Last week I joined my friend and peer Anthony Armendariz on his studio’s podcast called, “Hustle.” For months we wanted to record a session on the future of the design agency. Wouldn't you know it, the day we scheduled to talk, the partners of Teehan + Lax announced they closed their studio to work for Facebook. Still reeling in shock, we hit the record button. This article is a follow-up to episode Number 13. Design, as a service type, accounted for roughly 25% of services provided, or roughly $5 billion in revenue last year.
No matter how you dice up the numbers, that’s a lot of Adobe subscriptions and opportunity.
Winter is Coming
On their website IBISWorld claims that there are “no companies with a dominant market share,” yet Sapient, for example — a well known player in the digital space — posted $1.305bn revenue in 2013. It’s not clear how the report’s author arrived at that conclusion. That said, there are approximately 125,000 “web design” related businesses in the United States with more than 222,000 employees. An overwhelming majority of “web design” businesses employ less than 10 people.
The number of “web design” companies is expected to grow at an average rate of 6% between 2014 and 2018. The number of companies is expected to grow at a faster pace than revenue than in the previous ten years. From 2004 to 2014 revenue grew at an average rate of 2% higher than the rate of businesses. And you can expect competition from foreign markets to increase in the near future.
None of this should be a surprise to anyone. Part of what makes our industry so attractive and potentially lucrative is the relatively low barrier to entry versus other business types. As more web design businesses spring up (in addition to those whom specialize in native apps) specialization and differentiation will be a key factor to longevity.
So, what can we conclude from this data? It’s clear that the design agency, client services, (whatever you want to call it), is far from dead or dying, but it is evolving quickly.
Do Great Work, Repeat
Back in 1999 I had to convince a board room full of television minded executives that the Internet was not a fad. It wasn't until AOL bought Time Warner a year later that they finally listened in sullen disbelief. In 2008 I had to walk a procurement officer through a proposal to design and develop a website. The document may as well have been written in Cyrillic because that’s about how little the person understood our vocation.
Ten years later our world is very different. Clients are reading our books, going to our conferences, and listening to our podcasts. This is a fantastic development, but there are ramifications on how studios conduct business. The client is getting smarter and therefore so are their expectations.
As part of their Interactive Design Agency Overview 2014, Forrester Research published a short set of recommendations for persons who hire creative services. In short they recommend:
- Conduct annual reviews of the digital agency for their industry insights, the agency road map, and evaluate the evolution of their capabilities and processes.
- Take agencies out for a “test drive” with a small project, before considering them to pitch larger projects.
- Look for a cultural fit just as closely as they do for capabilities to help reduce failures during the relationship.
If you can land a big gig and the culture is a perfect fit, good for you, but be prepared to have to work for the next milestone or two-week sprint.
Be Excellent To Each Other
Forrester’s report also hinted that a studio’s future success will hinge on their ability to work well with others. I wouldn't be surprised if this thought landed in their set of recommendations next year.
Do you remember the white-hot mess that was a brand new Target.com in 2011? Or how about the public fiasco and Teamwork posterchild known as Healthcare.gov? Yeah, that was amazing. As more and more businesses spring up and the need for differentiation drives specialization, expect to be asked to partner with another agency. As history has shown, a successful partnership does not come easily and requires practice. Militaries around the world get together to conduct exercises so that they can find out where the problems are before their services are needed for real. Client service businesses should look for opportunities to buddy up and tackle a problem or a project together.
Work with your peers. Rehearse working together. Create situations that require communications between your teams and mash your cultures together. This can be something as simple as going to an event together, inviting them to your team’s Slack, or take a Friday afternoon to tackle a design exercise. Doing so will help you to discover areas within your own practice that might need improvement. Assess where the there are problems and build upon the experience.
Run, Lola, Run
At the aforementioned Owner Camp retreats, I learned that a growing number of design shops are selling their services in blocks of time: anywhere from 20 hours to two weeks. This idea isn't new, design studio 31Three has been doing this for more than ten years, but the practice is becoming more and more commonplace. Call it what you want but the “sprint” is a form of retainer or subscription. The difference is now, the marketplace seems to prefer this type of transaction. It’s more compatible with in-house technology teams, easier to buy, and makes it possible to conduct a trial run before committing to a longer engagement.
Pay Attention to the Marketplace
According to a survey published by E-Consultancy in 2014, the buyers of “web design” services are primarily focused on the customer experience. Both B2B and B2C companies continue to search for ways to “offer a distinct and original voice.” The same companies were asked to rank their digital spend priorities for the year. The top five were (in order):
- Content marketing
- Social engagement
- Mobile optimization
No type of “design” was called out specifically, but it’s safe to assume that some amount of creative work is required to execute these priorities to a successful outcome- especially mobile optimization, which relates to the client’s question of “whether they should go down the ‘responsive’ route or not.” When faced with market priorities like this, stop selling “responsive design” and start selling “engagement design,” or “conversion design.” And find partners who can augment the skill sets necessary to provide what clients want.
Market demands are always evolving, but sometimes in title alone. Unfortunately our industry has a social popularity driven desire to come up with new names for the old things. I’m not an advocate for chasing the new, but if clients are looking for UX and you're insistent upon selling IA, then be prepared to lose opportunities.
We’re Not Dead Yet
The world still needs people to design things powered by HTML and CSS. It still needs web designers, and a lot of them. The design agency is far from dead and it will live long.
However, more and more professionals are joining the industry at faster pace than we’ve seen before. The increase in businesses will likely increase volatility and profit margins will decrease, but there is still a nice living to be had as data from the IBISWorld report indicates.
Clients may not always seek design services specifically, but what they are looking for still requires good design to succeed. Businesses don’t have to continually re-invent themselves, but, perhaps change the semantics of what they offer. Competitive businesses will also seek partnerships with other studios. Not only to help augment their skill sets but potentially make the studio more attractive to the marketplace.
As we contemplate the future of our industry it’s important to consider that it is still very much in it’s infancy. We only need to look at other industries to see that consultants and client service providers are a fixture in every vertical. Businesses will come and go, but even when the mighty have fallen don’t think for one minute that the game is over. It’s the perfect opportunity to pounce.