The Soda Academy

The Outlook for Agencies

The outlook for agencies, production companies and consultancies in the digital services space is....drum roll please....unquestionably mixed.

The Good News

  • Forward-looking agencies and production companies who are diversifying their revenue streams through successful product and platform creation efforts – bringing IP to market themselves and working with clients on digital initiatives to transform their product/service offerings to customers – are doing well.
  • Firms that have developed a strong consultancy offering via a digital lens, or are providing training and education services to clients building in-house teams are seeing revenues grow.
  • Shops that are smart about taking advantage of the right types of emerging technology and trends –and working with their clients to do the same – are thriving.
  • Agencies that are sophisticated about user-centered design and the use of data to drive deeper levels of personalization are flourishing.
  • Those who are able to deliver strong marketing creativity and customer-centered marketing are prospering.
  • Companies that are pioneers in place-based digital experiences (things like architectural digital media, place-based mobile technologies, interactive installations and experiential technologies) are in high demand.
  • Agencies that are revolutionizing how they work as agency partners with clients through innovative, transparent and highly collaborative workflows are doing well.

The Bad News

  • Digital shops that are failing to embrace change and those that are failing to diversify their offering beyond digital deliverables that have become highly commoditized are – well – failing.
    • In fact, 38.1% of agency respondent’s in this year’s survey indicated that the rapid commoditization of digital work product is proving to be a serious problem for their companies.
    • Meanwhile, 29.3% said near-shoring or off-shoring is wielding a significant impact on their business.

Agencies Say the Glass is More than Half Full

When asked if the digital marketing industry is moving in a positive direction in 2015, nearly 4 in 5 agency respondents agreed that is was, while only 11% disagreed and another 9% remained undecided on the issue.

Additionally, the percentage of agency respondents indicating that agencies with digital roots are more likely to lead was up 10 percentage points YOY (from 66% in 2014 to 75.9% in 2015).

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Agencies Say the Glass is More than Half Full

Agencies Believe They Are Spurring Change

Q. Please rank your organization from one to ten on the following areas, where one is lowest and 10 is highest.

Agencies believe they're spurring positive change

Effecting real change is not a formulaic process. It involves interpreting situations where problems are open and ill-defined, tasks are unclear, processes are experimental and where knowledge is something that emerges step by step through continuous interactions with other players.  Despite that undeniable truth (and while also leaving themselves room for growth), agency respondents in the 2015 Digital Marketing Outlook study do believe they’re making a positive impact both internally, with clients, and – ultimately - with consumers.

Product Creation: Still the Best Route to Growth?

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Product creation

While 4 out of 5 respondents in the 2015 study affirmed that making digital products and platforms (both for brands as well as directly for consumers) was the best path to growth, the response was down slightly vis-à-vis 2013 and 2014. Product incubators and innovation labs are producing tangible results (as noted in the “Value of Innovation Labs” section), but some of those benefits are non-financial in nature, particularly for those agencies whose incubator efforts are less than two years old.

Additionally, a number of companies in our industry have begun to realize that operating a service-based and product-based business under one roof can be too complex to navigate successfully. The focus on digital product creation as the path to growth is still an extremely salient trend. However, we do anticipate a number of agency players who are dabbling in the product creation space to refocus on their service-based offerings given the tremendous complexities of bringing a product to fruition and sustaining it over time.

2015 Hiring Trends

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Hiring trends

One in five agencies is anticipating major growth in full-time staff in 2015. Another 56% of respondents anticipate minor growth.

In a completely separate study, SoDA asked its own member companies (a select group of top digital agencies and production companies around the world) about their anticipate staff growth for calendar year 2015. Most SoDA member companies fall into the major growth category. On average, the projected FTE growth by EOY 2015 for a SoDA member company was 21%. Only one in ten SoDA member companies anticipate single digit FTE growth (Study conducted Feb 2015).

While the in-housing trend on the client side is undeniable, it’s equally clear that agencies and production companies with a strong value proposition and a differentiated (non-commoditized) position in the market are showing robust growth.

Agency Specialization and Client Insourcing Emerge as Parallel Trends

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Who clients work with

When asked specifically what types of companies (agencies, prodcos, etc) do clients work with on digital initiatives, two parallel trends become readily apparent in SoDA’s 2015 study:

  1. Clients are working with more specialized digital partners – particularly in the realm of UX and Media.
  2. Clients are taking more work in house, particularly in the areas of Strategy and Analytics. The insourcing trend is least prevalent when it comes to Media.

Agencies Still Give Themselves Mediocre Marks on Measurement / Analytics

Just as in 2014, agency respondents were decidedly humble (or refreshingly honest) when asked to rank their organization from 0-10 on their ability to:

  1. Identify actionable insights from increasing volumes of data (Avg. of 5.86, up slightly from 2014)
  2. Use a variety of data inputs to drive deep levels of personalization (Avg of 5.69, down slightly from 2014)

Analytics is one of the areas in which insourcing on the client side is becoming more and more prevalent. Just under 35% of our client respondents indicated they handled measurement and analytics internally. Despite that fact, data and analytics still constitute huge opportunities for agencies who invest the time, resources and talent to flatten the learning curve and provide a compelling offering to clients.

And admittedly, driving deep personalization and gleaning insights from ever increasing volumes of data are still nascent skills for most marketers and digital shops.

Mediocre marks on measurement and analytics