To oversimplify, the relationship between these two entities has generally gone something like this: The traditional agency defines the brand, while the digital agency brings it to life on the web. Depending on the client's desires, the traditional agency's involvement in digital work can range from basic strategic input to complete creative oversight -- where the digital shop essentially acts as a production partner. However, as digital shops continue to make brands relevant in non-advertising-like spaces such as iPhone apps, Facebook and Twitter, this relationship has gotten messier as the traditional agency's role in this work becomes more and more unclear.
Traditional agencies are now furiously trying to correct that. Many of these sleeping giants have woken up and realized that although digital represents their best growth opportunity, they are way behind in terms of having the resources to deliver. Nonetheless, they are determined to forward-sell their way back into the conversation. As Bob Greenberg, CEO of R/GA, noted a couple months ago, traditional shops are "able to leverage their more senior client relationships to win digital assignments even while they lack true capabilities. In these cases, the client will pay the cost of agency transformation and a learning curve, rather than immediately reaping the benefit of the power of digital."
I think Bob (as usual) is on to something there. While traditional agencies often bring formidable strategic and creative resources to the table, they're just as often lacking when it comes to essential disciplines like user-experience design, digital production and optimization. And when traditional agencies bring in those same strategic and creative resources for digital work and "outsource" the rest, their clients are the ones who lose. Why? Because things like user-experience insights need to help shape creative concepts. Development realities need to inform design. SEO strategy needs to influence copywriting. These things shouldn't come later. They are not "steps" in the process or line items that can be bid out during production. And without a plan (or the resources) to incrementally optimize the work, an agency can't take full advantage of the medium to begin with.
These things are built into most digital agencies' DNA. With traditional agencies, not so much. At least not yet.
If you asked me where traditional agencies have the most digital credibility today, I would point to the areas of campaign-specific microsites and banner ads. That's not terribly surprising, because these things are the closest to what we've always called "advertising" and the least complex from a development perspective. Get a couple good Flash guys who can dance to the tune of the creative team and you're in business.
So the real question becomes whether most traditional agencies can (or will) go any deeper than that. While our agency does plenty of microsites and banners, the digital space offers many other incredible possibilities to build brands and businesses: product and company Web sites, e-commerce, CRM programs, SEO, gaming, paid search, social media, apps, widgets, etc. Again, not surprisingly, most of these tactics remain primarily within the domain of digital agencies because of the myriad development resources required. As the complexity of digital solutions increases, this gap is set to become even more pronounced, because in-house production capabilities will become even more critical as a core digital offering. Without serious production chops, agencies will find it harder and harder to compete for digital dollars.
Interestingly, many digital players that famously began as production firms for traditional agencies -- Barbarian Group, EVB, Big Spaceship et al -- appear to be evolving into full-service agencies themselves. At the same time, traditional agencies are scrambling to beef up their digital capabilities. So who wins this race to offer the complete package? Speaking as someone who's been through a transformation or two on the way to becoming an all-digital agency, I believe it's a far easier task to augment a digital shop with strategic and creative resources than it is to transform the structure and business model of a traditional agency -- especially when you're talking about a large, multinational, traditional agency. Then again, I'm obviously biased.