Premature Extinction: a Focus on Hard Skills Will Bring Digital Agencies Back to Life

Originally published in LinkedIn.

It seems everyone is predicting (again) the death of agencies, particularly those with a history in digital. GroupM forecasts that 2017 may be the first year in many that digital advertising drops as a share of total ad spend. A Facebook/Google duopoly continues to garner most of the growth in digital media, with both offering agency-like services. Brands, like US Bank, are building teams in house, while P&G cut $100M in “ineffective” digital ads. Clearly, the patient is not healthy.

But let’s not lose our heads here. Yes, money is flowing back to TV in 2017, but digital is still growing at an eight percent clip. According to Gartner’s survey of marketers, a full 65 percent of them intend to increase their digital advertising spend, 61 percent their digital commerce, and over half their web site budget. They also are on track to influence more technology purchases than their IT counterparts.

In this environment, digital agencies still have a big role to play. CMOs can’t possibly stack their offices with enough people to achieve the full potential of their media, technology, and customer investments. They need skilled humans, too.

And these are rarer than it might seem. In a recent survey, just over half of US and 38 percent of UK marketers considered themselves competent in digital marketing. But when their actual skills were tested, only eight percent achieved entry-level competency. As researchers at Google Academy put it, “If full adoption of all digital best practices was a score out of 100, the industry scored itself 57, and it looks like there are quite significant capability gaps in mobile, video and use of ad technology.”

In other words, some aspects of the digital agency model may be dying, but the need for digital skills and real competency is not. So what do agencies do to come back to life?

Get back to their digital agency roots. Originally, digital agencies sought to differentiate themselves on capabilities. They did things that other agencies could not. Then, as those skills become more commonplace (or Squarespace), they started trying to differentiate between culture or creativity.

Peter Theil calls this the restaurant problem. When you open a restaurant, you have established competitors, thin margins, and low growth. You can’t innovate because there’s not enough profit in the industry to recoup your investment. Even if you’re a great chef, making money in restaurants is a doubtful proposition. In digital’s case, agencies that were highly specialized voluntarily decided to increase the number of their competitors by competing with them on what they do best.

Instead, digital agencies need to have a monopoly, or what Warren Buffet calls a “moat.” They need to be great in a field that’s hard for others to enter at scale. Digital specialization fits that bill, and we should double down on it.

Acquire hard skills. To do so, however, we need new skills to sell. With the expenditure on marketing technology, our clients need more than knowledge of digital channels and digital trends. They increasingly require tangible experience creating, developing, and optimizing on these platforms. As a result, digital agencies need to know how campaigns are executed across Salesforce, Adobe Experience Cloud, Marketo, and Oracle.

Fortunately, those companies are happy to train agency staff, and it’s not nearly as painful as you might imagine. While agencies can’t ensure everyone is a black belt in every new platform, they can have more white belts. “I don’t know that” can become “I’ll figure that out in time for the meeting.”

Learn to pivot. Software and technology are good at making every skill a commodity. Today, AI platforms are even going after creativity, the last bastion (or bottle) of agency secret sauce. This is scary if you view the agency business as static. But if an agency is smart, it will place bets on new skills each year as the landscape changes. This year, it’s important to learn how to leverage AI in customer experience applications. Next year, it will be something else. Agency leadership needs to decide where to focus staff training and not be afraid to shift gears as changes occur. 

Maybe it’s too late to save the digital agency. Maybe they’re going extinct. Maybe everything is digital, so it’s not longer a category of service. But before we all talk about being “more than digital,” we should make sure we’re really digital enough. 

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