Given the task, it’d be a challenge to properly assess the true size of the digital services industry in Australia. The reason is the complexity of services, agency models and market positioning distorts your ability to accurately track digital spend by businesses.
For example, a digital agency may as part of a brand strategy, launch a digital campaign for one of their clients. The agency will design and build it and in their record keeping, they may mark the work as revenue generated by digital services work. But what does this actually mean? Does it mean a website was created? A mobile app was created? Were assets for use on digital channels like a video or pictures created? A Search Engine Marketing campaign was run?
Not being able to always accurately distinguish this also blurs the lines as to how much revenue specific digital services account for of the total industry value. E.g. how much does SEM account for? How much does the creation of mobile apps or websites account for?
All in all though, there is some fairly reliable data out there on the actual size of the digital services industry, however this data is often spread out across multiple individual reports for each service line (if at all) and ultimately requires a professional analyst to stitch together the findings after the fact to see what the whole landscape looks like from 30,000 feet up.
In Australia alone there are more than 3,000 independently registered businesses offering web design and development services to clients in Australia – which is only one of the digital agency range of services on offer. With revenues of nearly $1bn, web design and development in an equal market share scenario would each only make $330,000. This means there is a great number of mouths to feed and when the pie is only so big, each new operator in the market makes it that much harder for anyone to get a decent piece and build up momentum – which is where specialisation and breaking out into niches comes in (aka fragmentation). This is also why it is no surprise that according to IBIS World reports there is no dominant market leader in the digital agency industry – which our experience agrees with. Infact, on almost every pitch for new business our agency is involved in we encounter new and unfamiliar digital agencies (or so called).
It is clear that in 2016, the digital agency landscape is vast and fragmented! We will dig a bit further but first let’s take a look at a few other industries that most people are familiar with to put the scale of fragmentation of the digital agency industry into perspective.
In the domestic Australian market there are around 93 registered businesses providing services. The revenue made by this industry is around 14 Billion. So even if each airline operator had equal market share, they would be generating revenues of more than $150,000,000 each. Fair enough, costs may be fairly high in the Airline industry and it may not be easy to operate a profit with revenues of that size, but there is a lot of potential for each operator. Qantas and Virgin Australia are the two market leaders in the domestic Australian air travel market.
The Telecommunications industry in Australia has around 1,350 independently registered businesses and an industry revenue of $41 billion. But to even the score as per our previous example (airlines) if you divide the revenue by the number of operators each operator still is left with around $30,000,000. Singtel Optus, Vodafone and Telstra are noted as market leaders and we are willing to wager that almost everyone will have heard of these businesses due to their scale and prominence in the market.
The general insurance industry in Australia has approximately 115 registered businesses and industry revenues of $58 billion. In an equal market share scenario each operator still generates more than $52,000,000. In the insurance industry Alliance, IAG and Suncorp are notable and prominent operators.
In all scenarios above, there are substantial revenues to be had by each operator in a perfectly equal market share example, when compared to web design and development for example. Another common trait is that the number of competitors was generally fairly low in comparison to the digital agency industry. On top of this, they each had clear and prominent market share leaders that customers could purchase services and products from. But what does all this mean for customers looking to buy services from these industries? In our view, it means buyers have clear authorities (market leading brands) that communicate (advertise) with their target audience (buyers) regularly, across multiple touchpoints and at different points along the user journey from preconception of their need to account growth and relationship management (front of mind) once fulfillment has been made on the service or products that were commissioned. The provider choice for customers and navigating the competitive landscape is fairly simple and clear because of the fact that there are notable market leaders who shout the loudest and consistently come good on what they preach (delivery of their service or product).
Getting back to the digital agency industry it is clear that in comparison to other well known industries ours is a lot more fragmented and that there are a lot of small to medium fish around without any real dominant players in the market.
What does this mean for Marketers?
One fact that stands out is that having so many providers to chose from, is confusing and difficult for buyers to navigate. This is very much in line with the feedback from our clients based on their own experience navigating the landscape of providers.
