5 February 2009 | Jane Simms
The fast-moving world of digital marketing is changing almost daily, so how can buyers keep up? Jane Simms gives an overview of the sector
Digital agencies are springing up like mushrooms."Estimates suggest there are between 2,000 and 4,000 agencies doing digital work in the UK," says Juliet Blackburn, business director with expertise in digital at consultancy AAR. As well as the proliferation of specialist digital agencies over the past three or four years, traditional creative and media consultancies all claim to be doing digital work now too.
Digital is the most complex and dynamic area of marketing. It has many facets - the broadest splits are between creative, media and technical - and it is changing almost daily, making it one of the most challenging and exciting areas for purchasers.
So what is it like and what do you need to know if you take on responsibility for this category?
Staying ahead
"I've been buying digital marketing for five or six years and I still learn something new every day," says Matt Webster, marketing category manager - procurement at Virgin Atlantic Airways. "You're always second-guessing what's going to happen next and where your customers will be tomorrow, because what you are selecting agencies for today could be out of date by the time you've bought it.
"For example, YouTube, which has only been around for a couple of years, feels 'a bit old' now. Eighteen months ago, everyone was talking about Web 2.0, but that's passé now too. Customers moved to MySpace, flirted with Bebo and have since migrated to Facebook. To ensure you don't get left behind in trying to determine what the new thing will be, you need to select agencies who are at the forefront."
The problem is, all agencies would claim to be front-runners, and it is the buyer's task to sort the wheat from the chaff. This is no different from buying any category, of course. But what sets digital apart from other aspects of marketing purchasing is its heavy technical content.
Miles Mather, senior marketing buyer at Britvic, points out: "It doesn't matter how good and relevant the creative is; if you don't attract visitors to the website and convert their interest into sales, you're wasting your money."
So the ability to buy technical support, web design and build, search engine optimisation, website hosting and so on effectively, is as important as buying good creative and media. Indeed, Tina Fegent, a marketing purchasing consultant who has worked for advertising agencies and for clients, suggests: "In some ways digital is more aligned to IT purchasing than marketing purchasing, so one of the best ways to understand it is to spend time in IT purchasing."
But sitting down with the digital agencies is important too, advises Sarah Wright, procurement manager for digital and direct marketing at BT Group. "Buying digital can be daunting because of its technical content, but you have to go about it systematically. One of the first things to do is make a distinction between the creative aspects and the technical building blocks."
Technical know how
Wright has been buying marketing services at BT for more than three years, and has bought digital for most of that time, and prior to that she bought software. "Agencies try to wrap the technical stuff in mystique and bamboozle you with it. You have to spend time with them getting to grips with what they do, rather than accepting what they tell you at face value."
Mather agrees. "Agencies will talk about 'a project' and try to bill you accordingly," he says. "Get a handle on who is doing what, at what rate. You will be using the services of account directors, account managers, search managers and so on, as well as creative and technical people. There are no real benchmarks so you have to ask searching questions."
The skills and appropriate day or hourly rates are very different from those in more traditional marketing areas, says Webster.
"For example, the search engine optimisation person working on your account will probably be very junior and earn only half of what the flashy salespeople do. It doesn't matter who does the work, provided they do it properly, but you need to ensure you aren't over-paying."
However, adds Wright, junior staff can be rather expensive compared to their equivalents in more traditional direct marketing or advertising agencies - as it is a relatively new area, expertise comes at a premium. "But skill levels are not consistent from agency to agency - particularly as all the big agencies are trying to get into this."
And, as Fegent says: "The best staff are generally attracted to the smaller, dynamic, specialist digital agencies than those trying to bolt digital on. So believing you will get a better deal from a small agency because of lower overheads isn't necessarily correct."
Choosing between agencies specialising in different aspects of digital, and one that can service all your digital needs, depends on budget and the amount of work you do, says Webster.
