This year’s Top 100 Digital Agencies report is notable for the rise of the consulting firms, as ‘digital transformation’ comes to the fore.
But what is driving this movement, and what else is revealed by the 2016 rankings?
The top 10
The digital agencies included in our Top 100 have had an impressive year. Total fee income surpassed the £2bn mark.
Up by 20%, this growth is being accounted for at the top of the table rather than the bottom, which continues to see flux with new entrants and exits as acquisitions and mergers take place.
The weighting of fee incomes at the top of the table is more pronounced than in 2015, with the top five agencies commanding 34% of the entire fee income of the 100.
Half of the total can be explained by just nine agencies.
This year, SapientNitro has slipped from the number one spot for the first time since 2007.
However, it must be noted that it was not able to disclose 2015 financials after the acquisition by Publicis Group last year.
As a result Sapient’s fee income has remained static while that of other agencies around them has increased.
The top 10 digital agencies
An increase of around the same proportion as last year would put it almost exactly equal to IBM iX, so it will be interesting to see the standings next year if SapientNitro is able to disclose its financials.
In addition, a number of the top 20 firms from the 2015 ranking were unable to disclose financials or unwilling to participate this year.
This sees the loss of iProspect and Salmon from the Top 10; both part of large agency networks which tend to come with complex financial organisation.
Though we still believe fee income to be the most accurate way of ranking digital agencies, the difficulties in calculating and disclosing the value does result in inevitable omissions through the table.
The rise of the consultancy
Though the big agency groups are still very much present at the top of the ranking, a notable shift in recent years has been the rise of consultancy firms moving into the digital agency field.
This shift has developed as the term ‘digital transformation’ has come to the fore and the need for technological and strategic changes led by digital have been realised.
This year’s top five shows that the emerging dominance of consultancies continues. IBM iX have been joined by Accenture Interactive (a new entrant for this year) and Deloitte Digital.
All historically consulting firms in IT and management, these giants have bridged the gap between technology consulting and traditional digital agency work with digital transformation services, and are fast expanding their provision to include a full spectrum of digital marketing capabilities.
Agencies with this background are well-placed to be able to guide businesses through ‘transformative’ changes; changes that have become necessary due to the vast amount of technology associated with marketing and the need to be agile enough to embrace and onboard appropriate technology quickly.
Growing technology stacks and increasingly cloud-based services are core parts of the very modern form of marketing that marketers are grappling with today, and which often require guidance to move towards.
In fact, only one of the top five agencies has a ‘traditional’ agency background, which explains why many in the industry are worried about competition from this new breed of agency and the prospect of adapting to a changed role.
When asked about challenges for the year ahead, one agency said:
Our challenge is two-fold. With management consultancies continuing their expansion into the digital services arena, it’s the clients with the large digital transformation briefs and corresponding deep pockets, which are being seduced by the big consultancy brands.
The rise of the consultancy model of digital agency has developed within an environment of wider agency change.
In 2016, agencies are describing themselves as having a new role and a new relationship with their clients.
We’ve seen more and more businesses hiring skills that were previously unique to agencies (such as digital or creative) in-house, meaning that clients are savvier and less inclined to outsource projects they think they can do themselves.
This has led to clients wishing to work with agencies on a project-by-project basis rather than the more traditional retained approach and so agencies have had to up the ante broadening their services and innovating their offerings.
A number of factors are playing a part in this changing role:
1. Digital skills are improving in-house
Brands have realised the need for training and skills within their internal staff, and with this improved understanding of digital has come increased expectations of their agencies to deliver excellence.
Clients are now participating in many stages of the agency’s work, increasing the pressure on agencies as they become more scrutinized by their clients.
Digital transformation strategies, now present in the majority of companies in some form or other, are connecting the dots internally between departments, technologies and strategies.
The top 10 full service agencies
This creates efficiencies but agencies have also recognised a greater sophistication and complexity in the briefs they are given.
As brands become increasingly aware of everything they can do with their data, across channels and devices, the role of agencies becomes to consult on which they should, and equally shouldn’t, be using.
One agency referred to their perceived need to offer a ‘whole system’ way of thinking that delivers a coherent, channel neutral experience for the consumer, and the client.
