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Consultancies vs. Agencies in digital marketing: The future belongs to hybrids

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#Marketing

With the advance of automation, the field of digital marketing is changing in profound ways. While advertisers used to outsource their campaigns to external partners in the past, many are now increasingly shifting to carrying them out in-house due to the increasing accessibility of technological resources. Although this may seem simple at first glance, it proves to be much more complicated when faced with the harsh reality of onboarding a variety of tools. Advertisers need consulting, which presents itself as an opportunity for a growing number of IT consultancies on the market. Will they eventually eliminate established media agencies?

Agency business has changed drastically in the field of digital marketing. New technologies enable advertisers to assume traditional agency activities by themselves. Setting up new campaigns, tracking and basic knowledge about data are no longer services that bind a company to an agency, a good example of which is Programmatic Advertising. According to a recent survey, 89% of German companies active in this field now at least partially track their performance in-house. By doing so, they build up useful knowledge regarding the target-driven handling of data as a business asset. Additional common goals of this strategy are increased campaign effectiveness, improved reach and, of course, a reduction in costs. Reaching these ambitious goals is a challenging endeavour that is even more challenging when attempting it on your own. As a result, only a minority of respondents operate Programmatic entirely in-house. 54% have outsourced individual processes to external providers. What is striking here is that above all, strategic tasks have been outsourced.

This example shows that in-housing plays a significant role in digital marketing today. But in addition to technological approaches, it is above all data that forms the basis for successful campaigns. Managing it in a target-driven manner is a complex challenge: Which data do I need for my specific goal? Which data do I own myself, which do I have to procure? How can I collect, analyze and process the different data streams from various sources in such a way that it can be utilized? How do I measure the success of a campaign and which adjustments have to be made to optimize it? Those who are generalists, who know a little about the broad field of digital marketing, but are not experts in any specific domain, are quickly stretched to their limits. Therefore consulting is needed.

IT consultancies vs agencies

In the annual trend monitor of the FOMA (Fachkreis Online-Mediaagenturen), 92% of the online media experts surveyed agreed that “in light of the growing complexity of the digital advertising business, agencies’ consulting services are playing an increasingly important role”. Many advertising companies believe they already have the required resources to run campaigns autonomously and automatically. In practice, however, it often turns out that both their strategic and, in many cases, the operational know-how are insufficient to be truly successful. On top of that, technological development is too rapid to stay up to date. Although many people have future topics such as Big Data or AI on their agenda and seek to drive implementation of the related technologies, we know from experience that the foundation is often lacking. It is also not uncommon for solutions to be implemented that on closer inspection turn out to be redundant. Companies still have open questions.

It is, therefore not surprising that large consulting firms see their opportunity and enter the market. However, they are not capable of fulfilling their value proposition of “We do end-to-end and can do everything from start to finish”. While they do a good job overall, being all-rounders, they cannot focus as strongly on a specialized subject. This also applies to the related technologies, some of which agencies provide on an exclusive basis, while large corporations outsource or rely on existing solutions. They also face significant challenges regarding the creative process and continuous operational support. A considerable number of advertisers are now switching from large consulting firms to specialized agencies. After all, you need to be passionate when it comes to the areas of Big Data or AI, and the challenge of adequately measuring the vast quantity of critical figures. Otherwise, it’s virtually impossible to have your finger on the pulse of the time.

Then who will be the right partner for advertisers in the future? Those agencies that keep restricting themselves to just implementing campaigns will struggle. Their existence is threatened due to the growing trend towards in-housing. In many cases, they lack the necessary resources to look beyond their next campaign strategically. On the other hand, big IT consultancies are inexperienced in practical implementation. Generally, we can say that the more detailed the subject, the more likely they are to fail.

A new market for hybrids is emerging

More in-housing through better technologies and data-driven automation means change, but it is not the end for agencies. In the future, the digital marketing ecosystem will most likely provide niches for small, highly specialized boutique agencies that have acquired extensive knowledge in their field, making them immune to competition in this sector. Nowadays, however, a specific size is needed to be successful in a highly competitive market and be able to roll-out global projects. At the same time, an agency must not be too big, because in this case the required momentum can quickly get lost. Hybrid agencies with the right size, focusing on core topics, that provide a holistic mix of marketing, consulting and technology as well as extensive experience in digital marketing have good prospects. Advertisers these days need a partner who supports them in developing a strategy, accompanies its implementation and, if necessary, assists them in operational matters. Furthermore, the development of customer know-how with training and a plan of action is part of the core business. Besides technology, expertise and long-term experience, there is yet another critical factor in achieving optimal results for the customer: A trust-based culture enabling honest and transparent cooperation.

 

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Hannes Weißensteiner, Managing Partner DACH