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Following WPP's acquistion of AKQA and LBi's search for a suitor The Drum looks at 'digital's changing face'

In the wake of WPP's £348m acquisition of AKQA and LBi's ongoing search for a suitor, The Drum takes a look at the ever evolving digital landscape, with agencies adapting and restructuring as client consumer demands dictate. At the Spitalfields offices of SapientNitro, senior vice president and UK MD Nigel Vaz welcomed Oliver Bishop of Steak, Nick Lawton of Five by Five, Tony Foggett of Code Computerlove, Neil McCarthy of I Spy Marketing and Mark Begley of Major Players, to discuss about what drives their business forward and the challenges faced.

It was a momentous day on a global scale. It was 18 May, the day of Facebook’s IPO and the anticipation of what this could mean for digital communications businesses hung thick in the ether as digital marketing agency owners gathered to discuss how the shape of digital agencies is changing and the forces now driving their businesses.

While anticipation was growing in the city over whether the social network would achieve the anticipated $38 a share, across London in the Spitalfields offices of SapientNitro, senior vice president and UK MD Nigel Vaz welcomed Oliver Bishop of Steak, Nick Lawton of Five by Five, Tony Foggett of Code Computerlove, Neil McCarthy of I Spy Marketing and Mark Begley of Major Players.

“Digital has become the very business that all of our clients are in,” said Vaz. “At CEO level the conversation is now about where a brand’s consumers are and there is a desperate need for CEOs to understand digital as an integrated communications channel in the same way they have done TV or press for years.

“From a structural point of view, we play across the whole spectrum and go up against all the larger networks. Take M&S, for example. We are helping it transform its business with a £500m digital programme, while we are the advertising agency for Ladbrokes. In the middle of that we are Sky’s direct response agency. So if you look at the landscape, these disciplines are moving closer together within a digital agency context, which means we also have to continue to change.”

Oliver Bishop of Steak, which recently became part of Japanese marketing group Dentsu, readily admitted that various market forces regularly impact on the shape and structure of the Steak business.

“As a digital business we change our internal structure quite a lot,” he said. “Technology is a big driver. You may have people in paid search, natural search and display who are making good margins, but then you have to add in new people such as a head of mobile. Then you need to appoint a head of social, after which you need a Facebook head. You have to react to anything new that comes along, and you need to stay ahead of the game.”

“We came very much from a making and building background,” said Tony Foggett, who launched his Manchester digital agency Code Computerlove 13 years ago. “The agency has become more integrated during the years and more recently more about performance services, but at its heart we are still design and build. Traditionally we followed a very linear production structure of traditional agencies with a creative department, tech department and so on in a conveyor belt way. That is out the window now and a change we are seeing inside digital agencies is a shift towards multi-disciplinary teams based around a particular product or a client because you are building a platform that is sustained and on-going. From a production level we are split into client-centric teams who stay together for that product or client lifecycle.”

“A lot of the agency model discussion is about how we charge,” said Neil McCarthy, a director at I Spy Marketing, the London-based ‘uptimisation’ agency. “Traditionally the creative type of agency or tech agency had something very definite that they were charging for. A lot of the marketing agencies were based on the fact they were getting something back from Google or whoever. All of that is dead now in terms of the margins we make. So we have moved into an area where, as an agency, you have to add a very distinct value. Time is very difficult to charge for as it’s always thought it can be done cheaper in-house. You spend a lot of your time showing you are experts in your field and that you can cover a lot of options.”

So, what have been the primary driving forces affecting how digital agency businesses have developed over recent years, and how are agencies using these to position themselves as the right suppliers with clients?

Foggett said: “In the industry, the economy isn’t the biggest thing affecting the development of digital businesses. It’s the pace of change for marketing full-stop and the confusion for clients to choose the right type of agency. For me, over the last couple of years the major problem has been the number of agencies in the marketplace. It’s a maturing industry; more agencies with more crossover means more confusion for clients to understand where the real quality is.”

Nick Lawton of Southampton-based Five By Five agreed that the rise in the number and type of digital agency is causing confusion among clients, so much so that they don’t really know if what they are doing is the right thing anymore. He said: “Brands and organisations get that consumers are looking for conversations, but I think the marketing directors and teams on the clientside are still targeted against different objectives.

“They are still getting targeted on traditional objectives and are looking for that immediate return, when we know that it is a longer process to get that return. They are under pressure because of the economic circumstance to always be showing ROI, but they know they need to be doing things differently. It takes a very brave approach to change those dynamics and they are effectively having to put their jobs on the line and take the heat internally knowing what they should be doing while battling against the reality of driving numbers in their business.”

Bishop added: “In a recession you need to be finding opportunities for your clients. We have so much data at our hands, so we can quickly tell a travel client, for instance, to sell hotel rooms in Dubai as it’s not going so well in the US. As an agency you can start advising them on their business, not just marketing. You can help your clients through these difficult times and find them additional revenue streams. If you do that you become a very valued partner over a long period of time. So it’s not only about the best marketing campaign you can do, but about taking data and splitting it out for them to make money in other areas.”

McCarthy agreed that the rise in importance of data has been key for many digital businesses and for digital as a whole. He said: “Driving things from data, having data skills and seeing where opportunities are has become more important as more people come into the game. Just because you were there first or have been doing it well for a long time doesn’t mean anything. It is now much more down to the minutia of it. What analysis can you put on this data that can make a change to a business strategy that can make that marginal return?

“Most of the clients we work for are competing in fairly full markets,” he added. “There are few clients sitting there not doing something very similar to someone else, and therefore finding digital opportunities is about getting into the nuts and bolts of it and saying to clients ‘did you realise you are converting more 24-year-old women?’ etc. By offering those insights, you can then talk to them about some of the slower burn stuff. It is definitely information and data that will help make that difference.”

Traditionally, launching an agency business was a high cost, high risk initiative; however, new technologies have significantly lowered the barrier to entry. Never before have one man and a Mac had such power. But what impact is this growth in one man bands having on larger players looking to grow their businesses and increase overall digital quality thresholds?

“At the bottom end anyone can set up a digital agency,” says I Spy’s McCarthy. “Put up a website saying you used to work for a major search engine and you’ll probably pick up a few clients, but trying to do it at scale is when it becomes difficult as you have to recruit quality staff, and there is a definite issue around the know-how of people coming in to the industry as graduates. They know a lot about the digital space as they grew up with it, but they don’t have the education to deal with it from a marketing standpoint. Just because they can use Google doesn’t mean they can run campaigns through it.”

Bishop agreed: “Anyone can sit in their bedroom and start their own search marketing agency. Even paid search is easy. All you need is a credit card. We can all run a campaign, but it’s having the seniority to understand the strategy behind that and how it all feeds back into that broader strategy. As agencies we need to be smarter. We all want to choose who we work with. There are times when you have clients and you know they need to move quicker. Or, if their business doesn’t make a huge shift soon then it may not be around in a few years. There are certain clients and you can see that their business model is the future. We need to get those clients to safeguard our agencies in the future.”

Clearly there are challenges for digital agencies of all sizes, but what the digital agency of the future looks like will ultimately be dictated, indirectly, by consumers, as Vaz concluded: “The advantage digital agencies have had over the last decade is that the world is moving in our direction. Clients will follow consumers and consumers are moving in this direction so by definition we are seeing the changes that we are seeing within some of the more traditional agency structures. For a long time there’s been this rivalry that traditional is dead and digital is the new thing but the reality is that it depends on consumers and they are moving in our direction.”

Featured by The Drum