Welcome
Talking to agency heads, the issue dominating the future for them is the same as for everyone: the state of the economy. Some are optimistic, subscribing to the view that the more accountable a marketing medium is, the better it will fare in a downturn. Some are less confident, scarred by the early-2000s and concerned about the robustness of companies in the sector.
At design & build agency Reading Room, co-founder Margaret Manning has been preparing for a downturn she thinks is inevitable. “We’re being more cautious in our budgeting, but we’ve also got the biggest pipeline of work we’ve ever had, especially for this time of year,” she says. “If it wasn’t for the econo mic problems, I’d be saying this was the best year ever for digital.”
Luke Taylor, CEO of LBi, is another seeing record levels of work and budgets, alongside clients’ determination to make a success of interactive media. But he warns about 2009. “The anxiety will be going into next year, as this year’s budgets are already committed,” he says. “I suspect the chunky design & build projects are under threat, but customer acquisition is still going really well.”
At media agency i-level, co-founder and deputy chairman Andrew Walmsley views the economic climate as an opportunity. “The world getting more challenging for clients from an economic perspective is serving to boost the importance of digital for them,” he says.
Chris Perry, joint-MD of Avenue A/Razorfish, agrees. “The credit crunch is creating a lot of movement among clients. There’s an understanding that the rules have changed, so there’s significant organisational activity to position companies for this changed environment. I see a lot of opportunity for the digital industry because it can deliver on cost-per-acquisition metrics.”
At media agency MindShare Interaction, CEO Norm Johnston is also optimistic. “I think 2009 will be a defining moment for our industry, particularly as online surpasses TV,” he says. “Clients will have to make hard choices and I think that’ll work in our industry’s favour. There’ll be an inescapable conclusion that online delivers everything that offline does and more, and in many cases there simply won’t be enough budget for compromises. I think it’ll be the opposite of the near obliteration we received in the 2001 downturn.”
Certainly there’s a feeling that the role of agencies is changing subtly. As Tom Adams, head of creative agency Mook, puts it, clients are now focused on how to make money and build consumer relationships as efficiently as possible, while still building their brands. “Everyone knows more, expects more and wants to know what digital can deliver for them,” he says. “It’s no longer ‘How do we do this?’ but ‘How do we maximise this?’. It’s a real leap forward in client confidence, and agencies should be even further ahead of the curve.”
This increased understanding of interactive media among clients is something several agency heads see as a key trend, and it’s having a significant impact on how agencies work. It used to be true that most brands were two years behind their customers in their use of online, because after the dotcom crash most brands pulled out of digital while consumers just logged on as if nothing had happened. But now brands have been working seriously with interactive media for two or three years, there has been an immeasurable increase in their understanding, according to Adams. “There’s a genuine client understanding of how digital fits into the customer journey,” he says.
Walmsley agrees. “Clients are now much better at this and are much more demanding in their dealings with us.”
“Not everyone is seeing this, however. At creative agency Lateral, chairman Jon Bains thinks the level of a client’s understanding of digital media depends very much on their area of business. “I’m not seeing that much more sophistication, but it’s hard to generalise,” he says. “People who have digital at their core know what they’re doing, but other people are still briefing at the end of the campaign pipeline, which I thought would have stopped by now.”
At advertising matchmaker AAR, head of digital Juliet Blackburn says the degree of sophistication of a client depends on where they are in their lifecycle. That in turn influences whether they give the work to their existing ad agency or hire a specialist.
Certainly a number of agency heads see increasing client sophistication leading to them consolidating their digital requirements into one agency. LBi’s Taylor, for example, reports clients asking for search work as well as the design & build the company is based on.
“The number of services we can sell to our clients has grown,” he says. “They’re also asking us to do all their direct-response work, their through-the-line and print. People want a single supplier.”
Taylor sees this as a route to greater security, not just from the greater revenue it brings but because of the deeper relationships it builds with the client. “We see UK marketing directors having two agency relationships: one with an above-the-line agency and one with an agency that has digital at the centre of what it does but which can also offer acquisition and retention through PR, print and so on. We’re keen to build protected relationships with our clients not just on campaigns but on data and analytics. Then we can create proper relationships with a number of stakeholders within the client company, which is what protects you in difficult times.”
Blackburn says this choice between a single supplier and a port folio of agencies depends on factors like the size of the account and the scope of the work. “If you’re looking at cost efficiencies, or you have a good relationship with your ad agency and they’ve brought in the right expertise, why wouldn’t you ask them to do everything?” she says. “It can be a challenge for clients to get several specialist agencies to work together, so a single supplier might make life easier.”
