We’ve been having a series of conversations with leaders in the digital agency community about a wide range of pressing issues. Some of these are immediate, as in how to respond to the COVID crisis. Others involve longer-term questions. For example, the increasing automation of digital advertising and how it is forcing agencies to add value in new and different ways.

One of the more immediate questions involves consolidation. And specifically, will the current crisis spur the consolidation of the digital agency space.

Based on our conversations thus far, the short answer is yes. The longer answer, as always, is more complicated.

The general view is that consolidation in the agency space was inevitable before the crisis. Agencies that went into the crisis without sufficient cash, or are too focused on market segments hit hard by the crisis, are most vulnerable.

Here are some of the thoughts (with audio) we’ve gathered from the agency leaders we’ve been interviewing.

It’s Already Happening

Laura Nelson, VP of Marketing at Signpost, says she is already seeing signs of a shakeout that has been accelerated by the crisis.

Singpost is lucky in at least one regard. The company is heavily focused on the home services vertical, which has fared better than most.

“It has forced us all to look internally and see where our money is going,” Nelson said. “I think there will definitely be winners and losers coming out of this situation, unfortunately. You may see further consolidation or just takeovers of those swaths of customers.”

Laura Nelson: “There Will Be Winners and Losers”

Cash (and Customers) Are King

BirdEye President & COO Dave Lehman believes agencies that have either vulnerable cash positions or a highly impacted customer base may seek each other out to merge and gain strength in numbers.

BirdEye is a review management platform that has recently pivoted to a broader customer experience model. The company focused on a number of verticals, including dentists, home services, automotive, financial services, and others.

“Cash is king right now. People who are cash and capital efficient are going to be in the best position to work through this,” Lehman told Localogy. “Those who have clients that are still active, great. Those whose clients are not will need to evaluate what their cash looks like. Or is there a value they have that, combining with someone else, will make the two companies better or stronger.”

Dave Lehman “Cash is King”

Does Size Matter?

Conventional wisdom in the digital agency space says that scale is the key to success. Without sufficient scale, the CW commands, agencies will be scooped up or driven out of business.

David Mihm, founder of email marketing platform Tidings and the former head of product at ThriveHive, challenges this notion. He believes smaller agencies offering highly customized services will do well, as will the largest digital agencies, especially those with defensible IP. He believes the middle layer of agencies faces the greatest risk.

“There is a lot that you do for a business that is at a low spend, high scale, price point,” Mihm said in a recent interview with Localogy. “There is a lot that you can do for a business at a very custom, high dollar price point. And there is a big valley in between.”

Mihm argues that agencies will want to be at either end of the spectrum and avoid the valley in order to survive.

 David Mihm: “The Middle Will Get Hollowed Out”