Should Social Media Group, Syncapse restructuring cause alarm for social agencies?

At its high point of staffing during its seven-years of operation the Social Media Group (SMG) counted just under 20 employees, says CEO Maggie Fox. Now the agency is paring back big time, down to just Fox and one administrative assistant. It is closing its Toronto office and Fox will be working at client sites and from her home office.

“We did not close the doors for financial reasons,” Fox says when reached on the phone. “It was purely personal and strategic. It was getting more competitive and not very interesting, frankly… the decision was to go back to strategic consulting.”

SMG isn’t the only Toronto-based pioneering social media agency to restructure its operations. Last week, Syncapse announced the first dramatic layoffs in that company’s history, a majority of its 110 person staff.

What does this mean for the future of social media as part of a business’ operations? It could be we are seeing a consolidation in the industry. Or perhaps larger ad and marketing agencies now delivering social solutions. What may appear to be a dire situation could just be a shift in a fast-paced industry. After all, Fox announced landing a new client – Neiman Marcus – on her blog on June 28, and says that her former employees have moved on to other jobs.

I spoke with four of Canada’s top social and digital media professionals for their insights into the situation.

Sulemaan Ahmed, Principal, Servo Annex

Social media is as about dead as mobile, email, and Web sites – not at all.  The fact that two firms have suffered recently doesn’t signal a change.  It just means the industry matured or got more competitive.  It means that clients are smarter and educating themselves.  They are asking how social media drives business results.  And by business results that doesn’t mean more Likes, followers, Re-Tweets or Klout Score.  It means increasing revenue and/or decreasing costs that put a big smile on the CFO’s face.

I don’t believe that bigger necessarily means better as I’ve seen smaller firms take on bigger firms and win. Insofar as SMG and Syncapse struggles, there are many other smaller agencies that have thrived and newer ones arriving on the scene.  But I do tip my hat to any entrepreneur that tries to make it as it can be a very difficult and lonely road at times.

Hessie Jones, CEO, ArCompany

In both cases, they were both early to the market. That’s how they capitalized. But how you sustain your business is based on how you manage a company.

Syncapse did a great job of selling the premise, but delivery was another matter. It also didn’t know what it wanted to be when it grew up and changed models repeatedly.

SMG, on the other hand, didn’t evolve with the market demands. They continued to sell the same stuff. They also became frustrated with the disparity between those clients who got it and those who didn’t. That’s the reason SMG chose to sell more in the U.S.: They were relegated to doing things that were not part of their business model, such as Web site development. In the end, CEO Maggie Fox chose to close up shop and go on her own.

Being early to the game doesn’t mean you can stand still. Everyone catches up sooner or later and they surpass you.

Laurie Dillon-Schalk, Planning Director – Digital and Social Media, DRAFTFCB 

It is alive and well and two Canadian companies folding do not change that big holistic picture.

But there are two different industry shifts at play here – SMG and Syncapse are not so directly linked together.

With SMG, I’m not an insider and so can only speculate that coming together with a client who already had a media/ad agency/PR firm must have been difficult.  Social media has moved from a low zero to five per cent ad budget to upwards of 15 to 20 per cent, but that split between players makes for heavy competition for little dollars.   Ad agencies are in the thick of good and ample social media work – it is a growing business, but not without hurdles.   So yes – ad agencies are definitely selling social solutions (or just integrated ones).   The pace of “real time marketing” means we need to move fast – and multiple vendors can make that nimbleness difficult.

As for Syncapse: I didn’t see that coming nor do I think the employees did.  It was a company with internal struggles but very talented employees.   It is a shame that its acquisition was not made.  I think this speaks to the fragility of businesses and today’s shareholders and funders.  I think the services they provided are very much needed in the marketplace.  I am disappointed to see a Canadian tech company get restructured and wonder if we do enough to support our tech companies.

Andrew Jenkins, Chief Strategy Officer, ArCompany

Social Media is not dead nor is it dying. The market is definitely going through change with early breakout companies being acquired, making it on their own, or shuttering. We have seen this before in e-commerce. Lots of hype. Huge valuations for companies with little or no revenue. The bottom falls out and only sound business models survive.

Many companies were bloodied and short of cash after the dot-com meltdown but over time companies started building out digital or online marketing teams and e-commerce capabilities as part of their everyday operations. A lot of time was devoted to educating people about e-commerce and the Internet then and now the educational efforts have shifted to social media.

Syncapse and Social Media Group were two of the many companies evangelizing social media and the opportunities for businesses. Just because they, and some others before them, have closed their doors, laid people off, or changed direction, it does not mean that social media is dead. These situations are to be learned from. As long as firms focus on business fundamentals then social media will continue to mature from the bright new shiny thing to a core part of day-to-day operations.

Yes, there is still a great deal of educating to be done and many companies are still not prepared for the demands of social media. It is not a quick fix. It requires time and resourcing just as e-commerce did. Companies understaffed e-commerce and did not devote sufficient time to manage it properly. We have the luxury of hindsight to avoid those same mistakes. If a company is not prepared to devote the time or the resources then they may need to consider outsourcing it. Better to do that than allow their competitors to disrupt their business through their own adoption of social media.

Whether with B2C or B2B, social media has caused fundamental shifts in where, how, and with whom we share information and exchange value. Many are uncertain about what to do. That’s completely understandable. However, as mentioned earlier, we have been here before and we know how it turned out for those who embraced the change and applied proper business acumen to the situation – they flourished and still exist today. Easily said. Tough to do. Still very possible.

Your turn

We’d love to hear from you. What are your thoughts regarding social media? Is your company moving forward with your social and digital strategy? Are you part of an agency? If so, what are you hearing from clients? Feel free to respond in the comments section below.

With notes from Brian Jackson.