Her observation that traditional ad agencies have been buying in digital expertise highlights another key trend in the market over the past year. Above-the-line agencies, which have for so long been the butt of scathing comments from digital experts to the effect that “they don’t get it”, are now starting to pose a serious challenge. “It feels like we’re nearly at the tipping point in terms of the evolution of above-the-line agencies doing digital,” says Glue London joint-MD Jo Hagger, “and of digital agencies moving into a bigger remit.”
Traditional agencies have certainly been hiring. One of the most high-profile examples this year was the appointment of Jon Williams, a past digital creative director at Publicis Dialog, Wunderman and Beattie McGuinness Bungay, as creative director across the whole of above-the-line agency Grey. As Blackburn says, clients are more keen on integrated campaign ideas and their agencies’ abilities to deliver. The result is a developing battle between traditional and digital creative agencies over who owns the engagement with the consumer. This is backed up by Avenue A/Razorfish’s Perry, who sees the value of the integrated approach as being its replication of the customer’s perspective. His view is that consumers don’t see a distinction between the various channels through which brands communicate with them, so it makes sense to have those channels managed by the same agency. And he points out that digital technologies are moving into the offline space. “It’s vital to join that up,” he says.
Of course, some digital specialists dispute the idea that offline agencies can really deliver digital expertise. Ajaz Ahmed, founder of AKQA, sees interactive skills as giving agencies like his a way of competing on a level playing field with the their offline counterparts. “Digital is more important than any other medium to clients who value innovation,” he says. “They’re changing their media plans to accommodate digital . I don’t think traditional agencies take it as seriously. They tend to be conservative, where digital agencies tend to be entrepreneurial and creative, because of the environment they work in.”
Glue’s Hagger also recognises the increasingly adversarial nature of the relationship between online and offline agencies. She sees it coming from the continuing interest among clients in employing an agency that can deliver digital strategy, as well as execution. “We’re experiencing more opportunities with our existing clients to influence big strategy, rather than just doing the digital element of above-the-line campaigns,” she says. “We’re working with them to solve their business problems. The positives of that are clear, but it can make honest communications with above-the-line agencies difficult.”
This emphasis on strategy was one of the key trends of last year and it has continued in 2008. As increasing numbers of clients recognise their customers’ media habits have changed, they’re also realising that interactive media have become critical. As a result, they’re looking for agencies that can talk at the highest levels of the company and understand their business problems.
“Digital has become very important, but not all digital agencies have had the confidence to offer strategic opinions backed by evidence,” says Mook’s Adams. “Clients want considered, thoughtful advocacy for digital at the top table.”
This growing emphasis on strategy is leading to a split in the agency world, particularly among small to medium-sized agencies. It’s characterised as a split between strategy and production, with many believing agencies will have to choose between the two approaches. Martin Brooks, the former CEO of Agency Republic who set up creative agency Work Club last year, warns that many small agencies don’t have and can’t hire the strategic firepower clients are starting to request, nor offer the sort of high-quality production associated with Barbarian in the US or North Kingdom in Sweden.
“This is one of the ways in which the UK industry is lagging behind,” he says. “In TV, agencies are mature enough to be happy to be in production; London TV production companies are seen as the best in the world. But in digital, overseas production companies are setting up in London because the lack of production agencies here means there’s a big opportunity.”
As online and offline agencies are preparing to fight it out in the creative arena, MindShare’s Johnston thinks there’s another element to the conflict. He sees media agencies increasingly trying to get into the branded content space by leveraging their scale and weight with media partners and delivering innovative programmes. Certainly for media agencies, diversification has become crucial. According to i-level’s Walmsley, around half of his agency’s business comes from non-media work such as affiliate and search marketing.
At rival Media Contacts, UK MD John McLoughlin is predicting radical change in the shape of the agency over the next few years as it diversifies its income streams. He echoes Johnston’s point about creativity — Media Contacts already has a creative function in Brazil — and points to its mobile capability, increasing work with data and involvement with ad networks. “We’ve also taken over DM agency Archibald Ingall Stretton, so we need to shake out an integrated proposition because some clients want everything under one roof,” he says
It’s this diversification that Walmsley thinks will protect digital media agencies from the encroachment of their offline counterparts. “Big media agencies think they’re catching up with us, but all they see is the spots and space, not the breadth of what there is,” he says.
All these forces are having a significant effect on interactive agencies. Add to this the continuing recruitment and retention crisis, which is pushing up overheads, and the industry is expecting consolidation to continue, particularly in the middle ground. Lateral’s Bains foresees a world with a few big agencies, lots of small ones and not much in between..
