As online marketing gets more technical and applications become more complex, can agencies do everything in-house, or is outsourcing the way ahead?
"It's hard being a brand these days," says Tim Moore, managing director of brand equity agency Playgroup. "People just aren't easy to manipulate any more. We engage with brands because we want to, not because we're told to, and we'll stick around on our terms not theirs. As a result, agencies are receiving increasingly challenging briefs from brands, and they're all looking for innovative ways to engage these cynical audiences."
Very often, those brands are demanding their agencies use the latest online technologies to capture the attention of consumers. Yet the internet is evolving at such a rapid rate that few agencies can deliver all those technologies in-house. For some, this means they need to build resource in-house. For others, it means they need to partner with niche production houses. The upshot is a rapidly changing agency landscape, and this has important repercussions for anyone working in this industry.
Few of those working in digital agencies doubt that briefs are becoming more challenging. Alex Marks, UK head of marketing at Microsoft Digital Advertising Solutions, says: "Brands are expecting solutions that are much more complex than they were five years ago. They recognise that just pushing a flat message out there and hoping it will work on its own isn't enough. Current campaigns involve interactivity and develop content that engages the consumer, for example, through online games."
Kids in a candy store
Irfon Watkins is the chief executive officer of Coull, a provider of online video advertising solutions, and chairman of the Interactive Advertising Bureau Video Council. He agrees that briefs are becoming more demanding. However, he is critical of the way many brand owners are approaching these new delivery mechanisms. He says: "Rather than working out what strategies are needed to make a campaign work, brand owners seem to be approaching their digital briefs like kids in a candy store They're pointing to the latest fads, saying: 'I want this one, and that one, and two of those.' There's a lack of strategic direction, and they're not putting up budgets to match their expectations."
But while it may be frustrating for agencies, it is the reality they must face. The question is how to deal with it.
For some agencies, the answer has been to focus on their core skills and leave the niche technical work to niche agencies. Rachel Hawkes, co-founder and editor of the Social Media Portal, says: "We have noticed brands seeking specialist and smaller shops for niche campaigns without seeking input or consultancy from their retained agency. It's an interesting shift, and it poses a significant threat to larger, more established agencies."
Brand owners' fascination with the latest gizmo usually wanes quickly, and they tend to return fairly rapidly to their core agency. However, there is always something new to catch their eye, and so refusing to engage with these niche areas soon becomes a significant drain on the income of larger agencies.
Furthermore, it is rarely ideal for a brand owner to have to manage several relationships with digital agencies. Given the exponential growth in the rate at which new sites, techniques and technologies are springing up, this soon becomes an impossible task for most brand owners. They are then looking for agencies that can offer them the full range of digital services.
In the 90s, when brand owners first started asking advertising agencies for websites and online campaigns, many of the larger ad agencies responded by setting up digital divisions. In the same way, for many of today's larger digital agencies the solution to this latest challenge is to hire teams of people with these specialist skills. For example, Flipside Group is an integrated marketing agency based in Cranleigh, Surrey. It employsE 50 staff, and has clients including BMW, Reuters and BP. Alan Campbell, creative and strategic director, claims it has enough in-house resource to be able to deliver the full spectrum of both traditional and new-media services to those clients.
He says: "A truly integrated agency shouldn't need to outsource anything. We have a full video and editing facility within Flipside that works across dedicated video, events and conference work and also supports rich media for online marketing use. Likewise, we have our own facility for CGI and animation."
He is convinced the industry is coming back almost full circle to a requirement for full-service agencies, and that this approach works best for clients. "We can present an idea that is integrated from the outset, rather than have an idea and ask third parties to contribute to the integration. Something always seems to get lost in translation when you do it that way round."
Some of these large agencies are doing it through recruitment; others are doing it through acquisition. Adam Sefton, head of interactive marketing at Reading Room, says: "There are undoubtedly niche agencies springing up - agencies that deal solely with Facebook applications, or digital production, or online PR. They will continue to deliver niche work, and we will probably see larger digital and integrated agencies acquiring the more successful niche agencies."