This step change is not only affecting the way agencies work with clients, but also causing them to look internally.
One agency explained: “We need to find the right balance of structure and process versus the need for fluidity and dynamism to service our ever-evolving client needs.
“The agency landscape is facing a rethink and having told our clients that technology is changing their communications relationships, we must continue to turn the spotlight on ourselves by trialling different models to support an increasingly diverse range of outputs that stem from a cohesive narrative.”
2. Growth is doing battle with agility
The age of digital – the internet of things, the cloud, big data, interconnectivity – means an age of agility for both agencies and their clients.
Agility was spoken of as both a challenge and an opportunity by Top 100 agencies.
An opportunity, in that agile strategies enable ideas to be realised and tested rapidly on a small scale, producing a minimum viable product that can be brought to market quickly.
This encourages creativity and productivity within teams and maintains an innovative culture.
However, agility rarely comes hand in hand with growth, and therein lies the challenge. Agencies that are very large can struggle with remaining agile as teams grow and communication begins to require more effort.
The smaller, independent agencies in the ranking would claim that it is their independence (and therefore relatively small size) that allows them to maintain their agility.
The agency holding companies continue to acquire independent specialists, adding to their expertise and maintaining their dominance, but this does justifiably provoke questions around how agile they are able to be.
However, their success in terms of fee income would suggest that red tape is not affecting them financially so far, despite the claims of the independents.
The Top 100 agencies predict an average of 24% increase in fee income over the coming year.
Growth, despite its threat to agility, is seen as a key opportunity for agencies over the coming year. International expansion in response to escalating demand was highlighted by a number of the Top 100.
Greater global connectivity and at the same time greater localisation and personalisation of content has created a need for campaigns with international scope, but regional relevance.
3. Agencies continue to struggle with recruitment
This growth opportunity is being hampered by the perennial challenge of recruitment.
Overwhelmingly the biggest challenge facing agencies is in hiring the best talent to enable them to keep doing innovative and engaging work.
Digital is a relatively young industry and always developing, meaning that specialist skills are scarce and competition strong.
Increased client expectations mean that the pressure on agencies to find ‘the best’ is ever-present.
When there exists a shortage of skills, finding those top individuals and enticing them to choose you, is a consistent challenge.
Many of the challenges raised by Top 100 agencies circle back to recruitment.
The emergence of consulting firms is increasing competition, as is the movement of skills from agency to client-side as companies strengthen their in-house capabilities.
One agency explained:
It’s never been a more competitive landscape into which we now have to recruit and retain people.
Their choices of employer range so broadly that we find ourselves competing against huge technology companies, exciting-sounding start-ups and traditional agencies of all types, as well as other digital agencies and more direct competitors.
The digital agency industry is evidently one which is changing, and though change is not always welcome or easy to adapt to, there is no denying that it is an exciting time for digital marketers.
Technologies such as virtual reality, geo-location and the Internet of Things (IoT) are opening up exciting new opportunities for marketing campaigns.
Even so, the IoT has probably not yet moved to the heart of most agencies and their work.
On the contrary, many are now doing good work with mobile as standard; campaigns which, importantly, have produced real results.
Though wearables, virtual reality and artificial intelligence may not yet be close to their full potential, it is down to agencies, with the necessary knowledge, skills and passion, to drive brands towards them.
Technology advances mean the speed of advance is exponential.
R/GA, the peer-selected ‘most respected agency’ for 2016 is using this speed to great effect in its Accelerator programme:
The speed at which start-ups can be created and grown has unlocked a new source of innovation for brands – the accelerator.
This offers the ability to rapidly address ‘third horizon’ innovation. R/GA’s accelerator programme is delivering transformative ROI in months where other approaches can take years.
Possibly this is where the larger agencies who want to grow can compete in an environment where agility is key.
Certainly ensuring innovation will be vital to remaining competitive in an industry where technological advances are having such an impact.
With the role of agencies changing and in-house skills increasing, the opportunity for agencies over the coming year will be to make the most of these increased skill levels, utilising the ambition they generate within companies to find new ways to engage with the consumers of today.
This article was originally published in Econsultancy’s Top 100 Digital Agencies 2016 Report.