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Ten years ago, many of the people who are now at the top of the digital industry began their careers working together at an agency called Modem Media.

Mark Cridge, the founder of glue London; Lee Wright, the managing director at Dare; Steve Vranakis, a partner at VCCP; Pete Robins, the founder of Agenda21; and John Baker, the head of interactive at OgilvyOne Worldwide, all cut their teeth during the dotcom boom at what was then the digital industry's hotbed of talent.

Now, things are very different. Beneath that most senior level, there's a big gap: the dotcom crash and subsequent five years of treading water by the industry has led to a serious deficit of people with more than a couple of years' experience in digital marketing.

That, combined with the 60 per cent to 70 per cent annual growth in online over the past couple of years, means independent digital agencies are now desperately recruiting in an attempt to cope with increased demand from both existing and new clients.

Above-the-line agencies, meanwhile, are also belatedly trying to beef up (or set up) their digital departments, and are finding the lack of good staff to be one of the biggest barriers.

Every discipline is affected: some say it's worse in planning (a relatively new discipline in digital), others that good, experienced creatives are the rarest beasts of all. It's all led to a talent crisis that, in the words of Norm Johnston, the European managing director at Modem, "rivals the height of the dotcom boom".

"The best agencies in London are all going through the same thing," he says. "We're competing among ourselves; we're all interviewing each other's staff and in the past six months we've had to start fending off the above-the-line and direct agencies who have woken up at last to the fact that they have to do something with online."

The result of the talent drought is that the industry is cannibalising its own resources - and the only winners are the headhunters. Such is the paranoia that one agency refused to allow one of its designers to be profiled for this piece in case it led to him being approached by competitors.

Rob Forshaw, a founding partner at Grand Union, says the situation is causing rapid price inflation and a culture of bidding and counter-bidding for new staff. "It's a short-term solution but, in this market, it's sometimes necessary to look for trained staff from other agencies," he says. "The problem is you have to pay a premium now to do that - something like a 20 per cent to 40 per cent increase on last year's salaries now across every discipline."

Account managers with two or three years' experience are now demanding salaries of around £30,000-£40,000; planners can be paid even more. Good creative teams with a few years' experience can almost write their own packages. There are even stories of graduates being offered in excess of £40,000 as a starting salary.

"People are also being offered share options again, which is something we haven't seen for years," Forshaw adds. "And they're being offered to people in junior positions, something that is unheard of in traditional advertising."

Such astronomical demands are problematic not only because they unsettle existing staff who might be on less favourable packages, but also because they are unsustainable, according to Dare's Lee Wright.

"It's not a long-term solution and it's in the industry's best interests to stop it happening," she says. "Fees haven't increased at the same level as salaries, margins are being squeezed, so the inflation isn't something that can go on happening forever. Hiring people on inflated salaries is also a bit of a time bomb because it has a big impact on your existing staff."

One alternative is to go outside the digital industry to find new people. Agency Republic has just hired Tom Bedwell, an account manager with four years' experience at Bartle Bogle Hegarty on Levi's and British Airways, as an account director on its Nokia and PlayStation business.

Martin Brooks, the chief executive of Agency Republic, says the 26-year-old realised that he did not want to spend the next five years working in a declining TV advertising market.

"The advantage for us of hiring people from ad agencies is that there aren't that many people in digital that are capable of having serious, senior-level conversations with clients," he says. "That said, it's much easier to move account people across than it is creatives because the skills they need are largely the same."

The fact that digital independents now often operate on higher margins than their traditional counterparts means they can afford to compete in salary terms too. That, combined with the attraction of a growing market, the fact that digital experience is now a positive asset to have on your CV, and more structured career paths within the agencies themselves mean they are a more appealing prospect now than they have been for some time.

"As an industry, we have to be more confident that our agency brands are as appealing as those in above the line," Johnston says. "The most important quality we are looking for is in staff is that they have had the digital epiphany. If you just want to produce TV ads then digital is not for you, but if you are after something more innovative, then it might well be."

The hunt for creatives is also leading agencies to start looking overseas, particularly across Europe and in South America. Johnston says Modem recently had 40 French graduate students in on work experience to introduce them to the idea of coming across permanently. "Lots of people want to come to live and work in London, so it's not a difficult sell," he says.

Some agencies are introducing graduate training schemes for the first time: Grand Union has run one for two years; Dare has just started a scheme for planners and account managers and has launched Dare School for graduate-level creative teams.

Wright also heads IPA Digital's efforts in this area and is leading an industry-wide initiative to attract more university graduates into digital marketing. A group of the IPA's digital member agencies have clubbed together to create a joint presentation to be taken on the traditional university milkround. Graduates will be introduced to all the different agencies and given application details for each.

Meanwhile, Jayne Barr, a director at the Creative and Cultural Skills Council (a Government-backed initiative to promote creative skills), is working with Watford College on developing a digital creative course for school leavers. The IPA's training director, Anne Murray Chatterton, is also developing a digital apprentice scheme for 16- and 17-year-old school leavers.

