Digital Agencies Less Profitable?

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Twitter and Skype just made executive moves at the top in efforts to take their fast growing, oft used businesses in the direction of profitability.  Both companies are moving past their infancy. The venture partners helping drive the strategy of these two exciting, brilliant tech companies are pushing for stronger, more “grown up” management.

This makes me think about digital marketing shops — other businesses coming out of the infancy stage.  Do big holding companies like IPG, WPP, Omnicom and MDC Partners cut digital companies more slack than traditional marketing companies? My bet is they do.   The young, filled-with-promise always get the benefit of the doubt. Plus, I’m guessing the financial people at the holding companies don’t quite know how to manage profitability of digital clients just yet.  Because digital is the fastest growing sector in marketing, profit blemishes are being masked.

Digital business people grouse that they don’t get a seat at the big person table when it comes to planning. Often, the “idea” is already cooked when the didge shops are brought in — the big expensive thinking complete.  What is left is the digital translation, a degree of digital creativity and execution… much of which can be performed by lower cost worker bees. If this thesis is correct, then the per capita payroll of a digital shop is lower than that of a full-service ad shop. This is why the profit margins are lower, why digital shops don’t scale past new business, and why they are not getting a seat at the big table. This will change, but will probably lag the pace of change at companies like Twitter and Skype. Peace!

PS.  RGA does not fit into this mold. They have strong highly paid talent throughout. They are the exception.