need to ensure they have the frameworks in place to serve this clientele cheaper than pure-play strategy consultancies such as McKinsey or BCG.
2. Consultancy-led recruitment
Agencies may venture into becoming more like combination recruiter-consultancies. Top-quality training of graduates, for example, will still benefit from growth of scale on training. As agencies shift in-house, a specialist digital agency will be required to fill this role through offering digital training alongside client experience via ongoing overflow services to clients.
3. Software as a service
Agencies will continue to ‘productize’ their services (this is not a new trend), with increased emphasis on offering off-the-shelf products tied to specific cloud platforms.
Agencies need to deeply rethink their offering to continue to add value for clients. Unless agencies really help to facilitate this trend, rather than kick against it, they will suffer the consequences.
Read more from The Drum’s latest Deep Dive over at our Digital Advertising hub.