None of these will provide a short-term solution, however - and with the market continuing its frantic expansion, the talent shortage looks like it will continue to be one of the biggest barriers to growth.

That's not to say there aren't good people out there: last week's ±±¾©Èü³µpk10 Digital Awards showed a real improvement in the quality of the work on 2005, and some of the best young digital talent in the market is to be found among the award-winners. Here are ten of the brightest sparks in the business.

MARTIN BROOKS, CHIEF EXECUTIVE, AGENCY REPUBLIC AND ZULU

Most people in this business are happy with one job title. And, certainly, most digital bosses are happy with just one agency. Martin Brooks not only has two job titles, but oversees five agencies - a stable that is set to grow.

The winner of this year's ±±¾©Èü³µpk10 Digital Achiever of the Year award, Brooks (in an almost unprecedented development) was handed a blank cheque-book at the end of last year by Omnicom to build up its below-the-line operations - meaning all things direct and digital.

A major advertising network placing such faith in someone from the murky world of below the line is rare. Over the past year, Brooks - having already set up the very successful Agency Republic - has been the guiding and arguably pioneering, force behind Zulu.

He cuts a much more business-like figure than many of his contemporaries in digital, known as much for their "yoof" style and uncouth haircuts as their ad strategy. This goes some way to explain Omnicom's unwavering trust in him.

Zulu signals a whole new approach to the million-dollar question agencies have been grappling with for the best part of a decade: how do we deal with digital?

It's an umbrella brand that houses a number of specialist agencies. At the moment, the direct shop Claydon Heeley, Agency Republic, the mobile specialist Ipsh, the sales promotion specialist Alcone and the technology expert Code sit within the family. They bridge skills into other agencies as and when they are needed.

Omnicom is perhaps right to leave the architecture of its below-the-line offering in Brooks' hands. In another life, he was responsible for bringing together another stable of talent - he used to jam with Thom Yorke and introduced the singer to his current band, Radiohead.

JIM TAYLOR, COPYWRITER - IAN OWEN, ART DIRECTOR, MODEM MEDIA

Modem did battle with four other agencies before securing the services of this creative duo, who joined last month from Profero. In nearly two years there, they produced some of the agency's most award-winning pieces of work, including the various Child Protection on the Internet and Frank campaigns. Their Smart Online, Safe Offline work picked up the Charity and Public Sector prize at last week's ±±¾©Èü³µpk10 Digital Awards.

The pair started their careers in above the line, spending three years at Saatchi & Saatchi, which has given them a well-crafted, well-educated approach, according to Chris Clarke, the executive creative director for Europe at Modem.

"They've won loads of awards and have great talent but they are almost egoless, which is really unusual," he says. "Good teams at their level are very hard to find so it's great to get them."

They will now work across various accounts at Modem, with a focus on HP.

CHRIS WOOD, SENIOR PLANNER, TRIBAL DDB

A relative newcomer to Tribal DDB, Wood joined in April to run the strategic side of Tribal's Volkswagen account after working at Wheel and Proximity on clients including Sainsbury's, BT and Marks & Spencer.

Since then, the VW account has grown by an astonishing 25 per cent, mainly because of what Matt Dyke, Tribal's planning director, says is Wood's understanding of the client's business needs.

"We brought him on to bring a business edge to the planning department and that's what he's done," Dyke says. "The growth on VW is all out of proposals that he has put forward to the client that have turned into campaigns - he actually spots business opportunities rather than being content to sit back and take briefs. That ability is especially unusual in digital where we don't have huge data departments to back up our arguments like the direct marketing agencies do."

GAVIN GORDON-ROGERS, COPYWRITER - GEMMA BUTLER, ART DIRECTOR, AGENCY REPUBLIC

Since joining Republic from glue London in May 2005, this husband-and-wife team have established themselves as one of the UK's top creative duos, winning multiple awards for clients including Mercedes (winner of the 2006 ±±¾©Èü³µpk10 Digital Best Automotive award), Radio 1 and O2.

Their understanding of how technology can be used to create innovative marketing campaigns is what makes them stand out in a market where innovation is still the exception rather than the norm. The Musicubes campaign for Radio 1, for example (runner-up in the ±±¾©Èü³µpk10 Digital Best Use of Interactive category), launched well before MySpace came into the popular consciousness.

Andy Sandoz, the creative director at Agency Republic, says: "There's no edge or politics with Gav and Gemma, and they complement each other's skills. Gemma has great, fresh art ideas and Gav is hugely aware of the latest developments in digital and how they can work for clients."

JUDITH CARR, CLIENT PARTNER, LBI

Carr joined Wheel (now part of LBi) in 2002 as an account manager and has rapidly risen through the ranks to become one of the agency's most senior client-services staff.

