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Last year Marketing challenged Agency Republic, 2004's Digital Agency of the Year, to 'win business from food and alcohol brand owners' to cement its status as the UK's leading digital agency. Twelve months on, it has done just that by securing a place on the digital rosters of Unilever Bestfoods and Diageo. These wins were supported by another outstanding new business year backed by a massive increase in revenue, creative excellence and 100% staff retention.

For an agency to win the Agency of the Year accolade two years running, as Agency Republic has done, it has to prove that it has consistently outperformed its competitors.

With digital now the UK's fastest-growing advertising medium and predicted by the Internet Advertising Bureau to hit £1bn by the end of the year, this is no easy feat - particularly with competition at its toughest since the late-90s dotcom boom.

Agency Republic has successfully honed its business model of working with big blue-chips and converting offline brands into major online players, and now has an established client base that includes O2, Egg, Blockbuster, the BBC and Smirnoff.

Perhaps the best demonstration of its success is that earlier this year O2 re-signed Agency Republic for a further two years after a lengthy auditing process. This was the best acknowledgement that not only has online become the mobile phone network's most successful sales channel, it is now committing more money to digital than ever, this year increasing its spend by 50%.

Digital marketing through Agency Republic played a pivotal role in 124 O2 ad campaigns, covering every business unit in the UK and Ireland. O2 has also made online the key channel for its customer retention drive, which is being spearheaded by marketing chief Russ Shaw and, according to the company's latest financial results, is already lowering customer churn levels.

The agency has been criticised in the past for relying on O2 so this year it has focused on proving that its model works across the board, regardless of the client's sector. While it has sought to consolidate this year, it has also been strong on the new business front and, besides roster business, was involved in six pitches, winning five.

The agency's full-service model of offering digital marketing solutions along with media planning and buying has struck a chord with existing and new clients. In February, it was one of only three agencies to secure a place on the BBC's digital roster, and in September it was appointed by Ladbrokes to handle its entire online gaming business.

But growth has not come from new business alone. Having been appointed by Egg last year, alongside sister direct marketing agency Claydon Heeley Jones Mason, to handle the company's direct marketing strategy, Agency Republic was instrumental in the recent launch of Egg's hybrid credit/debit card, Egg Money. It devised the 'Tested by guinea pigs' creative idea that supported the launch, and digital was the primary marketing channel. The idea was also placed at the heart of the TV ad campaign, created by Mother.

Having secured its place on the BBC's digital roster, Agency Republic has picked up a number of major projects for the Corporation, including a campaign to drive traffic to bbcnews.com, its international news site for European and US audiences, and an online brand campaign for Radio 1 that will launch next year, targeting the youth market.

This year, the agency has sought to establish a consistent management structure, with chief executive Martin Brooks taking an enlarged role heading Zulu, a new group combining Agency Republic and Claydon Heeley's direct and digital output. Managing director Jane McNeil and planning director Patrick Griffiths now lead the agency, which also hired its first training director in an effort to retain its most talented staff.

With digital now at the forefront of major brands' marketing plans and its continuing impressive growth as an advertising medium, Agency Republic has a massive opportunity and is already plotting international expansion to capitalise.

Next year's challenge will be to continue to grow its impressive client base while staving off the emerging challenges of the more traditional agencies that are encroaching on its territory while finding a way to cash in on the search revolution.

PREVIOUS WINNERS 2004: Agency Republic 2003: Glue London 2002: Agency Republic

BEST OF THE REST

Although digital is now at the heart of most brands' marketing plans, there was once again a dearth of major online pitches in 2005.

Without a doubt it will be remembered as the year that Glue London, which, under the stewardship of founder Mark Cridge, is regarded by most as the digital agency benchmark, sold itself to Aegis for £14m.

While it has been relatively quiet on the new business front, Glue has persuaded a number of existing clients, including Sky and McDonald's, to significantly increase their digital marketing budgets, and has also retained major clients including Virgin Trains.

To cope with increased demand for its services it has doubled its staff to 80 and overhauled its management, promoting commercial director James Sanderson and head of account management Jo Hagger to joint managing directors, freeing up Cridge to focus on product innovation.

In October, it resigned the long-standing Pot Noodle account, a move that some believe could affect its relationship with Unilever Bestfoods.

Perhaps the biggest pitch of the year was for the AA's £15m business, which saw Dare triumph after a final shoot-out against Wheel. A combination of web development and digital marketing, it marks the agency's first major foray into site development, and is being viewed as a turning point.

Under the guidance of managing director Mark Collier, Dare has again set the standard for some of the best creative work in the UK, winning awards for brands including Lynx, and, like Glue, has succeeded in persuading long-standing clients including Barclays and Sony Ericsson to beef up their online spend this year.

To try to offset a shortage of talented staff in the industry as a whole, Dare has also established partnerships with two colleges, Brunel and Watford, enabling it to cherry-pick the most talented candidates.

Notable wins for the agency include Onken Dairy through the AAR, two pieces of COI work and a place on the BBC's digital roster in partnership with i-level. It did not lose a single client this year.

Profero has had a very profitable year on the new business front. It has had an 83% success rate on pitches, with key wins including Bulldog and Butlins, and it was hired as Channel 4's first online media agency to lead the channel's digital strategy. It has just retained its work on child protection for the Home Office following a review.

Profero has sought to build both its UK and global business and is set to report impressive revenue increases from both, having established itself as one of the most technologically innovative agencies in the UK, achieving notable firsts on mobile and digital music devices.

In terms of global wins, they don't come much bigger than Coca-Cola.

AKQA's appointment in October as the soft-drinks company's global digital agency followed a drawn-out pitch, and was an acknowledgement that it is still regarded as one of the best strategically creative agencies in the world.

The win, coupled with its ability to keep long-standing clients including Nike and Sainsbury's, at a time when many are assessing their options to take advantage of the medium's growing maturity, have contributed to another successful year for the agency.

AKQA also opened an office in New York to complement its existing presence in Washington, San Francisco and Singapore.

With online advertising enjoying its fastest period of growth, it is worth highlighting the roles media agencies i-level and Zed, ZenithOptimedia's digital arm, have played this year.

It has been a year of growth for i-level, with major wins including Sky, following a protracted pitch, Orange and the AA. But it was also a year of change - after five years, the agency parted company with long-standing client BT. Rival Zed was appointed to handle what is the UK's biggest online advertising account.

i-level has also established itself as a leading player in the burgeoning search marketing industry, its specialist arm billing more than £15m just two years after launch, and employing 10 dedicated staff. Another notable achievement for i-level was gaining a place on the BBC's digital roster in partnership with Dare, with major online work planned in 2006.

In addition to the BT win, Zed has had its most successful new business year, increasing its digital billings by 83% and adding Zurich Insurance, L'Oreal and Powergen to its client list. The agency also increased its staff numbers from 59 to 80 and, having persuaded P&G to increase its digital marketing spend, it is fair to say that it is fast establishing itself as the digital media specialist.