Because of the relatively low barriers to entry, similarity in the skill sets and the extremely close intertwining between each individual service type (e.g. web development and SEO) many different specialist agencies will often try to (and claim that they successfully) offer services that are ultimately outside of their core competencies which leads to poor experiences for either the customer (if the agency is not equipped to provide a best in class solution) or the agency (if they go out of their way to try to deliver a to-standard outcome, they could end up losing money on the job) – both being outcomes that everyone involved would rather stay away from. Agencies do this mainly to try to maintain their direct relationships with clients in order to secure themselves as the providers of their core services when the client need arises.
But if creative agencies, branding agencies, digital agencies, communication and advertising agencies, content agencies and SEM agencies claim that they can provide each others services in some way (e.g. can all create websites), this causes additional confusion for buyers when trying to identify the partner who will with the greatest probability get them the best outcomes for their investment.
What buyers of digital services need to realise and keep in mind when searching for a service provider is that to ensure the most professional process and end product outcomes requires selecting a partner who has demonstrated and intimate knowledge of their service. A creative agency is foremost an ideas company, not a digital technology solutions specialist.
They create the big ideas that engage audiences, not the platforms and technologies that their big ideas get featured and brought to life on (e.g. websites or mobile apps). A branding agency forms the identity and personality of a brand or business. They too are not technology solution specialists. For a closer linked example, a web agency designs and builds websites. They do not necessarily have the skills or expertise to offer SEM services like PPC (pay per click) and SEO (search engine optimisation) or even detailed analytical services like CRO (conversion rate optimisation).
Each specific offering entails a huge amount of detail and experience as well as very specific and specialised skill sets and operating processes in order to deliver professionally managed best in class solutions.
To illustrate this with websites, there are a full range of code languages (e.g. PHP or .NET), a variety of CMS’s (content management systems) like WordPress, Magento, Shopify, Joomla and web technology frameworks (e.g. Laravel) that each have their own set of rules, skill and experience requirements to work with. To add to the complexity of navigating the digital landscape, some web agencies only offer solutions using a very specific technology set e.g. WordPress only.
How to choose the right digital services option
The answer is that without knowing exactly what you are looking for and what your specific needs are, navigating the digital landscape of providers and solutions will be an extensive learning experience in itself. Which is why, incidentally, having solution providers to talk to is an essential part of the chain. Without guidance or experience, you are likely to get led into a decision that is ultimately not best for your needs or fail to get an outcome that is up to scratch from a quality perspective because the skill set fell outside the chosen vendors core capabilities and the third party supplier being used stuffed up the delivery.
- Provide clarity. As a marketer or other digital service seeker be very clear and specific on what your needs are when searching for a digital partner to provide you service.
- Educate yourself. Spend the time to understand your options and the complexities and processes involved with the service you are looking for, even if you have previously purchased the service in the past.
- Find the best. It is a highly fragmented industry. Search around and seek out digital agency partners that are the best at providing the service you are after to ensure you a best in class outcome. If working with a broader type of agency e.g. an advertising agency, dig into their specific digital capabilities and how they deliver their service. You may find they use smaller agencies like ours as their service delivery mechanism, or maybe a wholly owned subsidiary or maybe an in-house team. Look into their delivery mechanism and past work to ensure the partner you are considering is able to confidently and reliably deliver your desired outcomes to best in class standards.
- It is complex. When it comes to your digital assets don’t simply go with the guys who make it all sound simple and easy – chances are there is a lot of detail missing that will bite you in the butt as the project progresses and will ultimately ruin the whole experience for you. These services and the various solution options are complex and you need to make sure you get what is right for you. Seek to understand the complexity and work with teams and people who genuinely care about what you are trying to achieve and in the long run it will serve you greatly.
- Have fun. Yes you have a website related plan that needs to be addressed and an upcoming campaign that you want to have the website ready for – all of this is very stressful and important. But the consequences of decisions that lead to poor use of budget or poorly performing end products are a lot less fun to deal with than finding the right partner to work with on your upcoming project. Enjoy the process of understanding who is who in the zoo so that you can have a great experience receiving your next digital service or product.
If you have a website, web application or mobile application that you need to create or do work to, get in touch with our team and we will most certainly be able to help you understand what is involved and guide you through the process, after all this is what we specialise in doing.