The Soda Academy

The Outlook for Agencies

For many agencies, the decision on whether to specialize or broaden services remains a conundrum. The need for digital shops to determine their best path forward is becoming more acute, as traditional agencies and consultants continue to move into “digital agency territory.”

Regardless, agencies are positive about the future and are investing in the experiences and digital tools that their clients are clamoring for (and can’t yet build themselves). But while these areas are growing, agencies must combat cheaper alternatives like nearshoring or offshoring, as well as the growing number of clients taking agency services in-house. Agencies are also grappling with a general feeling that their impact on their clients’ businesses is lessening.

To remain differentiated, agencies will need to focus resources on the strategies and services that will deliver the most value to their clients. It also means exploring different working arrangements (embedded services, training, staff augmentation) and partnerships, both with other agencies and with consultants and clients.

Agencies’ outlook positive, but must combat commoditization

Agency respondents remain optimistic that shops with “digital roots” are well positioned to lead among a team of various agency partners. That being said, the percentage of respondents that agree with this statement has stalled at the same level as 2015. This is quite different than the year-over-year surge registered from 2014 to 2015. In last year’s study, the share of respondents who believed digital shops were rising to a preeminent position within agency ecosystems jumped 10%.

Why doesn’t a higher percentage of respondents agree this year? Maybe because traditional agencies and other service providers, like consultancies, are catching up. As digital has become not only prevalent, but pervasive, the players that have previously been in the driver’s seat, like consultants or traditional brand agencies, have developed a deeper digital skill set so that they don’t lose their leadership position.

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Agencies Outlook

Agency Culture Remains Important, but Doesn’t Translate to Client Impact

Q. Please rank your organization from one to five on the following areas, with 1 being the lowest and 5 being the highest.

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Agency Culture

When asked to rank their culture on a scale of one to five, both full-service traditional and full-service digital agencies responded with slightly above average rankings. But while these unique cultures are creating innovative and collaborative working environments, they’re not necessarily translating to client impact. Full-service traditional and digital agencies both gave themselves slightly lower rankings when it comes to the impact that they are having on their clients’ product and service offerings.

What’s the disconnect? Collaborative working environments and unique culture may retain employees, but they don’t necessarily mean the agency is pushing the client’s business forward. Agencies need to examine how they are coming up with the ideas and strategies that will make an impact on how their clients do business and engage with their customers. They may be doing just that, with 55% of agencies planning to grow their strategy teams in 2016.

Agencies Build Experiences and Tools…and Their Business

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Best Route For Growth

Agencies are increasingly positive about the benefits of building experiences and tools for clients. Eighty-three percent of respondents agreed with the above assertion, up from 80% in 2015.

Why is this happening? We think it is the result of two primary factors:

  1. 1) The broader need of clients to create experiences beyond advertising, which we see in their budgeting decisions. Eighty-two percent are increasing budgets for digital experiences (e.g., websites, mobile web) and 71% are increasing budgets for digital products (i.e., non-marketing-related platforms, applications, tools, and services).
  2. 2) The increase in qualified talent and less expensive, faster technology, which allow agencies to scale their product development efforts with less financial risk.

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Best Route For Growth Best Route For Growth

Agencies are less excited about specialization. Only 50% agree that it’s the best route to growth. Drilling down farther, full-service digital shops are more bullish on specialization and may even consider themselves specialists. Meanwhile, only 38% of agencies that handle both traditional and digital think that specialization is a solid growth strategy.

Most clients are maintaining a specialized agency roster — which is no doubt why certain agencies still see specialization as a growth engine. In fact, 58% of clients still leverage a full roster of specialized agencies or a handful specialized shops in partnership with their full-service agencies.

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How Strucutre Between Agencies

2016 Hiring Trends

Q. Please indicate your anticipated hiring trends for 2016.

Agencies are investing in content, customer insights and UX staff, in addition to growing their teams focused on the development of digital experiences (e.g., websites, mobile web). This makes sense, as clients are laser focused on understanding their customers in order to deliver highly relevant content and experiences.

To beef up their human resources in these areas, agencies anticipate hiring a mix of full-time staff and contractors. The categories with the highest percentage of freelance resources are app development, content, social, and UX. Agencies may consider these areas more scalable and nimble versus an area like strategy, where the teams tend to be smaller, but the work requires someone who is deeply embedded in the agency and client business.

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Hiring trends

Full-Service Agencies Competing with Specialized Shops and In-House Client Teams

Specialized agencies still reign supreme when it comes to app development and building immersive digital experiences. The skill sets needed to be competitive in these areas remain beyond the domain of many full-service agencies.

Many clients allocate strategy, content, and social marketing to both specialized and integrated agencies, but a growing cross-section of brands handle these functions internally. Twenty-six percent of clients report handling content development in-house, while 24% use a specialized agency and 18% use an integrated agency. This aligns with the growing trend of brands bringing content development under their own roof in order to increase the speed of development while keeping costs down.

Customer insights also tends to live in-house as clients want to be closer to their data. Control is also an issue. With so many agencies in the mix, it’s often smarter for the client to aggregate the massive amounts of data coming from a variety of sources rather than relying on an agency partner to do so.

Q. What types of companies do you currently work with on the following initiatives?

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Digital Experiences App Development Content Development Standalone Strategy Social Marketing Digital Products Customer Insight UX Testing Marketing Tech

Agencies Continue to Struggle with Data Science

Q. Please rank your organization from one to five on the following areas, with 1 being the lowest and 5 being the highest.

Similar to last year, both agencies and production companies still think they are average when it comes to insights and data. It’s hard to say which came first, but 26% of clients now have this handled by an internal team (second only to content development). Remaining mediocre in these areas may not be sustainable for agencies given how critical a detailed understanding of the customer is for marketing strategy. Additionally, measurement is the only reliable way for an agency to prove its value, which could alleviate the complaints that we heard from clients who felt compelled to let agencies go because of their inability to track ROI. [See “Why Clients Leave” infographic].

Q. Please rank your organization from one to five on the following areas, with one being the lowest and five being the highest.

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Digital Experiences