But it is important to start from a media-neutral perspective, warns Richard Holden, a director of purchasing consultancy Marketing Supply Chain International. "Don't make yourself a hostage to fortune. You need to be in control of the agency. Look at the scope of work and capabilities you need now and might need in the future, then score existing suppliers against that. Only then go out into the market and look at best of class."
But Holden admits that in such a dynamic area of buying, digital agencies can bring valuable new ideas.
"One capability you might need in this area is thought leadership so ensure you're taking account of the most up-to-date thinking. You're likely to increase the scope of your work quite rapidly, so you shouldn't tie yourself into lengthy contractual commitments without get-out clauses. I saw a contract recently where an agency got a percentage of revenue that was obviously going to soar in coming years."
Supplier selection
Indeed, contractual considerations are also more complex. Mather points out many agencies outsource production, often resulting in a web of different suppliers. "Purchasers have to be very clear about where the risks and responsibilities lie in such situations, and ensure third parties can deliver on spec and on time, and that the appropriate liabilities and indemnities are accounted for."
Blackburn notes there are increasingly sophisticated planning capabilities among digital agencies, and clients' propensity to pay more for them. "In the past, their role was largely about implementation, but the intelligence they have built allows them to challenge the traditional agencies in terms of the planning and strategic advice they offer."
Wright confirms that digital agencies are wielding increasing influence at BT, driven by genuine market demand and by BT's desire, as a communications company, to be at the cutting edge of digital communications technology.
Rapid Growth
BT is not atypical. Online advertising spend growth is rapid - 38 per cent in 2007 - it's nine times faster than the advertising market as a whole, according to the forthcoming CIPS Guide to Digital Media. The Internet Advertising Bureau (IAB) estimates around 18 per cent of the total marketing budget is spent online. One explanation is because it is more measurable and accountable than more traditional forms of advertising and marketing.
"The commercial models are slightly different," explains Wright. "Traditional marketing areas operate on a rate card and retainer basis, but digital is increasingly pay-on-output, often with staged payments. There is scope for performance-related elements too. We are experimenting with search engine optimisation. With 'pay per click' the advertiser only pays when someone clicks on their ad, and we give the agency a revenue share from that. We're also looking at response rates from particular types of online advertising to determine the extent to which creativity caused people to buy. That's not easy, but it's easier than with traditional advertising, because there are tools to track the customer journey."
The development of tools and expertise by agencies and clients leads to a continuous improvement in practice and efficiency. "Because digital is developing so rapidly, and because you have to pay more attention to intellectual property rights, it keeps you on your toes and stretches you commercially," she adds.
Strategic role
The dynamism of digital, along with its relative immaturity, offers purchasers the opportunity to play a far more strategic role than other areas of buying. Mather says: "Purchasing people's deep understanding of digital, along with the closer relationship between measurability and sales, allows them to play more of an agency management role in this category."
Webster, who's been buying digital at Virgin Atlantic for two years and, before that, for three years at the BBC, has encountered none of the traditional tension often found between marketers and purchasers. "There's far less of the 'you don't know what you're talking about' attitude. We're all new to this area and trying to make headway by exploring the opportunities together." He advises others to immerse themselves in the category by spending time with agencies and by attending conferences. "By doing that, you can add value to your marketers by being one step ahead all the time."
Jane Simms is a freelance business journalist
More info:understanding digital guides for purchasers
Buyers new to the category are set to get more help. The forthcoming CIPS Guide to Digital Media provides useful information. And this month the Incorporated Society of British Advertisers (ISBA) will publish a guide for its members, Understanding and Working with Digital Agencies.
ISBA, in conjunction with the Institute of Practitioners in Advertising and law firm Lewis Silkin, has also developed a blueprint for a full-service digital agency contract, and offers a free legal helpline.
Mather, who chairs ISBA's digital purchasing group, is working on a series of standard questions for use in RFPs when bringing new digital agencies on board. The group is also developing benchmarks for measuring the effectiveness of digital media.
In addition, the Internet Advertising Bureau runs training seminars, information evenings and conducts research into internet advertising.