Ray Wellington, strategic director at Milton Bayer Communications, believes he has seen it all happen before. "It's a bit of deja vu right now," he says. "As a traditional agency that years ago was buying in web services from the techie nerds in the basement office, we integrated by buying their business. Now we're capable of delivering a tremendous range of channel options, but as social networking explodes and application channels open, we're back relying on the basement techies again. It'll end in acquisition as it did before."
However, not everyone is so sure this is the future for the industry. Unit 9 is a digital production agency that works solely for advertising agencies. Partner and client services director, Matt Groves, believes that it is economically unfeasible for any agency to try to offer the full range of digital services in-house.
He says: "I was recently talking to the managing director of a big ad agency. Ever since 2001, the agency had had a digital team of 30 people, and they were losing money. I advised him to get rid of them all apart from a handful to do the basics like banner production."
Unsurprisingly, Groves suggests that when faced with a challenging, specialised brief, agencies should turn to niche production houses such as Unit 9. He says: "By building relationships with us, ad agencies have a highly skilled, flexible resource at their disposal. Compared to trying to build the resource in-house, it gives them a much clearer view of their margin, and it makes it much more likely that the end client will be satisfied."
When car brand Mazda asked digital agency Syzygy to produce an online version of the above-the-line campaign for the Mazda 6, Syzygy called in film production house Film 38. Aaron Martin, executive creative director at Syzygy, explains: "Mazda customers buy features rather than badge, so we wanted to include video that would show the car's features. Going to an external production house gave us the skills we needed when we needed them. Digital agencies have always tended to keep things in-house, but this sort of outsourcing is the way forward."
Chris Tomlinson, head of digital at WAA, agrees: "Where skill-sets are missing, forging strong working relationships with niche players is the way forward. Just as we formed alliances with print shops in the past, we are now building similar relationships with a broader range of service providers such as specialist video production and hosting agencies."
Very often it involves staff from the niche agency working at the main agency's offices. Careful project management from both parties is essential. More than anything however, it requires mainstream digital agencies to recognise their limitations. Grant Keller, UK managing director at Acceleration, says: "Agencies should build up partnerships with best-in-class digital suppliers and should acknowledge their own key strengths and look to partner with suppliers in areas where they are weak, or where it's not their core business."
Rather than wasting effort denigrating the latest techniques, technologies and sites, agencies that have build these networks of niche agencies can focus on developing winning concepts, and on selecting the most effective means of delivery. Felix Velarde, managing director of digital and eCRM agency Underwired, has taken this approach for some time, and is convinced that it works.
He says: "Agencies need to have relationships with people who can deliver against the solutions they've proposed to their clients. Digital agencies have moved on from trying to deliver everything in-house to doing what agencies do best: knowing who the best specialists are. We outsource all sorts of things we don't do all the time, like CMS implementation or Bebo applications. But we also manage it very carefully, because it has to deliver for our clients. Our reputation, and the account, is at stake."
Not everyone accepts this view. Many of the larger digital agencies still argue that fully integrated agencies are the best solution. Stephen England-Hall, growth and innovation director at Avenue A/Razorfish, says: "We're a big agency, so we have all the digital skills in-house. This allows us to respond rapidly to changes in the market or in the brief. We can optimise a campaign in real time. If you've got several agencies involved, it slows everything down and you lose that crucial cutting edge."
Yet others believe that what we are seeing now is just the beginning of even more dramatic fragmentation. Will McInnes, managing director at Nixon McInnes, says: "Regardless of what the biggest apes in the jungle might shout, agencies do really struggle to provide both breadth and depth, and media fragmentation means that the breadth of skills and experiences available is ever broadening. As a result, there is more and more co-working between agencies due to an increased recognition that viral needs deep viral experience, that mobile needs deep mobile experience and that digital communities and social media are a whole new kettle of fish."