Over the past four years, she has built the BT account into one of the agency's most lucrative pieces of business, has taken the lead on Inbev (including the recent award-winning launch campaign for Brahma beer) and has been instrumental in various new business wins, including First Choice and Starbucks.

Ewen Sturgeon, the managing director of LBi, says that one of Carr's key strengths is her ability to inspire trust both within and outside the agency. "She's extremely smart but also unthreatening, which is an unusual combination. She also has a good sense of how to judge creative work without offending the creative department and that, combined with her digital expertise, is what makes her different," he says.

CHRIS WALKER, CHIEF TECHNICAL OFFICER, SAATCHI & SAATCHI INTERACTIVE

Far from being your typical basement geek, Walker manages to combine knowledge of complicated technical issues with a real appreciation of advertising and clients' needs.

During his five years at Tribal DDB, he was the technical brain behind the Monopoly Live work that won plaudits at Cannes and at ±±¾©Èü³µpk10's Digital Awards, as well as working on D&AD-winning campaigns for Volkswagen and The Guardian.

He joined Saatchis in January this year and has since worked on accounts including Philips, The Royal Navy and Carlsberg. Neil Hughston, the managing director of Saatchi & Saatchi Interactive, who also worked with him at Tribal, says Walker is "unique" in his discipline.

"He's creatively literate and marketing savvy, which is almost unheard of within technical departments," he says. "He can make something that looks scary easy to understand, not only for people within Saatchis but for clients too - to the extent that he's been mistaken for the planning director in some meetings."

STEVE WHITELEY, HEAD OF CREATIVE - OLLY ROBINSON, CREATIVE DIRECTOR, AGENCY.COM

Winners of last year's ±±¾©Èü³µpk10 Digital Gold Award for their "Someone to turn to" campaign for the NSPCC, Whiteley and Robinson have just been promoted to management roles after three years of award-winning and high-profile campaigns.

The pair spent five years at D'Arcy before joining Agency.com in 2003, and have since picked up accolades for BT, British Airways, NSPCC and Dulux (winner of the Best FMCG ±±¾©Èü³µpk10 category at this year's ±±¾©Èü³µpk10 Digital).

Paul Banham, the executive creative director for Europe at Agency.com, says that their work ethic and commitment is what makes them stand out. "They've worked more late nights with me than anyone else in the building and they believe 'OK' is actually bad," he says. "The campaign they did for NSPCC involved them having to cut up 300 frames by hand to create the video within the banners - in those days, we just didn't have the budgets to do it any other way. It was pushing the boundaries and that's something they genuinely enjoy doing."

LAURA PENNELL SENIOR ACCOUNT DIRECTOR, AKQA

One of the best suits in the business, Pennell has worked on some of AKQA's most significant accounts since she joined the agency in 2002 as a senior account manager, including Sky, Domino's and Sainsbury's (winner of the Best Relationship Marketing campaign at this year's ±±¾©Èü³µpk10 Digital Awards), an account that she has worked on for four years.

In recent months, Pennell has been more involved in new business, and was instrumental in winning the Dell account. This, along with her work on Sky, led to her recent promotion from account director, according to Michael De Kare-Silver, the managing director at AKQA. "Lots of people got out of digital when it all went wrong, but Laura stuck with it and the length and breadth of her experience is a real asset," he says. "She has great interpersonal skills, can talk strategy with clients and is absolutely reliable. I know if I give her an account to work on that it's in safe hands."

NICK EMMEL, SENIOR PLANNER, DARE

Emmel's background, like many of today's digital planners, is in advertising and below the line: he worked at Bates, Tullo Marshall Warren and Maher Bird Associates on accounts including Guinness, Halifax and Yahoo!, before joining Dare last year.

He now works on Barclays and played a key part in the pitch that led to the agency winning the Vodafone account at the beginning of 2006. John Owen, the planning partner at Dare, says it was Emmel's response to Vodafone's music-related pitch brief that won the business for the agency. "He's frighteningly bright, has bags of energy and can express his thoughts persuasively - which is something digital needs as we increasingly sit alongside above-the-line agencies and have to explain why clients need to spend more on digital. Digital planning is quite a new category, so you need people with classic planning skills and a genuine passion for online, and Nick has both of those," Owen says.

SCOTT CLARK, ART DIRECTOR, PROFERO

Clark has been at Profero for just six months, but has made a particular impression because of his work on Mini, the account that Profero won jointly with glue London in June.

Having trained at the Miami Art School, he worked for Leo Burnett in Amsterdam on Marlboro, Fiat, John West and Hoegaarden, before joining a small digital agency, Halpern Cowan, where he produced campaigns for Halifax and Lastminute.com.

Matt Powell, the creative director at Profero, says that since he joined, Clark's collaborative approach has won over all the designers at the agency. "He's very vocal, a very good presenter - he almost brings in a bit of method acting when he's talking to clients," Powell says. "He's also very prolific - you give him a brief and three days later every wall of the office is covered in new ideas."