Don’t Fight the Insourcing Trend: A Warning to Agencies

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With brands taking more work in-house (from social and creative to tech), digital agencies may take a moment to think about their offering. For our Deep Dive into Digital Advertising, James Addlestone of agency Journey Further argues that they shouldn’t go against the insourcing trend, but consider what it says about agencies and their place in the world.

A go to boarding school digital marketing has changed the role agencies play for brands. We are only at the beginning of the change curve. In the coming years, the landscape of digital agencies will change dramatically, and digital agencies that don’t adapt will die.

A few converging trends are driving this change.

What are digital agencies for?

The role and relevance of digital agencies is based on two factors. First, being able to generate economies of scale through fixed costs spread over a larger customer base. Second, attract talent with a wide range of knowledge and experience, serving multiple customers simultaneously.

Economies of scale have emerged for digital agencies through a few avenues. At scale, greater flexibility exists around resources, which reduces “downtime.” The technology also often required expensive training to replicate with smaller teams. Agencies can acquire and develop expensive technology spread across multiple clients and access information about multiple clients without having to invest in extensive research. It is faster to refine a process when it is repeated several times on several clients.

But over the past few years, Google and Meta have made self-service easier, seemingly negating many of the agency benefits.

For example, with the advent of smart auctions, it is apparently easier to set up successful paid search campaigns without the need for a specialized agency. Insight tools have become more accessible and less expensive, with channel information easier to surface with a third-party tool. The desire for greater brand “control” has led to a perceived need to bring customer-facing content in-house, with the biggest shift in in-house being in social media and creative.

Finally, the apparent “agency monopoly on talent” (which was questionable in the first place) was based on the fact that the best employees wanted to work in the agencies, with the culture and lifestyle of the agency accompanied. With many agencies suffering from a cultural crisis following the confinements and the desired lifestyle changes, this is changing.

How should agencies react?

For agencies, there are two answers. The first I call “the ransom approach.” This is where an agency will identify the “capital” they have on the client and essentially use it as a “ransom” for as long as possible. The agency may have specific knowledge of a client’s data infrastructure or have a relationship with a third party who will grant the client privileged access. When it comes to contract renewals, they will emphasize the value the client gets from the agency, perhaps sweeten the deal with discounted services, and hope for the best.

I call the second “the value-added approach”. This is where agencies think about the reason for the change and find a way to add real long-term value to the client that couldn’t be derived from insourcing – for example, the fact that they have the chance to work with 20 clients in the same industry and can provide guidance and contextual clarity on performance within their industry. Or that they have a world-class training program that they could introduce clients to.

This is the opposite of the “ransom approach”; rather than looking at the capital to be protected, it instead focuses on areas where collaboration would be mutually beneficial. Agencies should welcome the intern as a chance to help solve a difficult challenge for clients (and get paid to do so).

So how should agencies move their services? This is by no means an exhaustive (or mutually exclusive) list, but I believe the following avenues are possible for most agencies:

1. Pure play marketing strategy

There will always be a need for strategy consultants who understand the digital marketing landscape to offer high-value advice when serving multiple clients. There will always be people drawn to this industry who thrive on solving the technology challenges faced by clients and therefore choose to work for agencies rather than in-house. Agencies need to ensure they have the frameworks in place to serve this cheaper client base than pure-play strategy consultancies such as McKinsey or BCG.

2. Board-Led Recruitment

Agencies can venture to look more like consulting-recruiting firms. High-level training of graduates, for example, will always benefit from economies of scale on training. As agencies move in-house, a dedicated digital agency will be needed to fulfill this role by providing digital training alongside the client experience through ongoing overflow services to clients.

3. Software as a service

Agencies will continue to “productize” their services (not a new trend), with more emphasis on offering ready-to-use products tied to specific cloud platforms.

Agencies need to fundamentally rethink their offering to continue delivering value to clients. Unless agencies really help facilitate this trend, rather than oppose it, they will suffer the consequences.

Find out more about The Drum’s latest Deep Dive on our digital advertising hub.

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