How digital agencies lost their biggest opportunity, forever

Sometime around 2014, the opportunity was theirs to lose. The digital marketing agencies held the first tier customer relationships with all the major brands. Historically, they had been doing email campaigns, SMS spam, simple promotional websites and digital experiences for special events or for use in retail environments for these clients, and most recently had picked up mobile apps too as the fad for ‘mobile agencies’ somehow being a separate thing had passed. The clients had more and more digital work, and naturally assumed their digital agency partners would take it all on, not realising how much more complex it was becoming.

Agencies delighted at the enormous budgets coming their way presumed at first that they could continue to get by as they had. While the most challenging parts of the technical work involved would be outsourced down the supply chain, or freelanced to expensive contractors, these projects nevertheless kept producer-project managers and account managers gainfully employed not least because of agencies’ lack of capability to deliver complex technical projects consistently, leading to a state of constant firefighting and client whispering. They might not meet their profit targets, but who cared if they had triple digit year on year revenue growth!

The work was only becoming more and more complex though. Instead of technologically simple campaign webpages for product launches or colourful emails readily built out by those creatives who had learned just enough CSS to be able to tidy up autogenerated output from Dreamweaver, clients were now demanding eCommerce systems with product recommendations. CMS driven websites with rich templates that used responsive design and could be readily reconfigured to support continuous A-B testing of customer journeys and conversion goals. 3D graphics and augmented reality. Mobile apps evolved from Carling iPint to real artificial intelligence in the blink of an eye. And most challenging of all for the agencies, joined-up marketing, with write once publish anywhere across all digital channels, and meaningful big data engagement analytics feeding back into the creation of new content, new experiences and new propositions. They were doomed the moment the world required them to collaborate with their sister companies instead of cannibalising each other as they had been taught.

Some agencies saw that they held the prime relationships, that it was theirs to lose, but they panicked that the Accentures of the world were closing in on them (they were). Accenture, Deloitte and their kin had recognised that having used IT to optimise all other aspects of business process, the one territory still up for grabs was the process by which a brand communicates with its customers and identifies who they are and what they want. A territory where you could still charge well over $1,000 a day on multi-year retainers. Conscious they were known to be creatively weak, they started buying small boutique agencies, but failed for a long time to integrate and exploit them fully, buying time for the incumbents.

Specialists, too, smelled opportunities, seeing agencies marking up their daily rates by over 100% for the work they outsourced, they tried to go around them, dealing directly with clients but often frustrated by marketing directors religious adherence to using ad agencies for everything, further made difficult by a stubborn refusal of marketeers to employ disciplined procurement professionals. After all why do a lot of work, when you can just choose your supplier over an expensive lunch?

Empire building clients decided to bring more and more in-house too, tired of subsidising lavish award ceremonies in exotic locales and paying sky high day rates for ‘digital natives’ i.e. staff barely out of school.

A few agencies saw both the opportunity and the threat. Recognising almost all of their revenue was coming from big technology projects, by chance, not through a conscious effort to win the work, and understanding that these projects required big teams to deliver, they doubled down, hiring technology leaders who in turned hired real software engineers and test engineers and real project managers.

The big 3 went the extra mile, acqui-hiring the technical talent – WPP with AKQA, Publicis with SapientNitro, among many others. This kept them in the game a little longer, at great expense. But in true ad agency tradition, once their earn outs matured, the founders left, rich beyond their wildest dreams, along with their original teams, leaving only the freelancers behind, expensive, with no loyalty and no willingness to share knowhow.

At the same time, the traditional agency creative work became uneconomical to do onshore. Email campaign management. Content authoring. Copywriting. Photoshopping. Video production. All moved offshore, the price and profit margin collapsing.

Suddenly, the technologist was king. Only the technologists had vacancies to fill. Only the technologists had projects to deliver. Only the technologists were able to keep pace with the fast changing needs of the clients.

An identity crisis broke out almost simultaneously across the leading agencies. Creative and account management leadership suddenly had their noses put out of joint by the nerds in the backroom, unwilling to acknowledge what was now paying their bills. They couldn’t believe it was the nerds they assumed had no communications skills, the nerds who didn’t fit in because they cared more about meeting the clients’ needs instead of getting credit for winning awards. The nerds were now the people the client wanted to deal with directly.

They lashed out. “This is not how we do things” they cried when asked to consider customer feedback and big data analytics in their design work. “Customers don’t know what they want”. “Only people in the Creative department can be creative”. Unable to comprehend the lead times required with complex software, they insisted on continuous change until the last possible minute. Traditional copywriter+art director pairings became irrelevant while the notion of the ‘creative technologist’ who could be all things to all people allowed some to rebrand themselves and keep their jobs a little longer. For a time, social media became their salvation, a medium where goofy, lazy stunt marketing got a free pass, until brands realised that millennials have no money and are acutely cynical. A policy of sulky non-cooperation took hold. Most disastrously, this manifested itself as refusing to join in winning new business that didn’t fit their self image as advertising gurus.

Without new new-business, without multidisciplinary collaboration in bidding, to offer clients the joined-up marketing they so badly needed, the agencies disintegrated. Some shed their agency past and became full blown development houses. Others saw their technologists tire of subsidising their colleagues, leaving to go it alone with those remaining only those who were no longer relevant, destined to fade away as revenues tumbled. Most are trying to find their way as ‘digital transformation specialists’ but floundering because they have no understanding of what that actually entails, and can’t even transform themselves let alone their clients and because transformation needs but one or two people to lead, not a whole team of bodies behind them where the real money is. The Accentures finally arrived. Bypassing CMO and even CIO, making their deals with the CEOs on golf courses around the world.

The moment has passed. Sadly squandered by petty office politics and the poor intelligence of their leaders, just as they were on the cusp of a new lease on life, the era of the digital agency is at an end.