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Are agencies prepared for the coming digital storm?

The online advertising industry is in a frenzy with companies shifting more and more of their advertising dollars from traditional to interactive media. The change has sparked acquisitions with ridiculous valuations, talent wars, agency consolidations and agency transformations among the service companies, media outlets and technology vendors, all of which stand to gain from this shift. What many don’t realize however, is that behind this online pilgrimage rests a tsunami of work which the interactive industry and infrastructure is not prepared to handle.

Let’s put this into perspective. Over the past three years, a company with an annual media budget of $200 million increased its interactive advertising spend from 2 percent to 4.5 percent. Now with good results pouring in, they are debating whether it should represent 11 percent to 13 percent of their budget in 2008. For this company, this shift is not a big deal as it is just moving 5 percent of its budget to something that’s proven and is delivering valuable results. However, when you take into consideration that hundreds of thousands of other companies are undergoing this same shift, the numbers become staggering.

The initial reaction from agency folks is, “Hey, this is great news!” Not so fast. The reality is that – when the tidal wave hits – two things may happen. First, you may drown. Second, you may float and rise with the tide. The question you have to ask is, “Am I ready?”

Today’s reality is that clients want more of a digital focus and are looking to work with the big agencies to get it done. Why? First, they don’t want to manage multiple interactive shops on top of already managing traditional advertising agencies, PR firms and specialty players. Secondly, smaller shops don’t have a “farm system” in place to train young talent or the management infrastructure, methodologies and systems to drive quality delivery.

So, the answer as to who survives is the big firms, right? Believe it or not, there will be a huge amount of business than these big players cannot handle, which will create great opportunities for this second tier of firms. The question will be, can they handle the load? In most cases, the answer will be no. These companies have talented and creative minds (for example, the one-dimensional, creative-only folks) working but it might not matter if they don’t have the manpower to handle their business. These agencies need to fare well in the talent wars while also perfecting and automating the operational aspects of online marketing. This means they will need technology skills, delivery process expertise and global distributed delivery capabilities and experience that they simply don’t have at this time.

So again, it comes back to size, with the big business leads going to the big players. However, if the top firms cannot handle this entire wave of business and the smaller firms are just too small, what gives? The answer is scalability. The smaller firms that are able to scale, while continuing to evolve and improve both the level of creativity and the technical skills clients demand, will make the transition. The firms that stand pat will be squashed, or gobbled up by holding companies looking to create the illusion of scale – the latter of which is destined to happen and certain to fail.

For those who have made the commitment to scale and who have taken the needed steps, how do they know they are ready to commit to big business opportunity? Here is a quick test, comprised of a few questions that the big business will be asking.

ò “Those are very creative ideas, but could you show me what you have actually produced?”

ò “Did you do that yourself?”

ò “How long did it take, and how much did it cost?”

ò “Have you handled 20 or more of those projects per month for any one client, and can I talk to them to see if they are happy with your agency?”

The question for you will be, do you have the right answers? Those who do will be in a great position to take market share from the remaining agencies that show the slightest hint of hesitation.

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