GLOBAL DIGITAL OUTLOOK
TRENDS SHAPING TOMORROW
The Global Digital Outlook Study is an annual collaboration between SoDA and Forrester Research. Our study assesses global digital spending trends, adoption of emerging technology and shifting views on the digital landscape. It’s also one of the few studies to gather, analyze and compare this particular outlook data from the perspectives of both client-side marketing, technology and product design leaders as well as agency leaders at digital agencies, integrated agencies, consultancies, product design studios, production companies and every niche in between.
This year’s study had 401 executives from across the globe – 166 responses from client-side marketing, technology and product design leaders and 238 responses from agency leaders.
For a closer look at the data, you can download a copy of the Summary Findings here
A BIGGER PIE... AND MORE HUNGRY MOUTHS AT THE TABLE
The 2019 Digital Outlook finds a majority of agency leaders optimistic about the future even as they remain clear-eyed about the challenges facing their businesses. Despite all the doom and gloom regarding broken agency models (vivid images of fire, brimstone and post-apocalyptic demogorgans come to mind), agency leaders are reporting healthy performance in 2018 and a solid outlook for 2019. More than half of agency leaders reported growth in revenue and total profit in 2018 (56% and 55% respectively) and 79% say they are confident that the next 12 months will be even stronger in terms of profitable growth.
Confidence levels are bolstered (and, perhaps, justified) by a strong spending outlook from client-side marketing leaders: 54% plan to increase their digital spend in 2019 and 36% plan to increase overall marketing spend. More importantly, 43% plan to increase their spending with external agency partners making this one of the strongest spending outlooks we’ve seen since we began tracking in 2013.
But if the outlook is strong, agency leaders readily admit that competition, pricing pressure and escalating costs for talent are growing concerns for their business. In 2018, only 39% of agency leaders said they were able to increase their billable rates and 57% agree that pricing pressure is becoming an even bigger factor in winning new assignments. Furthermore, 66% saw competition for their services intensify and 64% said that the rising cost of talent was having a direct impact on their bottom line. Stiff competition and continued pressure on operating costs will undoubtedly winnow out more and more agencies with indistinguishable capabilities and inefficient operating model.
BATTLE ROYALE OR TOKYO DRIFT TO THE MIDDLE?
The marketing world has been obsessed with the incursion of management and IT consultancies into the sacred creative territory of agencies. Too much of the industry commentary, however, adopts a binary view on the matter suggesting that only one model will prevail in this battle royale between consultancies and holding companies. This is a simplistic assessment for a complicated and interconnected ecosystem of digital providers of all shapes, sizes and flavors. While our data this year uncovered a 24-point decline in marketers’ openness to using consultancies for digital agency assignments (53% said they were “Very Open” or “Open” this year vs. 77% last year), we continue to see an array of partner types tackling digital initiatives. In fact, there has been little change, year-over-year, in the number of partners marketers’ tap for digital assignments. Nearly one-third of marketers use 3 or more agencies/partners. Furthermore, there is no dominant partner type for digital projects and usage of integrated agencies, full-service digital agencies, consultancies and specialized digital agencies is evenly distributed. The bottom line: agency “type” is increasingly irrelevant when defining the competitive landscape for digital services.
AGENCIES PRACTICE MIXED MODEL ARTS
Our findings this year point to an active evolution of the agency business model with some moving towards specialization while others seek to expand their responsibilities with new capabilities. An astounding 61% of agency leaders this year said they were actively re-evaluating their core business models. Experimentation with different pricing models (26%), going to market with 3rd party partners to round out service offerings (25%), and deeper collaboration/integration with their clients’ other partners (30%) are just a few of the avenues agency leaders are exploring. On the capabilities front, agency leaders point to areas such as strategy, data, platforms and technology as key areas for revenue growth in 2019. Interestingly, these capabilities are traditional strongholds for consultancies.
