This week has seen the Pound drop to $1.53 against the Dollar, it's biggest drop since Black Wednesday in 1992. Added to that we're now officially in a recession with official figures showing a contraction in GDP by 0.5%, which unfortunately equates to job cuts, cost cutting and general malaise about the economy in the short term. We've been contemplating what this means for UK digital production houses and outsourcing agencies like
Lemon Digital and trying to see what positive conclusions we can makes from this.
It is less economical to outsource digital work outside of the country than it was 6 months ago. With most outsourcing agencies outside of the UK billing in dollars, in the last 6 months alone their hourly rates would have effectively increased by approximately 30%. UK production agencies have immediately become more competitive on price.
Outsourcing is the only option when agencies have scaled back to reduce monthly operational costs
All the big media groups seem to be taking a pounding on the FTSE at the moment with a drop of in share prices of 30-50% amongst WPP, Publicis, Havas and Aegis. This reflects the market sentiment towards how they will be affected by cuts in advertising and media spend although this does not take into account Digital/Online spend versus traditional spend - it's a view of the whole market.
Google for example have recently reported higher than expected earnings this quarter. Interestingly, most comment on the topic of media spend that I have read (albeit from people involved in digital) suggest that whilst marketing spend is an area that will be reduced during recession, companies develop a far greater focus on measuring ROI which fortunately digital can deliver on. What we have however noticed already across our clients (a good range of the leading UK agencies) is that they have made necessary cut backs (largely redundancies in a business where the primary cost is the people) and have made it clear internally that they need to look at ways to scale their production through outsourcing as opposed to taking on more permanent resource - a fixed cost on the P&L. So whilst there may be more opportunities for digital in this recession period, the agencies are still reluctant to grow internal teams (even the digital teams) until the market has stabilised and confidence returns.
This should mean two things for digital production houses - more competitive pricing in the UK freelance market as the number of experienced designers & developers from agencies become available, and increased workflow from the agencies who have had to scale back to a level below what they are able to deliver with their focus changing to outsourcing to cope with peaks in production.
We've got an opportunity to grow the digital production market We're about to see the digital production market take off at a time when agencies quite simply cannot afford to have a wide range of digital skills in-house that are underutilised. Much like the acceptance from advertising agencies now that specialist skills such as video production and print production are outsourced as a norm, it's an opportunity now for digital production agencies to be considered as a viable and cost effective solution for the digital services agencies offer. The challenge for us to ensure this happens is to address the perceived complexity of digital production and the ability to commodotise and standardise it so that the process of managing digital jobs by agencies is simplified, robust and predictable. We've been doing this for the past 5 years and have certainly made great progress, but unless digital production agencies unite to ensure they provide a reliable and predictable service (the biggest barrier as we understand it as to why agencies tend to in-house their digital work) we'll all miss a potential opportunity to establish a much larger market for digital production agencies.
