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Article Discussion: The Future of the Digital Design Agency

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John Locke is a SEO consultant from Sacramento, CA. He helps manufacturing businesses rank higher through his web agency, Lockedown SEO.

Recently there’s been a lot of discussion about the future of digital design agencies.

In recent months, consultancy Adaptive Path joined the Capital One team.

The partners at Teehan + Lax joined Facebook.

The general feeling in the industry is that large companies now understand that design is valuable, and they are looking to build internal design teams.

This isn’t just happening with the largest agencies either. I saw this happen last year when the small Sacramento studio Lofty Word became the internal design team for a product company they had been working with for some time.

Greg Storey, former partner at Happy Cog, sat down a few weeks ago to talk about the future of web design agencies on the Hustle podcast. Later, Storey wrote a follow-up piece on Medium.

Here are some interesting points that I picked up on.

Web design client services are far from dying, but they are evolving.

Large companies not only have the budget to hire digital agencies, but are now better acquainted with how to implement web design internally. When agencies do have a relationship with a client, the trend is they are now having to prove themselves on a more regular basis. Many large projects (six figures or more) are now being broken up into stages. Greg says this is to determine culture fit before making a large investment. [Personally, I think this is a good idea for both parties.]

Internal employees still have a greater overall cost than a consultancy, so the understanding of design at these companies has deepened. Large companies also want to own more of their projects than in years past. Companies used to employ agencies to make small changes. Now, these day-to-day changes are often being filled by company staff. The salary ranges for these internal employees seems to vary quite drastically, but is often lower than the mega-agencies.

Small web agencies will feel the shift in the climate a little, but big agencies with large payrolls will be deeply impacted.

Greg says in the past, web agencies had a “impossible space” between 25 and 50 employees, where you had to make a decision: either grow as quickly as possible to 50 employees or quickly retreat back to 25. Today, he says the treacherous gap looks more like 15 to 75 employees.

They reference a report that says the web industry is a 21 billion dollar economy, with 125,000 studios and 225,000 employees. Of those, about 75% are shops of four people or less. 93% of shops are ten people or less. Large agencies do not control as much of the overall landscape as they did in the past.

The projections show that the revenue of all web design will nudge up incrementally in the next decade, while the number of competitors will nearly double.

Differentiation will be the key to survival for digital agencies. Finding a vertical to specialize in is paramount to ongoing viability.

Enterprise design is still archaic in some respects. Greg says they gave up pitching in Boston because companies would decline (even after their firm won contracts!) because their agency did not have an local office down the street. New York and Santa Monica are also mentioned as being notorious for cities that need local offices to appease decision makers.

This may help explain why even inside of the tech culture, there is such a reluctance to build distributed teams. There is a lot of trust that builds up when people meet face to face. Though the tools for managing remote teams and building culture have evolved rapidly. Distributed teams will eventually be normal, the only question is how long.

Studios like Teehan + Lax are shuttering client services and joining established product companies because their work will have a wider impact. Perhaps it eases one burden, as running any web agency takes a massive amount of time and effort.

These industry changes mean that agencies might have to let people go and find their fortune elsewhere once they reach a certain point. Two reasons for this are: salary gets too high to be practical and career advancement only goes so far. There will be time limits on how long team members stay on teams over the next ten years.

Rates will continue to be competitive for the consumer, unless you are specializing and differentiating your studio or agency.

There were a few articles that came out around the same time that this podcast did. A Matthew Milan article posited that there’s never been a better time for a design agencies to differentiate themselves than now. Large companies are aqui-hiring design talent, because there is a shortage of senior talent with the experience they are looking for. This is because the web design industry is only two decades old.

External design agencies have an advantage by being outside eyes. They work in a frame of mind where design is all they focus on. They are not bogged down by internal politics or methodologies.

For digital agencies, their design thinking, perspective and capability is where their value lies. Once you’re acquired by a company, you have to assimilate, Borg-like, into their culture. Outside perspective is no longer possible.

This sentiment was echoed in another article by Aaron Mentele, who highlighted how much compromise goes in to design decisions (or lack thereof) on an internal team. Design firms have the advantage of being outsiders, not affected by internal thinking. Their core offering is to be assassins, targeted on solving problems, not simply trudging through the day-to-day paces.

Tobias vanSchneider, product Design Lead at Spotify, pointed out that the traditional agency model must evolve to survive. The old ways of doing business are leaving increasingly less margin to work with. Tobias believes part of the problem is a lack of definition of culture inside agencies. Talent is seduced by product companies because too many agencies fail to answer “Where are we going?” and “Why are we doing this?”

VanSchnieder believes the agencies that will survive the next decade are those that define what type of work they want to be doing, and what type of clients they want to help. Design studios that take on the values of each of their clients, like a chameleon, will fail to differentiate themselves, and find it hard to compete in the changing landscape.

In Greg Storey’s follow up article, he stated that agencies that are able to work with other teams will be able to survive the transition coming over the next decade. He cites and as examples of teamwork gone awry. Enterprise level clients will have different teams with lots of moving parts. Communication will be a huge factor in success.

Storey’s article also listed spend priorities for B2B and B2C companies over the next year. The priority list for these companies was in this order: content marketing, social engagement, mobile optimization, personalization, and conversion.

What I take from all of this is the design industry is alive and well. Agencies will have to find their own individual voices to stand out in a growing crowd. The stage is set to see who can take advantage of the changing marketplace, and who will be mere commodities.

Avatar for John Locke

John Locke is a SEO consultant from Sacramento, CA. He helps manufacturing businesses rank higher through his web agency, Lockedown SEO.

2 comments on “Article Discussion: The Future of the Digital Design Agency

  1. A lot of great points! One thing you didn’t mention that I think is also key to the future of digital agencies — we’re seeing a large increase in the number of digital agencies moving from project-based billing to subscription-billing. The benefits of recurring revenue far outweigh the antiquated billing model and include increased income, increased customer satisfaction/loyalty, and increased in creative & innovative solutions for clients. Curious if you came across this in your own research?

  2. Hi Kate:

    Great question. I think a robust agency model has a mixture of project-based billing, and retainer billing. Recurring revenue is a foundation for cash flow that allows agencies to make payroll and fuel steady growth. Project, milestone, or other traditional billing is also going to remain for the foreseeable future.

    Here’s why I say that.

    Subscription billing makes sense when there is a lot of ongoing work, upgrades, or just a really long and time-intensive project. But it may not make sense if there is a hard deadline for a project that is looming, or if there needs to be a big push on a site or product launch.

    Both types of billing have their place. Every agency is slightly different though, and you have to find your sweet spot of what works for your team and your clients.

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