According to Results International senior partner Andy Collins, there are two main reasons why M&A activity will continue during the next year. One is that private equity is still very active in the market, leading to the formation of sizeable multi-functional agency groups along the lines of Creston or Engine, aiming to service the desire among clients for a one-stop shop. The second is that there’s a lot of interest from overseas buyers, particularly in the US, who want to expand their operations into Europe
And if there is going to be a significant downturn, Collins offers a warning: “2009 is going to be a telling year, because the rate of growth of online expenditure is slowing. Agencies need to wake up to the fact that it’s not just about top-line growth; they’ll have to think about the bottom line too. Pure-play digital agencies need to tighten up their business practices to prove they can make a profit, and it will be a struggle for some agencies.
Others in the sector, such as LBi’s Taylor, are more blunt. “No one really has a sense of what a well-run company looks like in this sector, in margin terms,” he says. “It’s hard to make money in our business. The rate card is still low, the cost of sale is still high, and costs are higher because of the higher skills base. So I think there’ll be more consolidation, but that’s healthy.”
How the guide works
The Top 100 Interactive Agencies 2008 lists the UK’s top 100 digital marketing, design & build and technical agencies. For this ninth edition we’ve made a major change to the way agencies are ranked.
This year we’ve ranked agencies on the income they earn from digital media activities in the UK, rather than their turnover. For the purposes of the Top 100, income is money that agencies retain from clients after any bought-in third-party costs, such as media, production or hosting, have been paid. We believe this is a better indicator than turnover of what an agency’s digital expertise is worth, and is line with the practice of others like our sister Centaur publication Design Week.
Agencies supplied information to us online, another first this year. As with previous editions, we asked them to provide financial information from their most recent full year that had been audited. Finance directors were required to sign off the figures and confirm they understood our definition of income. This information was checked at Companies House and in discussion with each agency so that, to the best of our knowledge, it represents income from interactive operations in the UK for the year stated.
To enable comparison of agencies within each of the three disciplines, we’ve also ranked them by income within their category. We still treat media planning/buying agencies separately and these are ranked by their gross billings. Agencies chose for themselves which of the four categories they feel best describes the largest part of their business. This doesn’t mean this is their sole area of business, of course, and the business splits in each profile indicate their range of operations.
Some agencies are unable to submit income figures due to the 2002 US Sarbanes-Oxley Act (Sox), which makes senior executives of public companies personally liable for false or misleading financial information put out by their company or its subsidiaries. As a result, many agencies owned by multinational groups still decline to provide figures for these rankings.
Where we believe an agency is big enough to have been ranked had they submitted figures, they’ve been included in their own unranked sections. Six years on from Sox and with digital such a strong growth area, it’s increasingly anomalous that information isn’t made available. Nevertheless, we applaud agency FDs who are trying, and welcome some significant agencies back onto the table this year. nma’s ones to watch includes a selection of interactive agencies that didn’t make the cut for the Top 100 table but which we think deserve an honourable mention. We also ask entrants to choose the agency (other than their own) whose work they most respect, and which individual in the new media sphere they think had been the most influential over the past year. The results appear below.
While the utmost care is taken in compiling these tables, they can ultimately only be as reliable as the information supplied to us by the agencies themselves and signed off by their finance directors. nma would especially like to thank agency selection specialists AAR and marketing business consultancy Results International for their help in compiling this year’s guide. All editorial decisions, however, are nma’s own.
Most respected agencies
Judging by the way agencies voted this year, Poke is the digital agency that other agencies respect the most. This means Glue London is no longer top of the table for the first time in five years. In a surprise result, non-digital specialists such as Fallon and Crispin Porter have crept onto the table.
| Rank | Top 100 | Agency | UK FEE INCOME FROM DIGITAL |
| 1 | 44 | Poke | £4,312,444 |
| 2 | 4 | AKQA | £25,518,442 |
| 3 | 29 | Glue London | £6,193,010 |
| 4 | - | Lean Mean Fighting Machine | - |
| =5 | - | Crispin Porter + Bogusky | - |
| =5 | 29 | Profero | £6,354,691 30 |
| 7 | 18 | Agency Republic | £8,595,671 |
| 8 | - | fallon | - |
Most influential people
We ask agencies to vote for who they thought had been most influential on the industry in the last 12 months. Poke’s Simon Waterfall narrowly pipped last year’s winner Wayne Arnold. Poke’s consistently respected output, as well as Waterfall’s evangelising for digital while president of D&AD, no doubt helped him win the respect of his peers.
| Name | Title | Agency | |
| 1 | Simon Waterfall | Creative director | Poke |
| 2 | Wayne Arnold | UK MD | Profero |
| 3 | Mark Cridge | CEO | Glue London |
| 4 | Iain Tait | Partner | Poke |
