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The days of easy growth are winding down as agencies encounter new challenges such as in-housing, large new entrants, and a shift in billing preferences.

We conducted research with digital agency owners and combined our findings with other trusted sources. This report highlights the key themes driving the industry and attempts to provide a clear picture of how the digital marketing agency landscape is evolving by detailing the major concerns and opportunities present in the industry.

Introduction

If you’re like most agency managers you’ve probably noticed the agency landscape changing more quickly over the last few years.

In the early 2010s it seemed almost easy to build a successful agency. Adwords, and Facebook ads let you target your client’s prospects like never before. Designing for the internet and smartphones was a new frontier that let you differentiate your client’s brands in an entirely new way. Inbound marketing was all the rage, and if you did it right you created a magical flow of seeming endless leads for your clients.

Now, targeted ads, responsive design, and robust inbound strategies are simply the costs of playing the game. Agencies are constantly being asked how they can do more for their clients.

This report will provide you with a better understanding of the various shifts happening across the agency landscape. Let it help inform your strategy and execution. It doesn’t look like it’ll get easier any time soon.

Executive Summary

Agency competition has grown dramatically in recent years and we expect it to continue throughout the next 3-5 years.

This increase in competition is due in large part to a few key shifts in the industry.

What do we think?

The first is that brands are adding marketing talent and they’re developing their own internal capabilities. This is putting pressure on agency revenue as multiple services are becoming redundant.

Second, there has been a shift from companies accepting retainer billing to project-based billing. This shift has made agency’s revenue profiles riskier as brands shop projects around to more agencies than they have historically.

Third, the days of just being present in the marketplace being enough to build a business are coming to an end. Brands are demanding specialists and as technological prowess becomes an even greater differentiator, we’re seeing the market shake out the less capable agencies.

Fourth, the large management consultancies are moving into the CMO suite. They already dominate the rest of the C-suite and they’re throwing their weight into marketing. They’re accomplishing this though strategic acquisitions and a number of large brands have already begun using them for their agency needs.

The agency world isn’t all doom and gloom though. The turbulence in the marketplace is providing opportunities for well differentiated agencies to take significant market share. We expect to see the industry consolidate somewhat from where it is now as technological barriers to entry grow.