NOTE: I wrote this post almost two months ago, but didn’t publish it for whatever reason. It’s not as timely anymore, but here you go…
This morning I read my umptenth article about digital agencies becoming product development companies. This sudden shift, brought about by the booming tech industry and top digital talent flocking to startups, has brought to question the future of the current agency model.
I actually do not agree with the articles that advocate agencies take a lean startup approach and start building their own products. I think it is smart for agencies to begin offering product development as a service, as more and more brands will look to agencies to build and maintain their digital assets. As pointed out in the Digiday article from this morning, most agencies cannot, or are unwilling to, commit the resources needed to launch a successful technology product.
The real shift that agencies should be worried about is the increasing number of startups and tech companies offering services around their products. We have never seen a time in this industry where product companies are able to offer services at the scale of the agency world like we are today. With profits driven by sales of their core product(s), technology startups can offer services at a fraction of the rate agencies do and be more efficient in their delivery.
Brands are also looking to better maximize the return on their investment in marketing efforts. While television offers scale, it is not a cost efficient marketing channel, you can’t measure the actual return. Digital offers the greatest opportunity for brands to increase efficiency, and will be the focal point for brands looking to increase the return on each dollar spent.
Brands are increasing efficiency through digital by:
- Bringing digital services in house, building robust teams
- Transitioning services, such as customer support, to digital channels
- Increasing digital media spends over other channels
- Investing more and more in online collaboration tools to automate workflows and increase productivity
This shift in mindset within brands is not being translated into the agency world. It is ironic that many agencies advise clients on how to improve their business processes to adapt to the rapidly changing digital age, but they themselves are not doing so. Mired in bureaucracy, larger agencies are struggling to keep up with the increasing demands from their clients.
I don’t think we will see a drastic shift over the short term of brands looking to startups or technology companies to take over aspects of their digital programs. But, we will see more and more brands bringing their services in house, and relying on agencies for specialized services. Brands will look to work with agencies on more of a project-by-project basis, scrapping the traditional AOR model for more defined scopes of work.
Here are a few ways I think agencies can adapt to the changing needs of the brands they work with:
Offer services through smaller teams: Large agencies are generally inefficient because their internal bureaucracy hinders their ability to be agile in service delivery. Agencies should look at offering services through smaller teams, scaling up only as needed.
Offer bundled services as products: By packaging various services into products for clients can increase profit margins for agencies. There is enough commonality between the needs of and work produced for brands that agencies should be able to develop streamlined processes for service delivery. Some of these processes can also be automated so that a base turnkey solution is produced in short order.
Build technology solutions that scratch your own itch: This is one of the most valuable lessons I took away from Rework, the book by Jason Fried and David Heinemeier Hanson of 37Signals. If you have an inch you need to scratch, build a solution to it. You are generally not the only person who has that itch, and you can be the pioneer of a solution to it. These solutions can be rolled into your packaged services or offered on a SaaS model (though I advise against that unless you want to spin the company off).