Does the Industry Need Big Digital Agencies Anymore?

Production Shops Go Directly to Clients in a Threat to Middlemen

By Published on . 24

NEW YORK (AdAge.com) -- When Wm. Wrigley Jr. Co. dumped Digitas, Tribal DDB and Agency.com for a trio of smaller, production-centric digital shops last week, it did more than deal a setback to three global interactive agency networks. It raised the question of whether big digital agencies are being outflanked by leaner, faster, more-creative shops.

Those agencies and their peers routinely hire the likes of Big Spaceship, Firstborn and EVB -- the troika that swiped Wrigley -- to help execute highly technical creative projects the agencies dream up for global-scale clients such as the gum maker. Now those little shops are moving into direct relationships with marketers such as Pepsi, Microsoft, Adidas and Pernod-Ricard, and leading some to wonder whether the biggest digital players are becoming unnecessary, pricey middlemen.

And that's not the only squeeze going on. As old-line agency networks build better digital units, they're increasingly competitive with the bigger digital shops because they can offer similar scale. Case in point: Havas' Euro RSCG 4D's recent takeaway of IBM's digital account from Digitas.

These developments, to be sure, don't indicate the same kind of disintermediation that's gone on for traditional ad agencies. However, they do point to the intense level of competition for marketers' digital dollars and acts as a reminder that no one agency model is likely to dominate. That's cold comfort for the holding companies that have laid out big chunks of money for digital agencies in the hopes they'd become the solution much in the way BBDO and McCann were in a previous era.

Different structures
CEO-founder Michael Lebowitz said Big Spaceship is fast because it's "flat" and not organized around the traditional cascade approach, where strategy flows to production to design to technology.

"We're in a transitional phase where larger digital shops have huge infrastructure that some big clients need, and in a lot of cases [have] grown so large that they don't have the creative capabilities that we or our peers have," said Benjamin Palmer, cofounder-CEO of 70-person independent Barbarian Group. Last week Barbarian was the subject of talk that it was being purchased by Cheil Worldwide, the South Korean-based agency network partly owned by Samsung. Barbarian denied the rumors; a staff memo from Chief Operating Officer Rick Webb said the shop is looking at several options. Barbarian has had a mix of largely project-based work both in direct-client relationships and as a production partner to agencies.

Big digital agency CEOs acknowledge that budget-conscious marketers -- a group that certainly included Wrigley -- are going to be tempted to cut out the middle man if they think they can get the same quality of work. "I think the primary driver is cost," conceded Tribal DDB CEO Paul Gunning.

Mr. Gunning and his big-digital peers said that marketers who go that route risk getting what they pay for, arguing that, as companies invest more in digital, their needs in that area will require more service than production-centric agencies are equipped to offer.

"Being a standalone production-oriented company isn't going to cut it in this increasingly complex world," said Tom Bedecarre, CEO of AKQA, a 750-person independent digital agency with six offices globally. "Great shops like Barbarian and Firstborn will be pressured to do more services in more places."

Added Razorfish CEO Bob Lord: "If you want a company to do banner ads and microsites, there are agencies that can do that and well. But if you want a comprehensive experience, to bring your brand to life in digital -- it could be retail -- you want a company like Razorfish."

Big agencies still a threat
Mr. Lord instead thinks the real threat comes from traditional agencies with sophisticated digital sub-brands, as evidenced by IBM's move from Digitas to Euro RSCG 4D. John Kennedy, VP-corporate marketing at IBM, said Euro's "deep digital expertise" and "broad global footprint" influenced the decision to shift.

"We definitely compete more in the traditional area," Mr. Lord said. "My competition is those bigger agencies that have full-service suites." According to a Bain/IAB marketer study, most marketers use the same agency for online and offline creative and tend to be more satisfied with online than advertisers that use separate agencies.

Then there's the overarching question of digital strategy and understanding how individual projects fit into a client's larger picture, a capability still widely seen as an advantage big digital shops hold, owing to a relentless focus on ROI that comes from years selling big clients on an emerging medium. "We have the tools in place to watch that behavior and make conclusions, that's strategy," Mr. Gunning said. "The type of people Tribal looks for is strategic and big idea thinkers. It's a fundamental difference."

To some extent, AKQA's Mr. Bedecarre agrees. Wrigley's category, he said, is impacted by "cool and current" work for young audiences. "It sounds like [Wrigley was] shopping for creativity," he said. "They can because of the audience and the product, there isn't a lot of backend."

PepsiCo is another big brand leaning toward production shops. The soda maker recently tapped Brooklyn-based Huge to build a platform for brand Pepsi. With nearly 200 employees, the agency is larger than the digital boutiques, and was recently acquired by Interpublic Group of Cos., but it has a strong heritage in website development. Pepsi also dropped Arnell Group for Sobe and brought in Firstborn to lead digital. A review for an interactive agency for Amp might be another nail in the coffin for big digital. It's pitting Wrigley winner EVB against loser Tribal and two other agencies.

Production companies?
Execs of big digital shops continue to call these boutiques "production companies," which underscores their disbelief that they can pair that creativity with big-picture strategic thinking for clients. "Why are we still talking about the production structure, if everything else has changed?" asked Mr. Lebowitz. "Because we do production doesn't mean we're production companies."

The boutiques have a history of working with lead agencies -- Firstborn with Tribal for example, tBarbarian with BBDO recently for HBO -- to come in and polish or extend a creative idea into digital. From those relationships, lead agencies came out viewing boutiques only as highly skilled in executions, while the boutiques maintain that they did influence strategy in those roles, and picked up a few pointers along the way.

"We've had the good fortune of learning from our many relationships with big agencies," said Michael Ferdman, founder of Firstborn. "And we have been doing a lot of strategy and thinking and not getting paid for it."

Slowly though, agencies such as Firstborn and Barbarian have been staffing in new ways to attempt to build strategy muscle. Firstborn has brought on account planners and its first copywriter, and is considering adding a strategist with traditional agency experience.

"The natural growth has been that we have a client-service department," said Barbarian's Mr. Palmer. "We hired a person here and another there, and all of a sudden you see we're completely capable of handling a bigger client."

Nevertheless, Firstborn's Mr. Ferdman tempers recent direct-to-client wins on Wrigley and Sobe by underscoring how central work through lead agencies remains to his business. Relationships with agencies such as Team Detroit and Ogilvy are a key part of his growth strategy. "By no means am I interested in not having that balance," he said. "We still have a lot to learn."

And it's not the only one. "It's time for the big agencies to be much more nimble," said Seth Solomons, chief marketing officer for Digitas. "I think big, costly and slow is not something clients are looking for."

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