In the year ahead, European marketing services agencies are more likely to bounce back than businesses in other areas of the digital services market, according to new research. Optimism driven by the advent of AI is also leading to companies becoming more willing to dip into the M&A market to boost capacity.
2023 Challenges
Macroeconomic uncertainty and increased competitive pressure resulted in a challenging 2023 for digital marketing firms. With rampant inflation eating into the margins of businesses across the industrial spectrum, advertising budgets were under immense pressure. This was especially true for US technology companies, which have been core clients for digital marketers. In the UK, an eMarketer poll found that every industry except travel saw very limited digital ad spending growth.
Struggling larger agencies frequently competed for smaller new business contracts, increasing competition for challenger agencies. This caused dramatic repercussions for firms further down the food chain, leading to a plummet in industry sentiment.
Positive Outlook for 2024
A new study from M&A specialist JEGI CLARITY and growth strategy consulting firm CIL Management Consultants suggests that the sector may be on the brink of more positive results in the year ahead. In 2023, only 12% of the 28 digital marketing executives polled felt trading conditions in the digital marketing sector were ‘good’. In contrast, while 67% said conditions were ‘neutral’, 21% described them as ‘very poor’. However, in 2024, only 4% feel things are ‘very poor’, while 42% believe conditions are ‘good’ or ‘very good’.
Expectations for firm growth have also improved. Last year, most firms expected growth no higher than 5%, with a sizable minority anticipating shrinkage of up to -5%. This year, all respondents expect some form of positive growth, with the majority predicting growth of more than 5%.
AI and M&A Driving Optimism
Despite uncertainty surrounding elections in key markets like the UK and US, positive sentiment is driven by improving economic conditions and slowing inflation. Optimism around AI implementation is also significant, with 42% of digital marketing experts polled expecting it to positively impact the sector, and only 16% viewing it negatively. Additionally, 60% are actively implementing AI into their workflows.
This optimism is buoying M&A sentiment, as more firms feel confident enough to expand through deals. Over the next 12-18 months, researchers anticipate several scaled platforms will take advantage of the M&A environment to enter new geographies, add capabilities, or develop core competencies. Notably, 67% of respondents expect M&A to play a key part in their growth strategy, while 89% are considering near-term M&A activities to support expansion, especially in the US market.
Commentary by Pranav Veerani
“The outlook for the European digital services sector is positive after a challenging year in 2023. Businesses must navigate the influence of AI and the challenge of consolidating brands to help drive topline growth and increase operating efficiencies. M&A remains a dominant value creation lever and will underpin most growth strategies as businesses seek to add capabilities to their offering and expand into new geographies, particularly the US. In my view, the strategic implementation of AI can revolutionize workflow efficiencies and client acquisition strategies, making it an essential element of growth in 2024.”
Handy Guide for Digital Marketing Service Agencies in 2024
- Embrace AI: Implement AI-driven tools to enhance workflow efficiencies, improve client targeting, and optimize ad spend.
- Focus on M&A: Leverage mergers and acquisitions to expand your capabilities and geographic reach. This can be particularly beneficial in penetrating the US market.
- Optimize Ad Spend: With advertising budgets under pressure, ensure your ad spend is targeted and data-driven to maximize ROI.
- Enhance Client Relations: Strengthen relationships with existing clients through personalized marketing strategies and by offering value-added services.
- Stay Agile: Be prepared to pivot and adapt to market changes quickly. Flexibility and responsiveness can provide a competitive edge in a rapidly evolving landscape.
- Leverage Data: Utilize data analytics to gain insights into market trends, client behavior, and campaign performance. This can guide strategic decisions and improve outcomes.
- Invest in Training: Keep your team updated with the latest digital marketing trends and technologies. Continuous learning can drive innovation and effectiveness.
By following these strategies, digital marketing service agencies can navigate the challenges and opportunities in 2024, positioning themselves for sustainable growth and success.