Agency, deconstruct thyself

I’m not usually one for predictions, but here’s something I’m bullish on: over the next four to five years, the e-commerce agency blueprint as we know it today will become obsolete, at least for the majority of small-to-midsized brands—let’s say anyone doing less than $150M/year.

It’s a trend started by Shopify, with the core platform evolutions and the app ecosystem, and was further accelerated by generative AI. It will only get faster in the coming years as Shopify products like the Theme Editor become even more powerful, and AI models become better at accomplishing their goals.

In a little over a decade, we went from brands having to spend hundreds of thousands on custom technology to those same brands making eight figures with a free Shopify theme, Meta Advantage+ campaigns, and a few scrappy operators. I don’t see any reason why this trend would stop: as the cost of building foundational e-commerce experiences goes down, brands will internalize many of the responsibilities that they used to outsource.

Given we run one of the agencies this model is supposedly primed to disrupt, we’ve been thinking a lot about this shift and whether there’s anything we can do to prepare, or if we should all start hoarding those Scrum Master certifications on LinkedIn.

My thesis—our thesis, I should say—is that many agencies will go away in the not-too-distant future, not because there won’t be a place for agencies anymore, but because the place of agencies in a brand’s value chain will change, and most agencies will be unable to transform themselves and meaningfully engage with their clients under the new regime.

Today, we’ll talk about what we believe that transformation will look like and how brands and agencies can get there together.

First, we must look at why most brands work with an e-commerce agency today: because they need them.

As self-service as Shopify and other e-commerce platforms might be, there are still a number of things you cannot do without a designer or a developer. As a result, most brands will choose to outsource technology, which in turn means that most brand-agency relationships are rooted in frustration: I want to make a thing, but I can’t do it myself (yet), so now I have to put up with these people who can make the thing I want to make.

The agencies know this perfectly well and have structured themselves to be very good at thing-making and very bad at… everything else. Give them a list of requirements, and they’ll implement them to the letter; ask them to challenge the requirements, and they’ll throw their hands up: that’s your job, not theirs.

Here’s a story we hear often when we start working with a brand that had a previous agency: they’re not proactive, they miss deadlines, or the quality is too low. Talk to the agency, and they will tell you that the priorities are unclear, the requirements change every day, or the expectations are unreasonable.

These are all symptoms of the underlying problem: there’s a fundamental disconnect between the people wanting the work and the people doing the work. The brand wants to create something but does not have the means of creation; the agency has the means of creation but is not part of the broader context in which the act of creation takes place.

The typical response is for the agency and the brand to establish even more processes to try and bring things back under control. As it turns out, no amount of process can single-handedly tame the complexity of a business or the humans working on it—process hits the point of diminishing returns much earlier than most industry practitioners like to admit.

So, with that depressing introduction out of the way, is there a better way to work together?

In our experience, yes, but only if both parties are willing to radically rethink their relationship. Brands and agencies need to move from co-dependence to co-creation.

Co-creation happens when the brand and the agency are both actively involved in defining the work that needs to be done and doing the work. You blur the lines between “wanting the thing” and “making the thing” by giving everyone the context and freedom to do both.

Historically, most agencies have been afraid of co-creation: they fear that their contribution will be diluted, that they will not be able to control the outcomes of the engagement, and that their margins will take a hit. While this might all be true to an extent, it’s a natural shift we can’t stop. The increasing commoditization of e-commerce technology means agencies cannot live under the cover of technical complexity anymore.

It would take an entire newsletter issue to explain what a collaborative relationship looks like, so we won’t do it here. However, Marco recently published a blog post about this exact topic. The bottom line is that, in a collaborative relationship, it’s hard to distinguish the agency’s employees from the brand’s employees. If you need to squint, you’re doing it right.

To be clear, I’m not suggesting that agencies shouldn’t bring any original value to the table, but they do need to redefine what “value” means to them.

Most e-commerce agencies today are arbitrage businesses: you buy the best talent your money can afford and re-sell it at a premium. It’s the quintessential monopolistic market: there’s an infinite number of firms, all pretty much indistinguishable from one another and primarily competing on price.

This model works today because brands pay agencies for technical expertise that they do not have internally—the so-called “hard skills.” But in a world where that expertise is made largely irrelevant by the commoditization of e-commerce technology, and brands can satisfy most of their requirements in-house, where’s the value of agencies?

The way forward is to invert the value pyramid. Rather than leading with their technical skills—which will soon be a dime a dozen—agencies will lead with more intangible offerings: content, curation, community, and coaching. These assets are, almost by definition, unique to each agency. Moving forward, an agency’s value will be measured by how relevant its intangibles are for its industry, clients, and broader network.

We’ve been experimenting with this at Nebulab for a while now: this very newsletter, for example, is part of the incremental value we generate. In 2024, we plan to do much more, and many of these initiatives will only be accessible to our clients.

We envision a future where every billable hour, every client interaction, and every completed engagement creates an evergreen secondary output, which will define Nebulab’s value proposition much more strongly than our mere design and development skills. The jury’s still out on whether we will get there, but we’re giving it our best shot.

In a world where brands don’t need an agency, the only alternative is for brands to want an agency because they appreciate the unique ways in which an agency can accelerate—rather than enable—their business goals.

But to make that happen, agency operators need to shift from co-dependency to co-creation, start building their intangibles, and position themselves as an ongoing business partner rather than a turnkey delivery solution.

The time has come for e-commerce agencies to deconstruct themselves—and as painful as that process might be, it is necessary, because the alternative might well be irrelevance.