Industry Growing and Confident, Despite Challenging Environment: Key trends from the Top 100 Digital Agencies 2019 Report

UK digital agencies are facing threats from in-housing and consultancies, political and economic uncertainty, a changing relationship with clients as well as maintaining talent levels – but the sector has grown over the past 12 months, and remains confident for growth over the coming year.

Report Editor Maria Greaves and Senior Research Analyst Dan McLeod review the key take-outs and trends driving the industry over the past year.

Healthy growth and confident outlook

The industry is worth £3.2 billion according to the UK digital fee income data submitted by participating agencies covering their last 12 months. That’s a 15% increase from 2018’s £2.8 billion total fee income. The growth rate has slowed somewhat from 2017-2018’s 20% rise. Overall, though, the UK digital industry is buoyant: it’s grown by 90% in the last five years, when agencies reported a £1.7 billion total fee income in the 2015 Report. (Fig 1 and 2).

Figure 1: Total UK digital fee income of Top 100 Digital Agencies

Voices from the Top 100

“The growth of the industry is very positive news and demonstrates that there is still plenty of opportunity for all. However, this outlook remains only if the challenges on branded businesses are properly understood. The perfect storm of ubiquitous digital services, unstable customer expectations and the emergence of the experience economy has given those in the c-suite, like the CDO and CMO, the stage to drive growth and help transform the business.”

– Joy Bhattacharya, Managing Director UK & Ireland, Accenture Interactive: (#1)

“The real beauty of the industry we’re in is that it is growing; even through the toughest times it continues to grow and outdo other areas of marketing. Where once digital services were largely associated with performance marketing, the industry is continuing to expand into new channels; such as Amazon services, DOOH, connected and over-the-top TV advertising, all while investing in new measurement frameworks to showcase the value these services provide.”

– Luke Smith, CEO and Co-Founder of Croud (#42)

“Clients aren’t just channelling spend from traditional into digital anymore, they’re investing in increasingly sophisticated and complex integrated marketing packages – with digital at the core – that give them an edge over competitors. Marginal gains in marketing performance unlock significant commercial value and clients are spending on the critical components that give them those opportunities.”

Paul Dalton-Borge, MD, Four Communications (#29)

Figure 2: Total UK digital fee income of Top 100 Digital Agencies (2015-2019)

Not only is the industry growing, it’s also confident, despite reported business transformation and economic challenges. 90% of participating agencies expect to grow over the next 12 months. The most popular rate of growth is 20% – which would see a projected UK fee income of approximately £3.9 billion in 2020. (Fig 3).

Figure 3: Top 100 projected year-on-year growth for UK digital fee income

Voices from the Top 100

“I’m excited by the growth in digital marketing. To succeed in the long-term and to see this growth continue, I’d love to see agencies holding digital to a higher creative standard. However, while it’s great to see agencies confident in their growth potential, it’s not going to be an easy ride. Mistrust in digital and social platforms is running high, governments are trialling more regulation and arguably innovation in existing brands is being throttled by the dominance of tech giants.”

– Jim Coleman, UK CEO, We Are Social (#34)

“I think overall that people who work in our industry are positive, half glass full sort of people. I am a little more pessimistic that the industry will see these growth figures next year because of all the political and economic uncertainty. Writing forecasts for the next year is easy but actually delivering against them will be more challenging!”

– Jim Hawker, Co-Founder, Threepipe (#78)

Top 10 continues to drive growth

As reported in previous years, the top 10 agencies continue to dominate fee income vs the rest of the top 100 – and are a key growth driver.

The average fee income of those agencies ranked in the top 10 is approximately 12 times higher than the rest of the top 100 (£185,051,139 for the top 10 compared to £15,268,623 for agencies 11-100).

And the top 10’s total fee income accounts for 57% of the fee income of the industry as a whole.

Meanwhile, the rest of the industry isn’t growing at the same rate: the top 10 average fee income has grown by 151% in the last five years. Over the same period, the others (ie numbers 11-100) have grown by 43%. (Fig 4).

Figure 4: Average fee income of the top 10 digital agencies vs. average fee income of the rest (2015-2019)

Voices from the Top 100

“The continued dominance from the top 10 is not a concern from our perspective. With a fast-growing sector, those agencies who can distinguish themselves will continue to grow and prosper.”

