I don’t want to have this descend into a doom and gloom, and the sky is falling kind of post. But, unless you are living under a rock, people are talking about the potential of an economic slowdown in the not so distant future. Granted, people are always going to predict downturns, especially when the global economy has been on something of a run since the financial crisis of 2008. While I try to remain optimistic, the signs seem to point towards some level of economic recession in the near future, and it’s crucial to analyze how this will affect the digital services industry from both a client and agency perspective.
A brief history lesson, if we may… Digital services firms did not feel the downturn and financial crisis of 2008 as severely as other industries. If anything, they benefited from the period as digital was still a growing and emerging resource. How will a downturn in 2020 play out? It’s hard to say. It could be a similar scenario; wherein digital is affected to a smaller degree than traditional industries. However, I see digital having some downside in the next slowdown. It’s more established in this economy, and to think that it can survive unscathed is not likely. But, how will it affect us, whether we are agency or client-side folks?
It’s nearly impossible to know what the next downturn will look like, nor how it will start. From a layman’s perspective, it seems as though there is a high level of political uncertainty on both a domestic and international level. Also, conflicts such as the trade war have resulted in an economy that is slowly contracting. Finally, 2020 is an election year that is sure to be divisive politically, which trickles down to Wall Street. With all that said, digital services are an interesting industry to study from a macro-economic perspective. It can be rightly claimed that most of our services revolve around marketing, distribution of information, or product development. How will those areas be affected by a downturn?
First, let’s take this pessimism and attempt to turn it around. I believe an economic downturn could potentially be a good thing for digital services. Let’s face it; digital services are going to be the last item on the chopping block. From a marketing perspective, digital marketing is the most effective means of reaching a consumer. It’s trackable, its instant, and it’s flexible. Other mediums will feel the pinch first because they are already contracting anyway. This is very similar to what happened in 2008 when print continued its decline as a medium, as an example.
Secondly, a downturn economically doesn’t mean people stop spending entirely. But they do, however, spend wisely. This means that services that provide excellent customer experiences or interrupt the way of doing things positively will begin to win in competitive spaces. This is a good thing for the digital services industry because digital experiences are a vital component of almost every successful business. Whether it be apps, web experiences, IOT – you name it. Building better services are reliant on software and experiences, and companies will continue to invest in these projects, even despite a downturn. I believe that many companies will utilize a recession to increase investments in developing better offerings. In recent years, it’s been proven that many businesses are hoarding cash for future investments. The smart and savvy investors are waiting to make a killing in a down market, and this is one area they can realize that strategy.
On this previous point, let me just add that if a downturn does manifest itself at some point, it means most likely that spending on things such as advertising buys may decrease. But, from a production perspective, all of the same assets and materials still need creation, testing, and modification. Even an advertiser that lowers their ad spend by 10% will still require landing pages, marketing automation, hosting, network support, etc. While I’m sure the effects of a downturn will trickle down, it seems that production will be the least affected. And, if so, I’d expect more movement towards outsourcing versus in-house resources. And with that said, let me segue into my next point.
If the economy turns, you better know what you are doing! As the economy strengthened, we saw more and more clients and organizations taking efforts in-house, especially roles which quite frankly should almost always be outsourced. Digital professionals who can’t prove their worth are going to have to fight to stay relevant as companies seek to offload expenses in a potential downturn.
Thirdly, and somewhat related to my previous note, I’m optimistic that a downturn can clean up the digital services industry. As I wrote about in my last post, hiring digital services agencies is challenging. It’s downright frustrating. The industry is inundated with specialists who aren’t special at all. In a downturn, people don’t hire cheaper resources – they hire experts who can assure results and mitigate the risk of project failure. As such, it’s easy to see how a downturn could clean the industry out and start to create a gap between the bottom-feeders providing shoddy digital services and the real experts who have been honing their craft throughout the years.
Winners & Losers
So what areas will win and which will lose in a downturn? Sadly, as I mentioned above, some folks do have to worry. Small agencies with limited track records. Generalists, people who have no area of expertise. And on that note, specialists who focused on industries that are exposed to the downturn can have difficulties. Ad buys will decrease, so agencies that play in that space may see issues in addition to ad networks themselves.
But who stands to gain? Those that are experienced in their craft, for one. If you can prove expertise in an area that is still necessary to businesses and their success, you should be fine. Network infrastructure, system administration, and management of digital properties will not suffer. Statistics show that the last bill people cut is their mobile phone expenses. I expect mobile app development to stay healthy, and I expect businesses to look to optimize their processes with custom software and invest through a downturn.
In wrapping up, the overall message to the digital service industry should be that a downturn need not be a negative, but rather a positive if you have positioned yourself well and focused on expanding your expertise. For clients, it’s time to see how you compare to your competition in terms of both your customer experience and your back-end processes and workflows. Optimization is the name of the game – the economy of the 2020s will be less on development of bold new ideas but more about the optimization of what we have – and that is an initiative that all companies can undertake regardless of size or even available investment dollars.