Don’t fight the inevitable in-housing trend

A picture of an empty meeting room

There is an increased shift towards in-housing of digital marketing. This has already had an impact on the role that agencies are playing for brands, but I do believe we are at the start of the change curve.

Over the coming years, I expect the digital agency landscape to change more dramatically, and I expect digital agencies that don’t change will die. But first, we need to understand what’s driving this change.

There are a few converging trends that are causing this shift. To dissect this, it’s important to remind ourselves that the role of digital agencies is based on two factors. Firstly, being able to generate economies of scale through fixed costs being spread over a larger client base. Secondly, by attracting talent with access to a broad range of insight and experience, by virtue of servicing multiple clients simultaneously.

Economies of scale have arisen for digital agencies through a few avenues. At scale, greater flexibility exists around resource so ‘dead-time’ is reduced. Technology has also often required specific training that is expensive to replicate over a smaller team. You can procure and build expensive technology spread over multiple clients, and access insights across multiple clients without having to invest in extensive research – it’s quicker to refine a process when it’s repeated multiple times over multiple clients.

The challenge is that, over the last few years, the likes of Google and Meta have been making it seemingly easier to self-serve, negating many of the benefits of agencies. For example, with the advent of smart bidding, it is seemingly easier to set up high performing paid search campaigns without requiring a large agency with specialist tech knowledge. Insight tools have become more accessible and cheaper, with in-channel insights easier to surface with the need of a third-party tool. A desire for greater ‘control’ of the brand has led to a perceived need to bring customer-facing content in-house, as indicated by the greatest shift in in-housing being in social media and creative.

Finally, the apparent ‘agency monopoly on talent’ (which was debatable in the first place) was predicated on the best employees wanting to work at agencies, with the agency culture and lifestyle that went with it. With many agencies suffering from a culture crisis caused by consecutive lockdowns and changes in desired lifestyles, this is clearly changing.

From an agency perspective, there are two responses to this. The first, I call the ‘ransom approach’. This is where an agency will identify ‘capital’ they hold over the client and essentially use this as ‘ransom’ for as long as possible. For example, the agency may have specific knowledge of a client’s data infrastructure, or have a relationship with a third party that will grant the client privileged access. When it comes to contract renewals, they will point to the value the client derives through the agency, maybe sweeten the deal with a few discounted added services, and hope for the best.

The second is what I call the ‘value-add approach’. This is where an agency will reflect on the reason behind the shift and find a way of adding genuine long-term value to the client that simply couldn’t be derived from in-housing. For example, the fact that they have the fortune of working with 20 clients in the same industry, and can provide consultancy and contextual clarity around performance within their industry, or that they have a world-class training program they could introduce their clients to. This is the opposite of the ‘ransom approach’; rather than looking at capital to protect, it instead focuses on where collaboration would be mutually beneficial. In fact, these agencies should welcome in-housing as a chance to help navigate a difficult challenge for clients (and get paid for doing so).

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

  1. Pure play marketing strategy. I believe there will always be a need for strategy consultants who understand the digital marketing landscape to offer high-value consultancy by virtue of serving multiple clients. There will always be some individuals attracted to this industry who thrive on solving customer-facing technology challenges, and therefore choose to work for agencies rather than in-house. Agencies need to ensure they have the frameworks in place to serve this clientele cheaper than pure play strategy consultancies such as McKinsey or BCG.
  2. Consultancy-led recruitment. Secondly, I believe agencies may venture into becoming more like a combination of a recruiter and a consultancy. Top quality training of graduates, for example, will still benefit from economies of scale on training. As agencies shift in-house, a specialist digital agency will be required to fill this role through offering digital training alongside client experience via ongoing overflow services to clients.
  3. Software as a service. Agencies will continue to ‘productise’ their services (and this is not a new trend), with an increased emphasis placed on offering off-the-shelf products tied to specific cloud platforms.

In short, agencies need to deeply rethink their offering to continue to add value to clients. Unless agencies really help to facilitate this trend, rather than kick against it, they will suffer the consequences.

Originally published on The Drum.