The end of the digital transformation agency
For me 2023, was the beginning of the end for digital transformation agencies.
Maybe it will be 2024 for some of you that operate in this space.
Before you read this, there will always be exceptions to what I say. The outliers are doing well - well done - just don’t get complacent.
Also, sorry if I sound patronising in any way, some of you smart ones are all over what I’m saying, good for you.
The irony is you help companies reinvent their products and services and many of you still haven’t done this yourselves, or you’re not presenting yourself like you have.
But if you haven’t done so, you can’t leave this year with the same branding and positioning.
Just make sure your brand reflects and your team adapts to solve the new business challenges.
It’s not just you commoditisation is coming for almost every type of agency over the next few years.
But, let’s face it, it’s been a horrific two years for most agencies focused on tech services for product and service transformation? No, well 90% of you have struggled, and if you haven’t you’ve done well trust me.
I know this because I’ve spoken a huge amount of them. In the UK alone, I know around 500 web agencies and 150 digital transformation agencies. Demand has definitely dropped. Some super small web agencies are booming as things become more commoditised. The medium-to-large agencies all moved into digital transformation, and now it’s time to move on again.
Broadly, I know around 4,500 agencies across different types—roughly 150 of each type of agency. Some categories of agency have more within their specialism, some have fewer.
The data:
- Data agencies – I know 12
- Productivity AI agencies – I know 6
- AI Technical Services agencies – I know 20 (nearly all have built AI tools that effectively act as "agencies in a box," replacing traditional agencies).
What does that say to you?
Don’t shoot the messenger!
My day job is M&A how many times in the past 18months have I been asked by an agency buyer for a digital transformation agency.
Not Once.
This headline, isn’t an over reaction, sure I can be ahead of trends and be optimistic. I stopped non-exec’ing “18 months ago” and I was screaming this to everyone in this space, hopefully some people reading this post will remember!
How many of the above 3 agencies am I asked for by buyers - once or twice almost every week!
None of these AI tools are perfect right now... but they improve every week.
Some technical service agencies are holding on, keeping their larger clients stuck on legacy tech stacks. These clients are slow to adapt, but change is coming, and when it does it will either wipe you or them out if you’re not careful.
I saw this in the early days of CRM—people clinging to immediacy and Red Dot for too long. Those agencies had to reinvent themselves or die.
It’s like WordPress now. Sorry, WordPress guys, but the bigger WordPress agencies have nearly all disappeared. Yes, there’s still a market, but even Cactus built its own WordPress site internally, with a creative partner. Recently, a friend had a technical site built for £800.
There are too many agencies and not enough demand for everyone. UK and EU have relatively slow growth rates, and there is not a lot of money to invest in non budget item project like digital transformation unless there are massive FTE savings to be made through innovation and technology or significant uplifts in revenue guarenteed.
When web design agencies moved up the value chain in 2013/14/15, Fjord, Frog, Made by Many, and R/GA (2010 early led the way, launching their venture arms too.
If I relaunched my old agency, Bluhalo, today it would probably look like this.
I told a friend what I’d do today, and then found two companies already doing it.
At Cactus, I’ve spent the past 18 months working with AI tools, riding the wave of change, sorting out all our data and IP, and building LLMs around it and looking for ways to shave 1-5% efficiency and productivity using these tools across the business.
I’ve put all my product and service applications on hold. Getting my ducks in order to serve my clients better in the future.
Will the work i’m doing now need to change frequently and evolve? Of course.
But this is fluid / agile approach to be nimble - just like the early internet days.
Perl. PHP. Flash. Director. JavaScript.
Back then, you had to reinvent your business almost every year.
The 2003 Playbook is repeating itself.
I remember taking our technical web services (not marketing) into loan companies in 2003.
Back then, a team of underwriters manually processed every loan.
They spent millions on salaries.
We helped them replace it with £250K worth of tech.
That’s what we should be focusing on today.
Helping companies reduce or redeploy headcount by using AI to drive efficiency across the business.
