Marketing Digital Leagues 2008

Despite a difficult climate, digital marketing continues to record impressive growth as other media struggle, and agencies with broad skill bases and good ideas look set to prosper. By Becky Charles

As the shockwaves from the global credit crisis reverberate in all corners of the economy, marketers are feeling the squeeze. Digital agencies, however, are bullish about their prospects.

Despite the tough conditions, digital remains a strong growth area, and is propping up the media market. Internet adspend grew 21% year on year to reach £1.7bn in the first half of 2008, according to the Internet Advertising Bureau, propelling digital to a share of 18.7%, only 3% behind TV, which accounted for 21.7%. In value terms, online has grown by £2bn in three years, and is forecast to hit £3.6bn this year.

Some brands are investing as much as 25% of their budget in the medium.

However, the industry is not without its naysayers. At this month's Association of Online Publishers' conference, Sly Bailey, chief executive of Trinity Mirror, predicted a slowing of growth for the digital sector. Brands would continue to invest in digital, she said, but this investment had to be converted into profits or there would be significant casualties.

Over recent years, online has become a mainstream channel - and not just in terms of its budgets. A particularly strong performance at the Cannes Lions International Advertising Festival in June brought plaudits for outstanding creative to digital agencies including AKQA, Glue London and Poke.

The sector's buoyancy is reflected in this year's league table, with agencies Iris Digital and Syzygy reporting year-on-year growth of 198% and 188%, respectively. Nearly three-quarters of agencies have posted double-digit growth, with only a handful experiencing a decline.

While these figures are from the 2007 calendar year (or the most recently completed financial year), and therefore may not yet demonstrate the full extent and effect of the economic downturn, with such strong growth, digital agencies are well-placed to weather the gathering economic storm.

One prominent talking point over the past year has been digital's emergence as a vital channel for branding campaigns. Marketers are more comfortable with digital media, and are thinking more about how all the aspects of their activity can work together.

‘Digital projects are extending beyond the realms of a website to a more holistic, cohesive plan that encompasses digital advertising, viral and email campaign planning,' says Richard Baker, managing director of full-service digital agency Sequence.

Eve Ireland, online partnerships manager at British Airways, agrees. 'Over the past year, we have consolidated what we consider to be the digital basics - pay-

per-click, search, display and affiliates - to improve cross-channel integration,' she says.

The realisation that consumers view online as a whole entity has led many clients to consolidate digital work into one agency. McDonald's, for example, pooled all its digital business into Avenue A | Razorfish in April, having previously worked with several digital partners.

Digital agencies have also gained respect, and won accounts, on the back of their ability to collaborate with other shops and understand that part of a solution might lie in above-the-line or PR activity.

For Cadbury Creme Egg, for example, while ad agency Publicis came up with a creative idea, Clark, McKay and Walpole was tasked with digital activity including virals, mobile games and the creation of a 'GooTube' channel on YouTube.

The agency also worked closely with Focus PR to create a successful campaign for the launch of car brand Lotus' Evora model. 'Faceless' people (actors wearing blank latex masks) were placed at summer events to create buzz and intrigue, and the related microsite received 100,000 unique visits during the first two days of the campaign. AKQA, meanwhile, worked alongside Wieden & Kennedy and Mind-Share on Nike's 'Most wanted' campaign.

This stronger trust in digital agencies and what they can achieve means clients are keen to include them in strategic planning and afford them more influence at a higher level. 'Clients feel they need an agency that has its finger on the pulse, that is one step ahead and in a place to educate and advise,' says Juliet Blackburn, head of digital at the AAR.

The experience of Neil Miller, joint managing director of Avenue A | Razorfish, typifies this. 'Since we launched the agency more than 10 years ago, [until this year] we had met only three chief executives in our dealings with current and prospective clients,' he says. 'This year, we have met and worked directly with 12.'

To cement this position, many agencies have focused on bolstering their strategic credentials, recruiting planners and traditional advertising experts to help them gain the trust of clients and provide intelligent solutions.

Alongside this, agencies are also thinking more carefully about how to evaluate and measure what they do in order to prove ROI - something that is ever-more crucial as budgets are squeezed and financial directors demand greater accountability to justify marketing spend.

'There is going to be a far greater emphasis on return on investment and strategy, rather than just creative,' says Ajaz Ahmed, chairman of AKQA.

However, this raises questions about how best to quantify effectiveness online. While there are myriad ways to measure clicks and page impressions, there are still some variables that are not so well evaluated, and the industry must create strategies to address this.

The fact that digital agencies, by their nature, can prove their worth more easily than traditional outfits, will make them invaluable in the current climate, and many agencies are investing in measurement strategies.

The Group, an online corporate communications consultancy, is one agency planning to focus on developing its web metrics services and extending its online corporate reporting, while TBG London launched TBG Analytics in May.

iCrossing, meanwhile, has developed a prototype concept for measuring online behaviour for Channel 4's online game Bow Street Runner, based on involvement, interaction, intimacy and influence.

Ben Langdon, chief executive of Digital Marketing Group, which houses Cheeze, Graphico and Inbox, says clients are likely to spend less on marketing overall, but invest more in online because of its accountability.