– Dan Berry, MD, Kagool (#86)

Consultancies dominate rankings – but independents retain strong presence

The top three agencies have retained their positions from last year, with Accenture Interactive taking the top spot for the third consecutive year, followed by IBMiX in second place and then Atos Digital Services in third.

Capgemini Invent UK is making its top 100 debut at number four in the rankings, following its launch in September 2018 from Capgemini’s integration of its Management Consulting, Digital and Creative Units.

Meanwhile, three independent agencies take sixth, seventh and eighth places – EPAM, Kainos and Kin + Carta respectively. New entrant Kin + Carta is the former St Ives Plc marketing services firm, which rebranded under a new digital focus back in October 2018.

Voices from the Top 100

“{Consultancies dominate rankings} because {their} solutions tend to span multi-category, multi-geography and are complex implementations that require significant investments to ensure a seamless business adoption and ways of working, which is the traditional turf of consultancies at large. Further, the skills and complexities to deliver large scale delivery programs that require integration with clients existing backend e.g. Supply Chain and Finance require a broad range of skills that these consultancies are able to provide.”

– Gagandeep Gadri, Executive Vice President, Capgemini Invent (#4)

Independents have less fee income – but are more confident

There are more independent agencies featured across the top 100 agency rankings (51% of top 100 are independent V 49% who are part of agency groups). But they’re bringing in significantly less money: independent agencies’ fee income accounts for only 29% of the total fee income reported by the industry over the past year. (Fig 5)

Figure 5: A comparison of agency groups vs. independents in the Top 100 (2019)

Despite this, independent agencies have a more positive outlook about their income prospects over the coming 12 months than non-independents: 22% expect to grow, compared to 17% of agency groups. However, they’re concerned how sustainable that growth might be over the long term. Independent agencies are much more likely to report that a key challenge over the next year is how they will be able to adapt to such a fast pace of growth.

Voices from the Top 100

“We foresee this trend to continue as there is a growing need for specialist skills that independent agencies may be better placed to develop and deliver, at least in the short to medium term.”

– Nikos Karaoulanis, Chief Experience Design Officer, Kainos (#7)

Full service, technical agencies contributing most income – but design and build more optimistic.

As in previous years, and, not surprisingly, given the current industry need to offer a broad church of services, the majority of the top 100 agencies’ total fee income (62%) is accounted for by full service and marketing agencies. (Fig 6)

Voices from the Top 100

“Born out of a desire for coherent work and being tired of managing numerous agencies, clients are correctly wanting to consolidate the partners they work with. This plays into the hands of the agencies that can cover more bases in a unified and demonstrable fashion.”

– Sam Garrity, CEO, RocketMill (#93)

Meanwhile, marketers’ growing reliance on ever-changing technologies to create better customer experiences means that technical agencies are continuing their ascendancy. The number of agencies who categorise themselves primarily as technical specialists has been on an upward curve over the last five years, and 2019 is no exception: 11% classed themselves primarily as technical in 2018 compared to 15% this year.

Technical development accounts for 24% of the total fee income from digital work – a big hike from 2018’s 15% proportion of total fee income earned by technical agencies. (Fig 6)

Figure 6: Percentage of Top 100 agencies by primary function vs. percentage of total fee income by primary function (2019)

Agencies who primarily offer design and build services have the most business confidence for the year ahead. Design and build work only accounts for 13% of the total fee income in the Top 100 this year, but agencies primarily offering those services expect to see the highest expected growth by function: 23%, compared to 20% for technical agencies and 18% for those who classify themselves as full service providers.  (Fig 7)

Figure 7: Top 100 average projected year-on-year growth for UK digital fee income by primary function

Voices from the Top 100

“Design and Build agencies manage to avoid both the commoditisation (that technical companies face) and the loss of focus (that full service agencies experience). The effective combination of creative and technical skills that D&B companies achieve on a daily basis is the future of business (as acknowledged by those who talk about “STEMpathy” jobs). This artful blending is how D&B agencies will help fully unleash the digital economy to solve our many individual and societal challenges.”

– Laurence Parkes, CEO, Rufus Leonard (#56)

Financial services and retail sectors hiring most agencies

UK digital agencies are earning most of their work from the financial services sector (69%). And, in spite of – and perhaps also because of – an increasingly troubled business climate, retail is the second most popular client sector, accounting for 66% of agencies’ work. These two verticals outstrip the third most common agency hiring sector by a sizeable margin: travel and leisure work accounts for 47% of UK digital agency business.

