I've been neck-deep in agency data lately. Like, questioning-my-life-choices deep…why do I do this to myself? Masochism? Self-hatred? I dunno…but com

The folks at SoDA (Society of Digital Agencies), Promethean Research, my own clients, and about 47 browser tabs of industry news have painted a picture. Listen, some of it's pretty. Most of it isn't. But all of it matters if you're running an agency and want to still be running one in 2027.

So let me walk you through what I found, what it means, and why you should probably pour yourself something strong before we get into this.

LFG

Digital media spend is going to grow by 9-16% in 2026. That's the headline number, and yeah, it sounds nice. Pop some champagne. Do a little dance.

About 5% of that growth is coming from the World Cup and midterm elections. You know—those once-every-few-years events that flood the market with political ads and global soccer fever. Strip that out, and you're looking at 7-8% organic growth.

Good? Sure. Great? Hell no.

That's the kind of growth that keeps the lights on but doesn't exactly get you to a 5 bedroom house on Nantucket (that’s my retirement dream). It's fine. And fine in agency land usually means some feces are about to hit an air circulation device.

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Here's where it gets interesting (or terrifying) depending on where you're sitting.

The big growth drivers are:

That's it. That's the list.

If you're not playing in one of those three sandboxes, you're fighting over the scraps. And the scraps are getting smaller while more agencies show up hungry.

Here's what this means for you, Skippy:
The agencies that are going to thrive aren't generalists. The ones who have picked a lane…specifically, a lane that happens to intersect with where the money is flowing. Retail media expertise. Social commerce strategy. CTV buying and creative.

Everyone else is going to be in a knife fight over flat or declining budgets.

Bigger agencies…we're talking $10MM+ in revenue are growing faster (by 50-100% more) than smaller shops.

It's not because they're better. It's not because they have smarter people or prettier pitch decks.

IMHO, it’s because the hot media right now requires bigger dollars. You can't dip your toe into retail media with a $50K test budget. Connected TV isn't cheap. Social commerce at scale requires real investment.

The brands with real money want partners who can handle real spend. And that creates a gravitational pull toward larger agencies that can absorb the risk and manage the complexity.

If you're a smaller agency, this news sucks, right? It’s not fair, yadda, yadda, yadda…
Listen up, though…this isn't a death sentence. But it is a wake-up call.

Here’s some advice for you:

Trying to be broad and small is a game that cannot be won. Always has been, but especially now.

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Here's where things get really fucking weird.

Performance-focused media is growing almost twice as fast as other media types. That sounds like validation for all the data-obsessed, conversion-tracking, ROAS-worshipping agencies out there.

But here's the scary thing...

Media performance itself is pretty static. It's not getting dramatically better. The platforms have gotten so good at optimization that the ceiling is basically fixed. You can tweak and test and iterate all you want…the actual performance lift from brilliant media strategy is... marginal.

So what's driving the growth in performance media?

The platforms and their AI are doing so much of the lever-pulling now that the only variable left - you know, the only thing that actually moves the freakin’ needle - is feeding the machine fresh creative & fast.

Which brings us to...

Every agency I talk to is using AI.

Every. Single. One.

But here's what they're using it for - efficiency. You know…internal stuff… faster production.. lower costs… more output with the same number of, or fewer, humans.

What they are NOT using it for - efficacy. You know, efficacy - better outcomes… breakthrough creative… strategic insight…the shit that makes better results.

This is a GIANT mistake. (Seriously, this is a big old strategic fuck up.)

If you're only using AI to do the same shit cheaper, you aren’t winning the race. Every other agency is doing the exact same thing. And when everyone can produce faster and cheaper, the only differentiator becomes price.

And price competition in a commoditized market with static performance?

That's how agencies turn into zombies…alive, but not growing or changing because there isn’t enough margin.

The winners are going to be the ones who figure out how to use AI to do things they literally couldn't do before. New capabilities. New insights. New creative approaches that weren't possible when humans had to do everything manually.

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Let's talk about every business owner’s least favorite topic: pricing pressure. That shit is REAL.

Margins are getting squeezed across the board. Clients know that AI makes production cheaper. They know that media buying is increasingly automated. They know that the "secret sauce" is harder to prove than ever.

Here’s the really shitty part… you are getting more efficient because of AI. You might be thinking, “Hell yeah, margins are growing! Lower costs & same fees!” As far as I can tell, AI efficiency gains aren't enough to offset the squeeze.

You might be producing 30% more content with the same team. That is awesome.
But if your clients are taking 3x as long to make a purchase decision, and are questioning your value because "AI does most of it now," & you’ve had to staff up a little because SOMEONE on the team ought to know WTF MongoDB is or why that API doodad breaks, you're still losing ground.

As the kids say (said?) “The math ain’t mathing.”

You need a different strategy entirely. You can't efficiency your way to prosperity when the market is repricing your efficiency gains in real-time. (To dive a little deeper into marketer’s total freakin’ obsession with optimization, read Is There a Creativity Crisis? and Creativity Crisis Part 2.)

Okay, so what the flip do you actually do now?

After staring at this data until my eyes bled, I see three and only three viable defense strategies:

Stop being an "agency." Stop being "full-service." Stop being "an extension of your team" (OMFG, I hate that phrase).

You have to be the only logical choice for a specific type of client with a specific type of problem. Be so clearly positioned that the right clients find you and the wrong clients disqualify themselves.

This isn't about niching down for the sake of it. It's about being so obviously aligned with certain clients that price becomes secondary to fit.

Not AI efficiency. AI transformation.

The agencies that win will be the ones who rebuild their entire operating model around AI capabilities. Not "we added ChatGPT to our workflow." Not "our designers use Midjourney sometimes” but rather full integration. Think new service offerings that only exist because of AI…value propositions that weren't possible 18 months ago.

If your AI strategy is just "do the same stuff faster" you are pretty f’d.

Pick a vertical. Pick a channel. Own it completely.

Not "we do e-commerce." That's too broad. More like "we do social commerce for hyper-targeted audience responsive DTC beauty brands" or "we do retail media for CPG companies targeting Gen Z."

The more specific, the better. Specificity lets you promise outcomes instead of outputs. And outcomes are pretty much the only things that matters.

Look, I know this isn't the most uplifting newsletter I've ever written. But I'd rather give you the truth than blow smoke up your ass with "AI is going to make everything amazing!" BS

The reality is:

Your move is positioning, transformation, or specialization. Ideally all three.

The agencies that thrive in 2026 and beyond won't be the ones who did the same things a little better or a little cheaper. They'll be the ones who fundamentally rethought what an agency even is in this new reality.

That's the straight skinny.

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