Jules Ehrhardt made waves in 2016 when he published State of the Digital Nation, a raw and honest look at the major forces threatening the digital consultancy industry. Two years later, the seasoned digital exec has done it again with State of the Digital Nation 2020, painting a bleak picture of the agency landscape, pointing out flaws in the model, and urging creatives to consider their options.
The new publication coincides with change in his own life. After leaving his post as co-owner of ustwo, the digital product studio behind the wildly popular mobile game Monument Valley, Ehrhardt launched FCTRY in May. A “creative capital studio,” the company acts as an advisory for early-stage technology companies in return for equity.
In the interview below, Ehrhardt shares his views on why now is the time for new thinking in digital. So are we all doomed? Nah. Amid change, there is always opportunity.
What led you to write a new State of the Digital Nation?
I wrote the first State of the Digital Nation in 2016. It was a point in which I was reflecting deeply on what I’d seen over the previous four years and where I saw things going. It was an expression about the journey to try to evolve the typical consultancy model, or try to build the future phase of the studio.
In 2017, I was closing a chapter in my life and starting a new chapter. I had the freedom to do what I wanted. The fundamental question that came to me was, “If you could start again, completely fresh without serving any legacy, what would you do?” State of the Digital Nation 2020 is basically me ripping apart my journey, closing a chapter and beginning a new chapter and trying to organize all the thinking and inputs and outputs that would lead me to decide to build a new type of studio. So, that’s in a nutshell why I wrote it.
You say that the “death of the agency” drum is beating louder and louder. What went wrong and what’s happening now?
We’ve all been watching the epic battle between the consultancies and the ad holding groups. That’s led to a few issues. One is that design is being homogenized. If you look at how so many independent studios are being acquired and brought in to consultancies, you’re seeing what I think is a fundamental problem with how the ecosystem is designed. To use a metaphor, if you mix all the vibrant colors of the rainbow together, you get a chromatic neutral. And that’s a concern to me. What does that trend do for our ecosystem?
Another issue is that, as more work goes in-house, and fewer agencies are fighting over the remainder of the work, they’re beginning to underbid and trying to reduce their cost to secure the work. Many agencies have moved to offshoring, and what you’re seeing is the agency ecosystem begin to cannibalize itself.
For me, that’s pushing everything to a quite logical conclusion that, for an agency, what was once double-digit profit is now going to be single-digit profit, or a sea of red.
Until the last decade or so, it made a lot of sense to open an agency. It was profitable, and you could do good work. What we’d see was big brands nurturing a wider ecosystem than would provide healthy grounds and a system for new talent to emerge. But what you’re seeing, I think, is this kind of ecosystem collapse: there’s such a pressure on pricing and a procurement-department mindset that, actually, this ecosystem in which the next generation of talent should develop isn’t being sustained.
The fundamental challenge faced by the creative class is being paid for time. And that’s what’s leading to the consolidation, that’s what’s leading to the downward pricing, that’s what’s leading to the degraded environment in which we do our work.
Bleak. If that’s the case, what needs to happen?
The only way for us to escape and build a new prosperous place, a new happy place, is to basically break that model, break that bond which I call a form of “prison island” that we built ourselves decades ago—the “paid for time” client service model.
You say being paid for hourly work is at the core of the industry’s problems. Tell us more.
I believe that actual human creative output is limited to five hours a day, therefore keeping people late is creating unhealthy working conditions and is counterproductive. I recently went to a conference with some very high-level design leaders in the tech space. I asked everyone “Look, how many hours of creativity do you think a human has in a day?” I counted down the hours from 10. No one put their hands up. When I got down to six and five that’s when the majority of the hands went up. Of course this is definitely not applicable to rote tasks like outputting a hundred variations of an image. But the real creativity tops out at five hours. I believe in building a working environment around that.
So what would you recommend? How can there be a better pay model, not necessarily related to hourly work?
As it’s happening is it’s going to get harder and harder to have an agency with healthy profits. I still think that there are studios that are great, that do really good work, and they’re going to prosper. Those people usually have a good process—they agree on high-level requirements based on ‘Must have, Should have, Could have, and Won’t have’ (or “MoSCoW”) rather than fixed cost and scope arrangements. They’re focused on product rather than marketing.
But for the agency structure—the only way we’re going to escape that is for the creative class to begin to define new models—new vessels within which we can do our work and prosper.
In your case, you decided that the best next step for you was to do venture-only work?
Yes, I guess the point is for me it doesn’t really matter what model you choose. For me, the path I chose was to explore venture where the model is funded. Funded models allow us to do the work we want to do. It doesn’t mean there’s no pressure. It just means it’s a different dynamic.
You say the talent drain is already well under way. Where are people going?
Agencies—and very good ones—are increasingly losing people to Google, Twitter, Facebook, Spotify. I think that trend is going to grow. It’s almost impossible for agencies to match a tech company’s packages and benefits. If you were working at an agency doing 70 hours a week on a campaign or for a bleach brand at 30 percent or 40 percent less salary than you’d get paid at Google or Facebook, then why on earth wouldn’t you leave? I’m not saying it’s easy working in a tech company, but to work fewer hours and have a better work-life balance and be working with a bit more purpose, at significantly better benefits? It’s something to think about.
You’ve put together a big proposal and shared it out in the open. Have you received comments from anybody who’s like “I completely disagree with this and here’s where I think you’re missing the mark?”
In the week since it went out, I’ve had overwhelmingly positive comments. I’ve also had people pull me aside and go, “I’ve tried this. It doesn’t work.” And that’s fine. The point for me is I don’t have as much care for the industry as I do for the creative class within it. So if you do read the piece, you’ll see a lot of it comes from a place of care for the creative class. That has always been my mission. If you’re an individual in the creative class, there are some important questions we need to be asking ourselves. I believe that by having a more open-source mentality, by sharing what works and what doesn’t work, publishing contracts and as much information as we can, then we can get everyone to a better place. And a more healthy ecosystem for everyone is what I want. I am completely committed to that philosophy.
I remember starting the piece thinking, “We’re all doomed.” And by the time I got to the end I felt surprisingly positive about everything because you had shared. Did you mean for it to be encouraging in that way?
Yes, the feedback I’ve had, especially from younger people in the industry, is that they’re really excited after the reading the piece. I was trying to give a systematic exploration of what I see, what’s wrong with it and what the new avenues are for the creative class. The beauty is you can really have an opinion and be forthright about it. I think the problem in our industry as a whole is that that the emperor has been naked for the last five to eight years. That's how we got here.
If somebody is at an earlier point in their career and they haven’t committed to a path yet, what advice would you give to them in terms of the path they might consider?
I’m not really in the advice-giving game, but I think I’d definitely be weighing up which industries have longevity, which areas in the industry have too many people with a certain age and mindset who are more vested in the status quo than not. The way I like to phrase it at the moment is this: you’re either revolutionary, or you’re not. And I think that’s the moment we have to be in now. We have to be revolutionary because if we don’t know how to build these opportunities then we’ll go down with the ship.
For more, check out Ehrhardt’s full 60-minute read: State of the Digital Nation 2020.
Matt McCue is the former editor of 99U. He lives in New York City, but he is willing to travel long distances for a good meal. Find him on Twitter at @mattmccuewriter.