WPP’s purchase of AKQA seemingly ended the era of the independent digital agency. IT seems like another age, but it was only a few years ago that Razorfish, Digitas, Schematic, Blast Radius, AKQA and Huge were proudly independent alternatives to the holding company rosters. Now they’re all owned by one of the Big Four ad holding companies.
Agency consolidation typically goes through a few predictable phases, a la the Kubler-Ross model of grieving. First, there’s the Euphoria stage when execs crow about global expansion plans and maintaining an independent streak. Next comes the Reality phase when these same agencies realize that they will come under severe pressure to maintain and expand profit margins. Then, there’s the Brian Drain phase as a lot of top talent moves on. One of the last stages is the Cash-Out phase when founders reach their earnouts and suddenly decide they want to do something else. Finally, there’s the Acceptance phase when the former world-beater assumes its stable role as a cog in the machine.
“The consolidation of the past few years is validation that digital is no longer just this strange tangential discipline; it’s clear holding companies see it as essential to their businesses, “ said principal Forrester analyst Jim Nail. “That said, I think we do still need independents. Just like advertising agencies have always had the hot little creative boutiques like the Weidens or the Crispins, smaller entities can really help energize this whole industry. Smaller, independent agencies are a great outlet for creative talent that gets frustrated at other organizations. In the digital realm, the opportunities for innovation are orders of magnitude larger, too.”
Or, as tweeted yesterday by Deep Focus CEO Ian Schafer, “Confession: I actually root for indie agencies to be acquired by the holding cos. It limits the competition.” The holding company model, he later explained, “limits innovation,” and “the earnout model is arcane.”
Indeed, at the Cannes Lions Festival of Creativity last week numerous executives expressed their frustrations with working within large agency networks. As their organizations grow in size and as holding companies get more involved in their day-to-day running, their ability to be innovative or be truly creative is diminishing, they said. They often spend their days bogged down in bureaucracy and internal politics.
One senior executive claimed to have left an innovation-related agency job paying almost half a million dollars a year because the money wasn’t worth dealing with the stress and frustration he encountered.
That type of culture is having an effect on clients, too. Agencies are finding it increasingly difficult to attract and retain talent, which means they’re forced to staff portions of their businesses with people who are perhaps below par compared with the ideals of the organization.
If clients aren’t in an agency’s top tier of billings, they’re not prioritized in terms of talent and are often assigned “B teams” or “C teams,” Nail said, suggesting dissatisfied clients could be the perfect opportunity for smaller agencies to swoop in and pick up some good business. “I think we’ll see clients raising the bar, setting higher expectations, and challenging their agencies to live up to their expectations,” he predicted, before considering other options.
As a result we may see a trend of independent agencies cropping up and looking to capitalize on the shortcomings of larger agency groups. After all, there was an initial wave of Web-agency consolidation in the 1990s. New agencies are cropping up around social media and mobile, for instance.
“If agencies are smart, they’ll invest more in training, and bringing the level of their C teams up to at least the B+ level. If they don’t, in a couple of years we could see a lot of new agencies blooming,” Nail said
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