It’s clear that many native digital agencies, traditional integrated agencies and, consultancies are racing towards a melee at the center of the marketing/customer experience ecosystem. It’s also clear that new areas of specialization have emerged. For instance, more than 30% of all agency respondents said they do not currently offer any services related to voice-based applications, AI-driven digital experiences or experiential installations that blend the physical and digital environments. We also see agency leaders tackling a unique mix of capabilities across the digital marketing and experience value chain. S4 Capital’s planned combination of production, content, data and media is one such example of the mixed models beginning to emerge.
SPEED, VALUE, AGILITY AND TRANSPARENCY
What do client-side business leaders want? Brilliant strategies? Mind-blowing creative? Category-busting innovation? Technological wizardry? Lower billable rates? The rock sensation Queen said it best.... they want it all and they want it now! And even though (half-jokingly), this is most certainly true, a more pragmatic look at the market shows marketing leaders with a growing desire for partners that can operate collaboratively, nimbly, quickly and effectively. Several findings for our study suggest that marketers want:
Speed. 56% of agency leaders said that speed of delivery is becoming a bigger factor in whether or not they win new projects and 63% of client-side marketing leaders said that producing and publishing personalized digital content, more quickly, is a major priority for their business.
Agility. Flexibility and agility are cornerstones of a collaborative working model. Client-side marketing leaders point to “more flexible/nimble working models” as one of the top areas of improvement they’d like to see from their agency partners. On the other side, agency leaders say that “working directly with clients' other partners in a more collaborative, integrated way” is one of the top ways in which their typical engagement models are changing. Additionally, more than 60% of all respondents agree that the in-sourcing of digital capabilities is having major impact on the way clients and agencies now partner.
Value. Client-side marketing leaders ranked “different pricing models” as the number two change they’d like to see from their agency partners and pointed to “pricing/value” as the top reason they typically terminate a partner relationship. Agency leaders seem to be begrudgingly concede the point, ranking “pricing/value” the second highest reason for why they are typically terminated by their clients. Additionally, a whopping 70% of client-side marketers admit that properly quantifying and valuing the impact of creative ideas represents a major challenge for how they compensate their agency partners.
Transparency. 66% of client-side marketing leaders are demanding greater detail and transparency from their agency partners in how they report on budget spending. While not quite as high, 50% of agency leaders agreed and said that their clients are increasingly demanding greater detail and transparency in reporting how their clients’ budgets are used.
What does this all mean? It isn’t to say that bedrock elements of the agency business (creative and innovation) aren’t top of mind for clients. They are. In fact, “Better Design / Creative” is the number one improvement they’d like to see from their agencies. But there are many paths to success and given the growing realities of operating in an multi-partner ecosystem (often with in-house teams in the mix), greater scrutiny for CMO’s entrusted with more responsibility and bigger budgets, and market pressure to move quickly, we see marketing leaders placing a bigger premium on the working models of the partners they select and with a keen eye towards if/how/where they can be a collaborative, nimble and efficient element in the overall ecosystem.
CREATIVE LEADERS GAIN CURRENCY IN THE C-SUITE
In business, the creative discipline has historically been confined to the marketing function and deployed as an adjunct to business or product strategies cooked up elsewhere in the organization. The phrase, “make it pretty,” best captures this ethos. But times are changing, and design leaders increasingly find themselves at the helm of successful start-ups, in an advisory capacity at VC firms, or in newly minted C-level roles at traditional brands. John Maeda first reported on this trend in his annual “Design in Tech” report and our Global Digital Outlook Study adds further proof. This year, 67% of client-side business leaders agreed that creative and design leaders were having a bigger impact on the overall strategic direction of their business. Furthermore, they pointed to “brand differentiation through innovation” and “adopting emerging technology before our competitors do” as the single most important strategic factors driving success for their business over the next two years.