Voices from the Top 100

“It’s no surprise that UK digital agencies are earning most of their work from these sectors, particularly financial services, which has witnessed significant disruption. The change in financial services is no longer driven by banks, but by customers. The rise of neobanks and their outstanding adoption rate shows that customers want to see change. And this threat from disruptors has positively encouraged those in financial services to consult digital agencies on how to compete.”

– Rebecca Crook, Chief Growth Officer, Somo (#32)

Figure 8: Main sectors served by the Top 100 digital agencies in 2019

Meanwhile, real estate, gambling, education, food and drink brands, and charities are the sectors least likely to be served by the top 100. (Fig 8).

Voices from the Top 100

“A low use of agencies doesn’t mean a sector or the businesses within it aren’t aware of the need to change, they just haven’t felt the same {digital transformation} pressure. What’s likely to be happening is that players in these sectors are creating in-house teams who work to resolve digital challenges without agency partners for now… What we expect to see is that as digital investment scales, they will turn back to agency partners for skills and talent that they can’t keep in-house or additional resource to cover workload beyond the resources they have.”

– Tom Wood, Managing Partner, Foolproof (#60)

AI and new technologies, adjusting to client demand and expansion forecasted as 2020 opportunities

The following key trends have emerged from agencies reporting on their and the industry’s key opportunities over the next 12 months:

  • Artificial Intelligence is identified as an exciting prospect for many agencies, whether it’s for automating mundane tasks or tackling client’s biggest challenges.
  • Agencies are full of enthusiasm for a whole raft of new product and service developments outlined over the next year. Cloud-based solutions, chatbots, VR, voice and cybersecurity services are all mentioned as unique avenues to drive growth for clients.
  • Client demand seems to be splitting agencies into two camps. While some are keen to deliver large scale, end-to-end digital transformation work for clients, offering considerable strategic input, others see providing ongoing flexible solutions and specialised support as more of an opportunity. However, whatever the size of the work, agencies are unanimous in their view that data-driven solutions increasingly need to be at its heart.
  • Expansion is mentioned by many agencies as their key opportunity. Domestically, growing outwards from the capital has considerable appeal. Meanwhile, international agencies are keen to leverage their experience to expand into new geographies and new markets.

Voices from the Top 100

“So where next for the industry? Where are the growth spaces? The answer for us lies in moving digital beyond the channel silo and in to using digital as the key ingredient in creating connected experiences – fusing brand touchpoints that span marketing and customer experience. To move beyond the silo is hard work given the structure of a lot of marketing operations – Chief Marketing Officers being responsible for the brand communications touchpoints and Chief Digital Officers being responsible for the customer experience touchpoints – but it’s where the value lies. People don’t care that different interactions with the brand are typically delivered by different organisational silos, they just expect a connected experience.”

– Matt Holt, Chief Strategy Officer, Digitas UK (#11)

Talent, political climate and perceived agency value all challenge growth ahead

Meanwhile, UK digital agencies report a combination of internal challenges as well as external socio-political and business transformation issues which may impede success over the next 12 months. Their most common anxieties are:

  • Recruiting/retaining talent: by far the most mentioned issue, reported by roughly half of those who answered this question about their key challenge. Agencies identify a highly competitive job market, and the difficulty in hiring specialised talent as the main reasons for the problem. Recruiting proves even harder due to the digital skills shortage. Hiring a diverse pool of talent ties into these issues, although this was mentioned by relatively few in relation to the wiser issue of recruitment and retention.
  • Brexit: The uncertainty of the political landscape has been reflected in client budgets and is identified as a key challenge for 2020.
  • Client understanding of value of offering: agencies say they’re finding it increasingly difficult to get client buy-in for full-scale digital transformation projects where the agency is treated as a strategic partner rather than a short-term supplier. Another reported challenge is ensuring clients understand the value of a customer-centric based model – a challenge which can perhaps be explained by the ongoing ‘consultancy effect’.
  • In-housing: Adjusting to the ongoing client trend for in-housing services is another key issue for 2020 according to UK digital agencies.
  • Ability to adapt through agency growth: as detailed, smaller (usually independent) agencies who are growing fast are concerned about their ability to sustain that growth rate and service offering over the coming year. Recruitment, adjusting to client demand or continuing to maintain their culture and values are all key fears for agencies experiencing accelerated growth rates.