Less people, more efficiency.
This is the future.
Mark Zuckerberg recently said all mid-weight developers will be gone from Meta and product businesses by the end of the year.
Will that happen to digital transformation agencies?
Are you ready for that? Have you planned for that?
Don’t panic. Those mid-weight developers can find a new role.
They can work at companies like mine, and lead teams of AI agents like Devin to help move businesses forward.
The real problem? Wage Cost to GP.
Agencies are too nice.
When things slow down, you hang on too long to your team, chasing sales that don’t convert like they used to. You are failing them, their careers need to move on too!
Back to R/GA …
Years ago, R/GA they spoke at Cannes about reinventing their business every 9 years.
It was a wonderful and insightful approach, all great businesses have to reinvent themselves over and over.
The past 12 months feel like the end of another cycle. Some agencies evolve gradually to match client demands. Others wait for total disruption before they change.
Right now, it feels like we’re at the start of a new 9-year cycle.
R/GA’s Evolution (Source: Wikipedia)
1977–1985: Computer-Assisted Filmmaking
Founded as a design company, R/GA focused on motion graphics, live-action film, and video production. They created the Superman (1978) title sequence and did visual effects for Alien and Ghostbusters.
1986–1994: Digital Studio
Merged print, TV commercials, and feature films into a digital studio. Created 400 feature films and 4,000 TV commercials.
1995–2004: Interactive Advertising
Shifted to interactive advertising, landing IBM as a client to redesign its five-million-page website.
2004–2011: Digital Media & Products
Expanded globally, leading in mobile, social, and digital product development, launching Nike+.
2011 Onwards: Digital Transformation
Launched consulting and product innovation services. Started a venture studio to develop digital products with start-ups.
2020 was 9 years, they should have reinvented then, but they likely got caught up in the false start of Web 3.0, but by 2023 generative AI went mainstream, they should have caught that having been one step ahead over the years.
They’ll probably argue differently, maybe I've got it wrong, but if Bob Greenberg was still at the helm, a visionary like him, what would he do now?
Maybe he would lead the way with Creative led AI Services.
Tech and Innovation service businesses - what are you waiting for?
Perfection of a mature AI market?
You’ve been spoiled by internet maturity over the past 9 years.
Now you need to manage a new technology super cycle.
Reinvent yourselves quarter to quarter.
The smartest ones will build and adapt fluidly. RAG and Agentic.
Your wage cost to GP/net revenue needs to be 45% in three years.
Not 65-70%.
Smaller new gen agencies are already there with 40-60% net profit not 9%.
Remember, it’s a pivot and an evolution - not a revolution.
The market needs you to transform their businesses before they’re disrupted by more agile leaner competitors.
More info: Journey to AI with Cactus
Launching 6th May - Hosted by:
Spencer Gallagher https://www.linkedin.com/in/spencergallagher/
&
Joanne Reid https://www.linkedin.com/in/joanne-reid-cactus/The price is £249 per month and it’s a 12 month commitment. To summarise, the price includes:
The remote meetings
The lunch events
Access to Tabatha.ai
Early access to the new book
Group comms (WA or another tool)
Max 50 Agencies
6th May 2025
2.00-4.00pm Zoom Meeting Hosted by Spencer Gallagher
Welcome & group introductions
Tabatha access/demo
AI Q&A (pre submitted questions)
24th September 2025
11.00-3:00pm Lunchtime in person event in London
Welcome
Presentation
Lunch and Networking
Guest Speaker
21st January 2026
11-3:00pm Lunchtime in person event in London
Welcome
Presentation
Lunch and Networking
Guest Speaker
25th March 2026
2.00-4.00pm Zoom Group Meeting Hosted by Spencer Gallagher
Welcome
Presentation
Group updates
AI Q&A (pre submitted questions)
The price is £249 per month and it’s a 12 month commitment. To summarise, the price includes:
The remote meetings
The lunch events
Access to Tabatha.ai
Early access to the new book
Group comms (WA or another tool)