A recent wave of M&A; and consolidation activities for a handful of OC marketing agencies suggests the business model of the agency world has dramatically changed—into one that blends data science and branding to scale.
The changes come as businesses large and small are increasingly realizing simply existing online won’t cut it anymore, if they want to keep their existing customers while winning over new ones.
Marketing agencies they work with are mirroring this reality.
The latest realization of that evolution has many agencies shaking up their business models to remain relevant.
“We’re definitely in a new chapter or next phase of evolution in the marketplace,” Kevin Bauer, CEO of Irvine marketing agency Envoy, said.
Some 15 years ago when the first group of digital direct-to-consumer brands cropped up—think of fashion e-tailers such as Revolve Group Inc. (NYSE: RVLV) of Cerritos or Los Angeles-based Nasty Gal—they were differentiated from the likes of Macy’s and Nordstrom because they turned the light on digital channels like e-commerce and social media, or perhaps did it a bit better than the rest of the competitive set.
Companies overuse the words “seamless experience” for anything from clothes shopping to pulling a mortgage, but that’s come to define the digital channel and, by extension, brands.
COVID-19 accelerated that, Bauer said.
“Through the pandemic, there was an awakening of having the right digital platform, whether commerce site or mobile apps,” Bauer said. “Depending on your industry segment, or where your company is, that’s table stakes now.
“There’s a demand and there’s a requirement that if you’re not there you’re likely losing market share or, more importantly, you’re losing your ability to have that unique one-on-one relationship with your target set,” Bauer says.
Envoy helps companies develop their websites, e-commerce platforms, mobile apps and digital in physical spaces (see story, page 68).
The agency recently consolidated its namesake brand, Bulldog Drummond and Leviathan under a single name to rein in its various services aiming to meet the complexity of needs for clients.
“It’s not so much about a logo and color palette, but turning a brand strategy into a business strategy. In this environment, what we’ve seen over the last couple years is how brand strategy has been tied to digital strategy,” Bauer said.
Digital’s growing importance in the business strategies of marketing agencies can be seen in the industry’s local evolution.
Ten years ago, Orange County’s largest advertising agencies generated capitalized billings—a revenue measure used by the industry—of $2.7 billion across 40 agencies in the Business Journal’s annual ranking of the agencies here.
The local landscape at the time was far more “Mad Men” than digital frontier, with the likes of creative agencies such as Wunderman, Draftfcb (now FCB), ELA Advertising and a host of in-house firms propping up the top of the annual list.
The most recent ranking, which was published in March, had half the number of agencies, with 2020 revenue totaling $1.9 billion. The list included a mix of companies that included digital services providers and communications firms touting a full-service menu.
Tustin-based Nogin is a good example of the pivots some agencies are making to keep up with industry trends.
The agency, which rebranded to Nogin this year, debuted on the Business Journal’s ad agencies ranking in 2019 as Branded Online Inc., but the following year declined to be part of the ranking.
The reason? They identified more as an e-commerce or tech provider. It’s a more accurate description for a company selling software that helps e-tailers up their e-commerce games, the company believes.
Nogin evolved again this year when it bought vintage-inspired online clothing brand and e-tailer ModCloth from Los Angeles-based Go Global Retail, marking Nogin’s first fashion acquisition. Last month, it took the reins on the operations of tween retailer Justice’s $250 million online business, proving this is no agency that simply codes and performs search engine optimization in the background, while branding and communications sits as a competency handled by a separate service provider.
“The real key to all this, is merging art and science. You can be a great tech nerd or you can be a spectacular merchant. To combine the two is tough,” Nogin CEO and co-founder Jan-Christopher Nugent told the Business Journal in May after the ModCloth deal closed.
Envoy, in a vein similar to Nogin, is itself considering acquisitions to scale over the next several years. It recently launched Envoy Ventures as a way to partner with early-stage companies through a partnership with Newport Beach-based Innovate Partners and a $10 million fund that’s already invested in three digital direct-to-consumer companies.
Like Nogin and Envoy, achieving scale through acquisition is something Irvine-based SCS continues to do. It recently completed a deal that continues to make good on that strategy via its merger with Atlanta-based Swarm.
The agency is the product of the 2016 merger of Schiefer Media and ChopShop. SCS then acquired digital production agency Fuel two years later. Swarm adds further e-commerce and media around digital to the table, SCS CEO James Schiefer said.
“I think from my perspective with just everything in the last couple years and with the pandemic, there’s been a lot of change in consumer behavior and even in just media consumption. We’re now talking to doctors over our phone and ordering food that shows up at our doorsteps. So for us, as an agency, we wanted to continue to innovate and push in the digital world,” Schiefer said of the reason for the merger.
The CEO said the agency is looking at a couple other acquisitions and, while many clients are interested in having the agency take equity stakes in brands outside of the agency world, Schiefer said that’s not a core business strategy for SCS. Although, much like the digital world, that appears subject to change.
Said Schiefer of any possible brand buys: “I like to focus on the business that we’re in, which is the agency business, and rarely would I look at owning companies or having an equity position in brands, but I have an open mind for sure. Maybe that could change.”