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Stephen Whyte: why digital agencies must keep their independence to earn their rightful place in adland

Following yet another acquisition by one of the big, global networks, the digital marketing services industry is in a curious state.

Unknown-3Now that Profero has gone under the hammer to IPG’s Lowe, the networks have completed a clean sweep of the larger digital agencies and have created a very polarized market: a small number of substantial digital players with international presence and close family ties to even bigger networks at one end of the spectrum and a plethora of small, independent, country-focused agencies at the other.

Does this matter? I think it does.

Digital marketing has come of age. There is almost universal acceptance now that real success requires deep and strategic integration between all channels and marketing directors are less and less eager to farm out their brand’s digital activity project-by-project to a plethora of small, specialist agencies. Not only is it nigh on impossible for them to manage such a large portfolio of suppliers, a fragmented approach like this almost guarantees a confused presentation of their brand in the marketplace and missed opportunities for cross-channel optimisation.

All of which means that there is a growing need for bigger, more proven, more stable digital agencies that can offer breadth and depth, that can develop truly joined up and integrated cross-channel campaigns and that can provide real strategic partnership to clients.

If the recent rate of acquisitions is maintained, the polarization of the market will be perpetuated and the number of digital agencies of scale will remain very limited. Such a lack of choice and narrow field of competitors cannot be in marketer’s best interests.

What is needed to ensure the long-term health of the market is a greater focus on strong organic growth and the creation of a group of mid-market, independent digital agencies capable of competing successfully with the networks. Just like AMV, BBH, WCRS, BMP and others did in the UK agency world during the 80’s and early 90’s.

So what would have to happen for this to become a reality?

Firstly, the founders and owners of some of the more successful independents will need to turn their backs on the tempting idea of selling their business (and their autonomy) at a relatively early stage, instead committing to strengthening, building and diversifying their businesses to a far greater level of maturity.

Secondly, these entrepreneurs will have to be prepared to change and adapt. There are several points at which a small business is likely to reach a point of hiatus or inflexion where growth slows and it seems very hard to push forward to the next phase. (In my experience, one of those points is definitely at the £8-10m revenue level, which perhaps explains why an exit appeals to so many at this stage.) Maintaining strong levels of growth through these points of inflexion usually requires real changes in areas like business management, operations and financing. A revised business model might need to be considered and a robust business plan is essential. Many of these things are pretty alien to entrepreneurs but the ones that embrace the need to change are the ones that will succeed.

Thirdly, I believe that the return of the good, old-fashioned merger (the all-but-forgotten component of ‘M&A’) will be essential. Well-considered mergers between complementary and like-minded businesses could create the magical blend of scale, breadth and depth together with the skills integration that looser partnerships and alliances always struggle to deliver.

I for one hope that the M&A teams at Publicis/Omnicom, WPP and IPG take a bit of a break and that this longer term perspective on growth and the perceived value of independence are given the opportunity to flourish.

unnamedStephen Whyte has had a long career in advertising and marketing services. He started out at Abbott Mead Vickers before moving on to Leagas Delaney, Still Price Lintas and GGT Advertising. He then became managing director and chief executive of Leo Burnett before spending five years as chief executive of McCann Erickson London.

He has been a board advisor to digital agency Profero and European chief executive of Acxiom, the consumer data, data services and analytics business. He currently runs NetVenture Consulting which helps a wide variety of digital media and marketing services businesses to grow more quickly and profitably.

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