He concludes: "Agency structures will continue to blur and flatten. In the future, the agency landscape will function like Hollywood does - small bands of talented, highly networked individuals will assemble around a project, execute and then disassemble and move on to the next assignment. Value will be in personal brands, in results that can be proven transparently, and, most of all, in the ability to bring the right skills and connections to the right place at the right time. Size and scale will still matter, but not as much as before."
GRAPHICO COLLABORATES WITH ANIMATORS FOR PEPSI RAW
Graphico is a digital creative agency with 82 staff in its Newbury offices. Founded in 1991, it now works for clients such as Bacardi, First Great Western and Madame Tussauds. In December 2007, it was asked by Pepsi to create an online campaign for its new product, Raw, a cola made from natural ingredients.
Andrew Holden, creative director at Graphico, says: "Pepsi had already done a print launch to the trade, using the concept of 'stripped-back cola'. It had shown naked people in front of a cityscape. It was a nice image, but needed to be developed for online, as it was too static. We decided to introduce some motion, and to take the stripped back concept further, representing the man and woman in the ad with just a set of lines."
The agency has no in-house digital animation capacity, but had worked with Rumble Studios in the past. Holden reports that the team at Rumble was very excited right from the start to be involved in this project. He says: "They're real experts at digital animation so it was great to have them on board, and they were very keen to be involved in such a high-profile project." Graphico also employed a choreographer to put together the dance sequence, which a male and female model performed at a motion capture studio in Abingdon.
Holden believes the project was successful because Rumble's staff were involved right from the start. "It was a genuine collaboration," he explains. "We didn't just give them a brief and tell them to get on with it. They were here, in our office, working with us at every step."
He goes on: "We're involved in more and more of these partnerships with specialist agencies. We've got a lot of expertise in-house but when something as specific as this comes up it makes sense to bring in an agency, rather than employing someone full time who's only needed for the occasional job."
His managing director, Alex Weller, agrees: "An agency like Graphico which has a range of in-house resources will still use external specialists, because we will never be able to fulfil every niche production need, just like the major advertising agencies use specialist production houses."
He adds: "What's significant is that when we do outsource to production houses they are more digitally aware than they used to be. These are the same production companies that traditional advertising agencies use and their experience is expanding making them more responsive to digital needs."
CHI CALLS IN NICHE SHOPS FOR CARPHONE WAREHOUSE TASK
Founded in 2001, creative and digital agency CHI & Partners has 180 staff in its Soho offices, and counts Carphone Warehouse, Royal Bank of Scotland and Britvic among its clients. In spring 2007, Carphone Warehouse approached the agency asking it to create TV idents and collateral around its sponsorship of The X Factor.
Head of digital, Ewan Carpenter, says: "Straightaway we knew that ads alone wouldn't have enough impact. The X Factor is inherently interactive, so if we were to maximise our client's sponsorship of the programme, we needed to create a campaign that also gave consumers a chance to interact."
So, CHI came up with the idea of allowing people to audition to appear in the ads shown during the show. It used the online and in-store channels to invite people to audition by calling a number and singing one of several songs. The best and worst were played in the ads during the television show.
CHI did the creative work itself but brought in Unit 9 for the animation of Mobly, and Opal for the back-end work turning phone calls into MP3 files and sending them to the site. Carpenter says: "There are just so many different ways you can execute a creative concept these days that it just doesn't make sense to have all the resource in-house."
He continues: "We worked well with both organisations because we had clearly defined roles and responsibilities and we were honest with each other. If one side wanted to change something then they said so, and we were all closely involved in every aspect."
The site had 1,800 recorded songs and received 150,000 individual votes. It provided the content for 30 television ads, and Carpenter reports that it met all of the Carphone Warehouse's brand objectives.
CHI does not use specialist agencies on every project. "We did a major project for Friends of the Earth last year entirely in-house," says Carpenter. "However, when we need a particular skill we will outsource it, so long as we retain the strategic creative element of the brief. Interactive work is so complex these days that there are a lot of very niche agencies, and if they can provide the right solution we'll be glad to have them on board."
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