'Digital agencies already have the capabilities to evaluate effectiveness, which puts them in a secure position and is one of the biggest reasons why an economic downturn is likely to favour pure-play digital agencies over traditional agencies,' he adds.

Martin Nieri, managing director, CMW, echoes this. 'Digital agencies are taking on more people with insight, data analysis and one-to-one skills, thereby increasing their ROI capabilities.'

A shift in spend away from other media also means that digital agencies can benefit from organic growth. 'A traditional marketing services agency has its ad business alongside digital, media buying, sales promotion, experiential and so on,' explains Langdon. 'If clients switch their spend from traditional advertising to digital within this set-up, they are effectively stealing budget from the advertising team that is part of the same company.'

Pure-play digital agencies have traditionally had to fight for work, which will equip them well for competing in a downturn. 'Specialist agencies will find themselves working harder and smarter, but probably not less,' says Jo Haggar, managing director, Glue London.

Iain Tate, co-founder of Poke, adds that digital agencies' in-house production capabilities, which allow their solutions to involve engineers, creatives and strategists all working together, means clients receive a more integrated digital experience. Digital agencies have the advantage of a more specialist team that might encompass digital planners, viral specialists, technical architects, and digital architects with highly specific skills that do not exist in traditional ad agencies.

Due to this wealth of digital-specific expertise, this year has brought increased recognition among brands that they are better off talking to a digital agency about digital work.

'Before, clients would just ask their agency to handle online advertising, and brief separate agencies for search, analytics, online planning and buying. Now they can get all that from one good digital agency,' says Ewen Sturgeon, chief executive of LBi. Recent work by his agency includes the 'Generation Green' campaign for British Gas, an environ-mental programme that empowers teachers, schools and their local communities to adopt green behaviour.

Nonetheless, traditional agencies are providing sturdy competition. 'Traditional agencies that have made digital intrinsic to their culture will have the edge in the long term,' says Mark Iremonger, head of digital, Proximity London. 'This is because of the breadth and depth of their experience and capability, which remains embedded in their DNA.'

Iremonger asserts that in 10 years' time, all agencies will effortlessly and fluently use digital within their creative and strategic thinking. 'Right now, we have a mixed bag. Specialist agencies are great for execution, but traditional above- and below-the-line agencies are stronger at strategy, insight, planning and conceptual creative,' he says.

In the past year, social networks have become an integral part of most brands' digital strategies and, despite traditional agencies getting to grips with some areas of digital, social media remains better served by specialist agencies.

Marc Giusti, creative partner at GT, notes that social networks have become an ideal platform for FMCG brands, which, until the end of last year, had been notable by their absence from digital media. 'At the end of last year and in the first six months of this year, nearly all our new business has come from FMCG brands,' he says.

Many agencies have noted a rise in clients requesting campaigns using social media to engage consumers, but as social networking has come of age and the flurry of excitement has died down, brands are realising that they need to think carefully about their activity and question whether the platform is right for them.

Mobile phones are another medium likely to become more important to marketers seeking to expand their digital presence, and this market has been fuelled by the 3G Apple iPhone and 3G handsets from other manufacturers.

According to CMW's Nieri, in-game advertising is also likely to prove an important trend. 'As ads become locally targeted, games can feature real-time promotions, which gam-ers love because it makes their play feel more real,' he says.

Search will continue to play a big part in digital marketing. Lucy Allen, managing director of LBi Netrank, is among those who have reported a big uplift in search over the past 12 months.

Despite the wealth of technological development, which will continue to keep digital agencies in demand, agencies need to beware: the business models that have brought them their current success are under threat. Ironically, this is a direct result of digital now being accorded mainstream status.

According to Andrew Collins, partner at market research company Research International, the growth of online spend is slowing from the 40%-60% of recent years to about 20% a year. The reason for this is that, having boosted their online spend allocation from 5%-6% of their budget to 10%-15%, it is unlikely that big brands will increase this share significantly. Those agencies that have concentrated on top-line growth, but not profit, will therefore find themselves in testing circumstances.

One option to help bolster revenues, already being exploited by agencies including Coast Digital, i-level and Web Liquid, is to offer consultancy services.

By providing consulting as well as back-room production, an agency can produce significant volumes of work, but also make money by charging an upfront fee - an invaluable resource during an economic downturn.

The tough financial climate means that 2009 might bring an increase in consolidation among agencies. Nieri believes that a difficult end to 2008 is likely to encourage smaller agencies to team up. Aqueduct and Lemon Foundation, for example, merged in June.

Nonetheless, Collins maintains that digital agencies are well-placed to ride out the downturn, and those with a turnover of £3m-£4m could be particularly attractive to private-equity buyers. 'Those with more online media planning and buying capabilities, and especially those incorporating strategic thinking, search optimisation and social networking, PR-focused search and blogs, remain extremely attractive investment prospects,' he says.

While digital remains an innovative sector, against the gloomy backdrop of an economic downturn, agencies will need to work harder to prove their value and create top-notch, joined-up activity, rooted in outstanding ideas.

Those companies that can fuse measurement and creativity with digital strategy will have an extremely powerful, offering, which will go a long way toward propelling them through financially testing times.

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