The Digital Agency Dilemma

In 2016 Jules Ehrhardt posted an article called State of the Digital Nation on the Marvel blog. In it he described the current and future state of the digital consultancy industry. Back then I very much agreed with one of his central points: The (digital) agency business model is broken.

I spent almost 10 years in a high-end digital agency and it was always weird to me how the industry on one hand glorified their own creativity as the miracle that only true members of the inner circle can wield. On the other hand their idea of a business model was increasingly about turning this magical thing into a commodity, ideally sold fixed time and fixed price.

As I left Razorfish (and with it the agency space) at the end of 2016, I had a look at how agencies got there in the first place and what I might want to say to my colleagues and the industry I was leaving. Now, 4 years later, I thought it might be fun and pull out my notes to see if they still hold up.

In the beginning (90’s & early 2000's)

Digital was seen as “this new thing”, slowly eating the world and thus digital agencies (aka. website shops) were seen as experts in this emerging space, acting as consultants for clients to educate them in all things digital.

Those new digital agencies also started creating things. For example they created their own hosting solutions and almost every agency built their own CMS and backend framework. Also tools, like their own time tracking or project management solutions.

Clients, Agencies, Solution Providers (2000somethings & early 2010's)

Digital agencies focused on the creative aspects of delivery — just like their classical counterparts. They also acted as experts drawing together & being able to make the different technologies talk to each other, turning them into coherent solutions for clients.

While some experimented with creating channels like forums or even ad servers, they gave that away to emerging big tech companies like Google (owning search and ads and later video) and Facebook (owning social).

Clients pushing down, system integrators pushing up (Mid 2010's)

Business consultancies were catching up, turning Digital Transformation into a business. And thus agency clients became more and more mature in all things digital. Maybe not experts, but “good enough” with digital knowledge embedded in their own business reality (not every innovation needs a disruption). They didn’t need agencies as their “digital translators” anymore.

In terms of platforms and tools, there was a unification of the market: Big companies going on a shopping spree and unifying solutions. For example companies like Adobe buying Omniture and Day to create their marketing cloud.

On the platform level big tech caught up with Amazon creating AWS and Microsoft catching up with things like Cognitive Services.

Some big IT companies (as well as some new off-shore body-shops) fostered partnerships with the platform and service providers to offer standardized (read: cheap, mass market) integration services, much like “SAP integration”, only for Adobe Marketing Cloud or other big systems.

So: Clients (supported by consultancies) are pushing down and big technology platforms and integrators are pushing up.

As a result, agencies like Razorfish, Digitas and Sapient came up with the idea of “Marketing Transformation” and “Emerging Experiences”, focusing on where technology and people meet brands.

As these concepts gained momentum, the big (classic) advertising networks (that had a problem staying relevant anyway) extended the idea into a “holy trinity”: Able to think like a consultancy, deliver like a technology integrator and bring ideas to life like a creative agency.

And so Publicis started buying Razorfish, Digitas and Sapient. Consultancies had the same idea with for example Accenture buying Fjord and SinnerSchrader or McKinsey buying Lunar and QuantumBlack. As did platform providers, for example IBM buying, Resource / Ammirati and Aperto in just one week.

The holy trinity: Consultancy, Technology Integrator, Agency (Now)

Huge platform providers like Adobe, IBM, Microsoft and others are influencing the integration game as well as their technology solutions are integrated into solution families. And whatever an agency thinks, they won’t be able to compete on integration with literally thousands of well paid, clever people that created the platform tech in the first place.

In their quest of trying to be a system integrator and offering competitive (read: cheap), agencies made the creative aspect a commodity.

And speaking of commodity: Content is cheap now. If clients want creative content, they can just turn to the channel providers like YouTube, Instagram and so on and they will help select an influencer of their choice. Which is what agencies did for a long time anyway.

So: clients are still pushing down, content creators and channels are now pushing up, and the BIG technology platforms own the middle. Good luck, agency. That was the situation at the end of 2016 and to an extent it still is. Hence this post.

A humble suggestion: Focus on the relationship between people and brands

And here’s your trinity:

  • Integrating enterprise technology solutions is commodity work for system integrators. It’s standardized, high revenue, good margin, but also really boring* because it’s standardized, solved, repetitive work.
  • Supporting clients in their Digital Transformation and business processes is consultancy 101. It’s standardized, high revenue, good margin, but even more boring*. “Digital Transformation” is not innovation, it’s fixing the basics.
  • You want to do the creative stuff, which got somehow sandwiched between these boring things. Not only didn’t they help you grow, you don’t even want to do them.

*Look, this is a fine business for a lot of people, but it just doesn’t cut it for creative agency folks. Remember: Relationships, emotion, beauty and all that.

In his article Jules Ehrhardt offers no solution. He essentially says to forget the business model entirely and do something new instead:

“The Digital Product Studio completely eschews digital marketing work, which suffers from perpetual commoditisation (Seriously, don’t go near it, it’s like crack cocaine. You’ll get hooked and it will be hard to get off it). Product work is less sensitive to economic downturns.”

So, either be a creator of products or be a provider of tools. Remember the 2000s? Yeah, do that again. But this time for clients.

“The Digital Product Studio is capable of taking a product from meeting to market.”

And to be fair, that’s a good model. I’d argue that R/GA (especially with R/GA Ventures) does this very well. Go for it!

But I believe there is another way. One that does include digital marketing work, just a different type.

While everybody talks about “Digital Transformation”, only few talk about what a digital reality means for brand–user dynamics long term. What happens if Digital Transformation succeeds? What happens if all products are digital? How will products change? How will the relationship between people, products and brands change? In other words: Will the self driving Audi A6 behave differently than the self driving Ferrari FF? And if so, how? And who will design that difference?

Agencies could create something new between clients and their customers. Foster an understanding how people interact with autonomous, personal objects in a fully digital world. Act as applied visionaries, actively pushing into that future. Go from “Creating a great user experience for a given context” to “Set the context for a user experience to happen”. Shape the relationship between people and magical objects and make that world beautiful.

And in the process free themselves from established channels like the web and social media. It should also give them new business models and a real skill advantage vs. clients and technology providers (for some time).

Back then I started calling this concept Relationship Design.

And today I say: Hey agencies, do it, own it, I dare you. I double dare you. In fact, I beg you. Do it before we do. Because I feel we need more raw, wonderful, passionate, unhinged and irrational beauty in this upcoming world. Please lead the way. Others will follow, as they have done in the past. But for some time, you will be kings and queens. Again.

p.s. Hello old friend. I missed you.

Living in Berlin / Germany, working at Microsoft, loving technology, society, good food, well designed games and this world in general. Views are mine, k?