Will independent digital agencies thrive?

By Kapil Ohri , afaqs!, New Delhi | In Digital | May 11, 2010
Digital agencies which are not part of any global advertising networks have had a decent performance so far. How big can they be just on their own? afaqs! explores

Last week, Prasanth Mohanachandran, ex-executive director, OgilvyOne and Neo@Ogilvy and Karl Gomes, ex-national creative director, digital, Rediffusion Y&R announced their partnership to start a digital agency named AgencyDigi.

The agency will provide both creative and digital media planning and buying solutions and offer a range of digital services, such as display advertising, mobile, search and social media marketing.

AgencyDigi is another entrant to the world of digital advertising agencies which is constituted by two leagues. One league is represented by independent digital agencies, which are not affiliated or co-owned by any of the global advertising and marketing services networks such as WPP, IPG, Omnicom, Publicis Groupe, Havas Media and Aegis Media. They are usually managed by entrepreneurs, and in some cases, funded by venture capital firms. Interactive Avenues, Media2win, Webchutney, Hungama Digital, BC Webwise and Pinstorm fall in this category. AgencyDigi will be part of this set.

The other set consists of digital agencies (or digital divisions) is represented by advertising firms which are affiliated or co-owned by global advertising and marketing services networks. For instance, OgilvyOne and Quasar are related to WPP. For the record, Quasar started as an independent agency but later sold its majority stake to WPP in 2007. Tribal DDB and OMD Digital are associated with Omnicom; Solutions Digitas with Publicis Groupe; Media Contacts with Havas Media; and Isobar with Aegis Media.

Ironical to traditional advertising space --where ad agencies backed by global ad networks are more successful - independent digital agencies have performed decently well so far. For instance, as per an industry estimate, some of the full service independent digital agencies have crossed revenue figures of Rs 30 crore in the last financial year where as many of the network agencies in the digital space have failed to cross annual revenue of Rs 15 crore.

One reason that industry observers attribute to this trend is that in case of traditional agencies, the advertiser often gives first preference to the Indian partner of the global aligned network or agency, while in digital space, this rule is not followed strictly.

Besides, the traditional agencies are often blamed for not taking their digital business seriously as they do not see it as a major revenue source. In such a scenario, advertisers often opt for independent digital agencies which can provide better digital media solutions, irrespective of the ad network affiliation.

For instance, globally Dell and Unilever's Lux and Sunsilk are handled by the WPP agencies. However, in India, both the digital duties of both these brands are handled by two independent Indian agencies - Interactive Avenues and BC Webwise, respectively. While Interactive Avenues handles both creative as well as media for Dell, BC Webwise only handles the creative part of Lux and Sunsilk's digital account.

Many a times, brands prefer to have more than one agency in its roster one of which is the network agencies and rest are independent Indian agencies. For instance, Lenovo which is handled by OgilvyOne also uses Media2win for media planning and buying. It also has an independent agency Position2 on its roster.

Similarly, most of Max New York Life's digital requirements (creative and media) are fulfilled by Media2win; instead of the digital division of Euro RSCG, the agency that handles traditional advertising for the brand.

The appointment of an independent digital agency by an advertiser is also related to the significance of India as a market, and the importance of digital marketing in the overall marketing mix of the brand.
"We have observed that if India is a significant market and digital marketing is an important part of the overall marketing mix, advertisers prefer to hire an independent digital agency," says Anjali Hegde, vice-president and co-founder, Interactive Avenues.

Companies related to telecom, information technology, automobile and banking, financial services and insurance (BFSI) sectors usually prefer independent digital agencies.

Interestingly, even if an advertising account is officially being serviced by a globally aligned agency or network-owned digital shop, in some cases, independent digital agencies still get a chance to serve the account (unofficially) through a practice called 'side door entry'.

Here, the digital agency on record (preferably network-owned) outsources some of the work to an independent digital agency; however, the latter is not permitted to disclose the fact of working on the account. As per an industry estimate, some large independent digital agencies earn up to 25 per cent of their annual revenue through 'side door entry'.

"Side door entry is more prevalent in performance or lead-generation led digital campaigns," Hegde reveals.

However, there is one area where traditional network-owned advertising giants don't like independent digital agencies to pitch in - digital media planning and buying.

"Usually, network-owned advertising giants try to retain or get hold of the digital media duties, while they are not too bothered about digital creative duties," says the owner of a digital creative boutique.
Often advertisers prefer to work with a network agency just for the benefit of media procurement. "The cost of media procurement goes up if an advertiser appoints different agencies to purchase ad inventory for each medium separately," says Manish Vij, co-founder of the interactive agency, Quasar in which WPP group owns a majority stake.

However, many in the industry feel that this scenario may soon change. The rationale is that as big global advertisers embrace the digital medium and increase their digital ad spends; there will be pressure on their Indian arms to route money to digital. This may lead their traditional AoR (agency of record) to beef up their digital capabilities, and try to gain or retain the digital duties of brands as well. Once network-owned traditional agencies become digitally strong, there will be chances that advertisers may keep the digital duties inside the network agency.

"There might be a situation when an advertiser could risk diluting the brand thought in case it opts for an independent agency for the digital business. Besides, brand managers also find it easier to deal with one agency than multiple ones," says Vij.

In such circumstances, it would be interesting to watch out whether independent digital agencies make it big on their own; or get acquired by big ad networks such as WPP, Publicis Groupe, Omnicom or Aegis Media.

© 2010 afaqs!