This is welcome news for creative agencies hungry for allies in the executive suite and desirous of more clients focused on the intersection of design, technology and innovation. But more allies in the C-suite won’t necessarily translate into easier wins. For starters, client-side leaders continue to elevate their expectations for agency partners. In fact, “Better Design/Creative” is the top attribute clients would like to see more of in their agency partners.... even ahead of criteria such “different pricing models,” “more flexible working models,” “stronger data capabilities,” “stronger technology capabilities” and more. Translation: No free rides on the creative front. Even more troubling, 70% of client-side leaders said that quantifying and valuing the business impact of creative/design ideas presents an increasing challenge for how they compensate their agency partners. The bottom line: creative and design leaders are on the rise in corporate structures and there’s no doubt that this can help bolster the influence of creative agencies in the board room. But increased visibility leads to increased scrutiny... for the caliber of the creative work product and, more importantly, the direct business value it creates. Agency leaders have their work cut out for them.
DIGITAL PRODUCT STUDIOS POISED FOR GROWTH
Of all the data we track relative to spending, perspectives on the digital landscape, talent, operating models and emerging technology, one trend that continues to stick out is the growing focus – for both client-side marketers AND agency leaders – on the creation of new digital products and services distinctive from traditional creative work on marketing-related content, campaigns and experiences.
In our study this year, 45% of agency leaders projected that revenue related to helping their clients create, launch and improve digital products and services would increase in 2019. This was the top-ranked category for agency revenue growth (tied with Customer Insights & Analytics) even though just 9% of agency respondents overall identified themselves as “Digital Product Design Studios.” 42% of agency leaders also pointed to “more consulting with clients on new product and service offerings” as the one of the major ways in which their engagement models have been changing. Again, the top-ranked attribute in this category. In fact, the digital product and service trend is most striking among “Digital Agencies.” 65% of Digital Agencies anticipate increased revenue for digital product work in 2019 and 60% report that this is one of the major ways in which their engagement models are changing.
Digital Products & Services are also highly sought after among client-side marketers. 37% of marketers are planning for increased spending for digital products and services in 2019. In fact, more marketers plan to increase budgets for digital products and services than for marketing-domain stalwarts such as stand-alone content creation, campaign development and media planning / buying.
As agency models continue to shift and marketers are tasked with broader agenda for growth and customer experience, it’s clear that a mature capability and competency in digital product/service design is one area of specialization poised for growth.
EMERGING TECHNOLOGY IS, WELL, STILL EMERGING
New technologies come to market at a rapid pace and each one of them challenges business leaders and agencies with the choice of where to experiment, where to invest and where to wait and see. AI technology and initiatives related to AI-driven digital experiences where top of mind for both marketers and agencies this year. Collectively, 56% of business leaders and agency leaders agreed that “AI technology will significantly impact the way we plan for and design customer interactions.” More importantly, 36% of client-side marketing leaders plan to increase spending for “AI-Driven Digital Experiences” in 2019 and 36% describe their investment levels in this area as “significant.” That said, it’s still early days for AI. Just 16% of respondents said they are actively working on AI-related projects and 27% have no plans to tackle AI in the next 12 months. The remaining 57% are just beginning to explore the technology or planning to begin their first initiatives in 2019.
Outside of AI, we saw steady adoption for technologies related to AR/VR/Mixed Reality, voice-based experiences and even blockchain technology. More than one-third of marketers said they were planning for significant investments in these areas in 2019.
Practically speaking, the broader topic of “Marketing Automation” topped the list of emerging technologies in terms of anticipated spending and impact. Marketing leaders and agency leaders identified Marketing Automation as the top area for investment (46% of client-side marketers plan to make “significant investments” in 2019), and potential impact (37% of agency leaders anticipate that marketing automation will have a “significant impact” on their client’s marketing approaches in the next 12 months). While Marketing Automation, as a category, encompasses other emerging technologies (particularly AI), it’s clear that marketing leaders are prioritizing investments into solutions to alleviate key pressure points such as speed, scale, efficiency and effectiveness.