The value of current agency services is decreasing mainly thanks to technology
As time goes on some of the key services that agencies offer will lessen in value as they become commoditised or automated.
For example, will developer skills become commoditised when remote developers drive down the cost but work to the same standard? Will media buying still be valued when automated media buying can do the job? Will UX designers still be as valued when websites are generated by algorithms based on consumer preferences?
While we are still some way off this coming fully to fruition, switched-on agencies have seen this coming and adapted their offering. We’ve seen the growth of “customer experience” services (and yes, I know we’ve all been selling “multichannel strategy” and “holistic marketing” for years, but they’re not quite sold in the same way).
It’s here that agencies have managed to start building a bigger footprint inside clients’ businesses, gaining more revenue from accounts and driving more (attributed) revenue for clients.
So, what’s next, where will the value be for agencies? You can see below the changes in interest (in terms of web searches) in three key trends within the UK over the last five years, with “digital transformation” starting to pull closer to “customer experience” and “marketing services”.
The reality is lots of businesses still aren’t using digital to their advantage.
Yet digital transformation is nothing other than a business strategy, and as with other business strategies, the decision usually comes from the top. Such a decision paves the way for high value agency engagements and agency influence across the whole client business.
With CMOs predominately being given the remit for digital transformation (not CTOs) this means agencies have an opportunity to offer digital transformation services to clients they may already work with. This is where the future value is for most agencies.
New sources of competition – the threat from consultancies
Consultancies (the likes of Accenture, Deloitte, PwC at a global level) are poised ready to contend on the digital transformation front against agencies. And they have an upper hand.
Consultancies have been working with the top management for some time, meaning they already have an in at the highest level, whereas most agencies will rely on their marketing contacts to climb within the business to be able to sell in these services. But consultancies are tackling this issue by building partnerships or buying agencies to fulfil their proposition.
In turn, agencies will need to strengthen their proposition with partnerships with smaller consultancies and technology providers to provide them with a strategic advantage.
Agencies need to get better at positioning themselves
With the changes discussed above, it’s likely that many big agencies will be partnered or acquired by leading consultancies. Meanwhile, the super niche small agencies will still be able to provide specific services. But those in the middle are those most in danger.
The irony still gets me. Look around even now. How many agencies do you know who offer “full service marketing” aimed at “any business with a website” who have an “open and collaborative approach”. These are the agencies who are going to feel the squeeze as the above trends develop, and who really need to start thinking about their place and offering in the changing market.
Insourcing and agency efficiency
Digital transformation by its very nature impacts most business functions across a business and takes time. More skills are likely to be brought in and developed by clients in-house. And when the transformation is finished, what then is the role of the agency?
Agencies are likely to develop more in-sourcing offerings to help train and offer high level guidance to inhouse teams. This of course means that the skill sets required within agencies will change with higher level, broader “T” shaped people becoming more valuable than vertical specialists.
Before that point, however, agencies today need to really take a long hard look at their efficiency in delivering services. Recent research from accounting business Kingston Smith into the UK’s top 50 advertising agencies revealed that operating profit margins are at their lowest level in seven years. This fall is mainly attributed to rising staff costs and operational costs (technology, office space etc). But to be as competitive in this changing marketplace it’s likely that agencies who get ahead will consider new working arrangements – from co-working or remote workers to more freelance contracts instead of full-time employees.
So, to sum up, the only thing constant is change.
How is your agency getting a head start in planning, defining and changing its offering to stay ahead? And what changes have you noticed in the marketplace?