Digital went mainstream and beyond this year. The consultancy and service agency groups in the field grew in number, matured and diversified. Clouded by descriptors old and new, clients seeking creative solutions have sought advice from specialists in digital media, interactive strategy, multimedia, Web design, not to mention convergent and emerging media. As consolidation saw smaller players acquired, new markets and technologies threw up even newer consultancy opportunities for just about anyone that wanted a piece of the action.
Not only has the on-line rush generated accelerating demand for Web-related design from non-digital clients, it has bred a new generation of clients with ambitions to operate wholly within the digital space. This year’s much-documented surge in dotcom start-ups and Internet incubators helped to create an overflow of design work for even the most digitally uninclined consultancies. The long-term future of many such design groups in the digital sector will now depend both on their own efforts to adapt, as well as market conditions.
What was design’s “digital new school” a couple of years ago has grown up, and is already being renewed. The well-known multimedia design players have swelled from small- to medium-sized Web shops to large (over 100 staff) international groups, offering a complete range of Web, TV, Wap and other screen-based communications services. This has left more room for smaller breakaway consultancies and creative hotshops to flourish. Many predict this polarisation will continue.
On the other hand, traditional specialists in identity, print and retail have attempted, with only modest results, to offer digital media services to their existing clients. A small number of pioneers plan to set up standalone interactive networks or be repositioned completely to fill the vacuum in digital brand expertise.
Money has poured into the digital arena from clients and the global service agencies this year, particularly in the US. Morgan Stanley Dean Witter predicts US spending on Web commerce will grow by 67 per cent per annum for the next three years, reaching £300bn by 2002. Figures for UK client spends are harder to come by.
The giant media networks have seen continued consolidation, while client mergers and acquisitions have soared. Consultancy mergers have been led by the digital media sector, and more we are told are in the pipeline. The race among UK-based groups is now on for international expansion.Digital media consultanciesThe digital sector is still struggling to define itself both in terms of players and common practices. On the whole, dedicated digital groups can still be distinguished by a creative, business or technology leaning, although the largest players purport to strike an even balance of all three. Design and brand specialists now find themselves rubbing shoulders with increasing numbers of start-ups from post-production, advertising, management consultancy and IT backgrounds. All are vying for supremacy and, while many work with a range of client groups, there is a pattern of vertical specialisations to help separate out the bunch.
Vertical segments of digital media groups are:
Creative digital studios
Brand specialists (design/ advertising)
The new breed of e-business consultancies are aiming to replace advertising agencies, management consultancies, and IT consultancies as guardians of digital businesses and their brands. They also pose the biggest threat in terms of poaching staff from traditional consultancies and have the salaries to tempt even the most devout designer. US-based companies such as Viant, Scient and Sapient have produced rapidly expanding global networks and sensational projected turnovers. Expect further rapid UK expansion from the US interactive arena, too. In the UK, groups like Rubus, Entranet and Nucleus, have begun to challenge and emulate their notoriously aggressive (in terms of acquisitions) and fast-moving (in terms of turnaround times) counterparts. Rubus (formerly N-Vision) notably persuaded Fitch’s UK head of multimedia Steve Potts to join as its creative director (DW 26 May).
Digital Branding Groups
Despite the supremacy of UK Web design, a demonstrable lead in digital branding has yet to be demonstrated. There are few players which can claim to apply effective world class brand strategy to the digital environment. Producing new integrated on-line and off-line strategy is another grey area. Traditional design and branding groups such as Fitch or Wolff Olins have digital departments but do not seem inclined to match growth in the sector. Of the key branding groups, Landor Associates, FutureBrand Worldwide and Enterprise IG © have been similarly cautious. The initiatives of Siegelgale (repositioning for digital) and Interbrand (with its soon to launch international network), will have to be matched by other brand specialists soon if brand guardianship of the digital space is an objective. The unfortunate scenario has forced clients like BT design director David Mercer to openly bemoan the lack of digital media specialists able to mix design with communications strategy.
The recent Design Week Fee Income report (DW 21 July), reveals that while other areas of design tend to have levelled off, fees for digital projects have accelerated. This can be explained by factors including the swell of client money earmarked for digital media projects, and a general rise in consultancy rates. While pure Web design has been a relatively low-income discipline, a need to encompass strategy, technology solutions and interface design has demanded higher rates of consultancy fees. Client demands for digital projects has clearly outstripped the designer supply, which, coupled with software development costs, have forced rates up.
Consultancy mergers and acquisitions
Consolidation has continued within the digital service company niche, as US conglomerates such as marchFIRST, Proxicom and US Interactive have acquired design groups. US Interactive recently acquired Michael Wolff’s think tank The Fourth Room (DW 28 July); Proxicom bought and renamed e-business group Clarity IBD (DW 14 April) and MarchFIRST continues to hunt for a UK creative house to reposition. Fitch fell into the hands of Bates Advertising parent Cordiant Communications, with the private sale of its parent Lighthouse Global Network. Scandinavian groups have been busy expanding internationally too, with perhaps the year’s most notable acquisition being that of MetaDesign London by Icon Medialab (DW 7 January). A restructure of the merged group is set to be announced in October. Meanwhile, UK-based Pres.co and Foresight merged to create a 330 staff creative digital group, still unnamed.
A number of plans for floating digital media groups have emerged this year, notably those of Syzygy, financial services e-business group Entranet and TV specialist Static 2358. Static, which sold a third stake of itself to BSkyB, made the decision to postpone the flotation until the end of 2000, by which time it will be worth an estimated £300m. Shaky stock market conditions caused LGN to pull plans for flotation, opting for a private sale to Cordiant. The above groups have already outlined plans to open international offices (see below). This year’s influx of venture capital to digital groups is likely to see more flotations, announced to provide an exit route for investors.
While the global media networks such as WPP Group, Havas and Omnicom continue to piece together networks of consultancy specialists in different areas, there is uncertainty about their ultimate intent. Whether loose referral arrangements between network companies and their digital media groups are replaced with more formal structures remains to be seen.
The Havas group’s venture, which sees AMX-studios formalising separate arrangements with Andersen Consulting and Euro RSCG Wnek Gosper, could spell the beginning of a new trend (DW 4 August). Smaller digital groups, too, are now practising the network theory of collaborating with complementary businesses, pioneered from the US by groups such as Viant.
What seems unavoidable in the coming year is a shakeout of consultancies choosing to persevere with the digital game as client funding levels out. Consolidation is expected to continue, creating fewer key players offering digital design expertise. Whether the gap between the pure digital and traditional groups is filled is uncertain.
A polarisation of digital groups could see the larger, global networks such as Razorfish and Agency.com become more distinct from smaller creative hotshops with fewer corporate ambitions. If the US model prevails in the UK, small, sought after groups will soon command higher fees from content-rich Web work, particularly with the arrival of broadband services this year.
An extreme scenario might follow the example of New York-based group Kioken, which famously sacked its client Sony in May. The growth of creative-led studios will spearhead visual quality in digital design.
As the race for supremacy in the international arena, interactive TV, broadband Internet and digital branding all spiral, existing design consultancies will need to make some big decisions about their own place in the digital future.