The co-founder of Croud has said "it’s not a coincidence" that there has been so much M&A involving UK performance marketing agencies, including his own, this year because the sector is "driving business results" for clients.
Luke Smith, the chief executive of Croud, which sold a minority stake to private equity firm LDC in November, said a growing number of brands were investing in digital performance marketing because it was becoming "super-important to how a business succeeds online".
Croud’s deal, which valued the agency at more than £60m, follows Jellyfish’s sale to French conglomerate Fimalac and Brainlabs’ sale of a minority stake to private equity firm Livingbridge.
"It’s not a coincidence that these things are happening at once," Smith said, explaining how the presence of so many leading agencies in London has driven innovation, increased competition and now started to attract investors.
"It’s a result of us all being so hungry and all fighting each other [to raise the bar]," Smith said. "I don’t see the same level of quality in the pitches we go up against [rivals] in New York or in Sydney."
A client’s fortunes are "now almost always tied to how it does digitally"
Smith said Croud, which began as a search agency in 2011 and claims to be increasing revenues at 40% a year, positions itself in broad terms as a digital marketing agency.
"I guess we’d see ourselves as slightly broader than performance," Smith, who used to work at Google, explained. "But the majority of digital marketing, by its very nature, is performance-related."
That is because brands are increasingly looking at how much of their overall business is now being done online.
In this context, the client is thinking about marketing as part of its "business performance", not just its marketing performance, according to Smith, whose clients have included Axa, Audible, Hiscox and Virgin Trains.
"The fundamental success or failure of a business is now almost always tied to how you do digitally," he explained.
"This is why, whether it’s us or some of our competitors, we are growing so fast and becoming more important in more and more areas."
Croud’s capabilities have expanded beyond search as digital has grown in importance.
Now its services range from "through-the-marketing-funnel" engagement on platforms such as Facebook to web experience, analytics, conversion rate optimisation and even speeding up mobile web-page loading times.
"All of that stuff is super-important to how a business succeeds online" and it is why "we see performance marketing as core" to a client’s entire business, said Smith.
"It’s not just tied to how my media is performing or how my messaging is performing. This is ‘how is my overall business performing?’.
"That’s why we feel quite confident going to talk to clients on a consultative basis. We are doing a lot more across the entirety of a client’s business."
The role of creativity and the future of agencies
Croud has developed an agile model, with a network of freelancers, known as Croudies, who work remotely and support the agency’s core staff of about 185.
Smith admitted that Croud is focused on delivering and optimising messaging, rather than creating it.
"We are not creators. We are not a creative business," he said. "But what we do is make the creative that our clients have – the assets that our clients have – work for the platforms where they’re putting these creative assets in front of consumers.
"We are that combination of taking creative [from the client or creative agency] and making it fit for purpose [on digital platforms]".
Many traditional creative agencies have been struggling in recent years as marketing moved online and became more data-driven.
Asked which agencies were likely to prosper in future, Smith said: "People who have ‘a different take’."
He explained: "The winners will be people who look at ‘agency’ differently and that could be in a variety of different ways.
"I am not sure the traditional agency model was quite fit for purpose for the digital age. That’s why we started our business and why lots of other businesses started up.
"Anybody with too fixed structures and too wedded to the old world and slightly afraid of the digital world is not going to succeed."
Some of the big network agencies are well-placed, he added, pointing to Essence, which is "eating WPP from within" and "building an incredibly smart, digital-first organisation".
Smith said: "This isn’t about size or scale or you’re old and you’ve been around for 40 years and you’re not going to succeed and we are because we’re young and nimble and small.
"It’s much more about the foresight and the ability to adapt and change to a modern world, which is more online than offline."
That structural shift means 2020 could be a pivotal year for addressable TV and digital out of home, according to Smith.
Digitisation of those channels has been discussed for years but may now be reaching a tipping-point, in the same way as smartphones took the best part of a decade to take off.
He predicts addressable TV and DOOH will become "more mainsteam" and "be bought within the digital eco-system" next year.