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Hardly a month goes by without a direct marketing agency buying or setting up a digital division. Earlier this year, RSCG's digital arm, Euro RSCG 4D, was created from a merger between Euro RSCG Interaction and EHS Brann Digital, while Archibald Ingall Stretton launched its standalone digital business, dais.

Other agencies such as Draft London have gone a step further by integrating their digital, data and sales promotion expertise to provide a full service.

But what is prompting this trend? According to this month's panellists, drawn from the DM and digital sectors, the dotcom boom - when many agencies jumped on the digital bandwagon only to scale back their efforts when the bubble burst - is now a distant memory. The increasing maturity and credibility of the internet and other digital platforms means a digital element is now considered a necessity for most campaigns, and this is driving growth.

Revenues on the rise

In addition, while digital margins tend to be slimmer than those of other media, direct response tools such as email and mobile marketing are boosting revenues. Many in the industry consider DM and digital to be natural bedfellows, so it may come as no surprise that traditional DM agencies are muscling in and capitalising on the possibilities digital has to offer.

The industry is reaping the benefits of a strong partnership between the two disciplines. But how does this affect client expectations? If digital is becoming a more important part of campaigns, will clients move away from niche digital specialists in favour of working with DM agencies that can provide an integrated offering?

"The more experienced clients just expect a DM agency to pretty much cover the waterfront. Some are becoming suspicious of the one-stop-shop or jack-of-all-trades model, but this option is often cheaper and easier," says Karen Enver, planning director at Draft London.

Whether a DM agency has the expertise to manage a digital campaign in its entirety is a moot point among the panellists. "A DM agency will not have the full spectrum of understanding that digital demands," says Faith Carthy, managing director at digital media buying agency i-level.

There is an assumption that digital is a specific discipline that requires a different set of skills, such as expertise in technology, and an ability to integrate this with the creative element. Digital requires an understanding of how consumers react to not just the web but platforms such as radio and television.

And this can affect the employment process. Carthy says i-level is very choosy when it comes to recruitment, looking for staff who are not only tech-savvy but who are also fantastic planners and negotiators.

Technological advances

The digital age may be a decade old but constant advances in technology mean the medium is still regarded as new and pioneering. "I don't know of any single role that demands such skills. It's such a challenge - we ourselves have only just begun to understand the possibilities," says Carthy.

There are nods of agreement around the table. "You can't just turn a traditional DM agency into one with a digital offering - it needs a lot of experience and expertise. It would be very naive of an agency to suddenly put two guys on a Mac and say 'Hey, we're digital,'" says Anne Davis, managing director of Euro RSCG 4D.

Our panellists fear this unsettling practice goes on in some agencies. As Jon Williams, creative director at Wunderman Interactive, puts it: "Graduates who understand computers can become heads of interactive, which is a bit of a scary prospect."

However, despite the different skills involved in digital marketing, most panellists believe there are similarities with DM and each discipline has something to teach the other.

Digital and DM have a natural alliance because data underpins every activity in these forms of communication - and clients who are not thinking about integrating their DM and digital campaigns are missing a trick. "Direct marketing tries to capture as much data as possible from the outset," says Wayne Arnold, managing director of Profero, "whereas digital grabs as little data as possible at the beginning and builds it up later. Digital cannot evolve unless it learns from the world of DM, especially in areas such as data mining and understanding customer profiles."

Online accountability

Yet in terms of analysis, the panellists argue the internet can offer a greater degree of accountability and can provide multiple layers of knowledge. Technology can reveal what has or has not been read, when it has been read and even where customers go next.

This enables in-depth profiles to be built up but, as the panellists point out, you can end up with too much data if you do not have a clear idea of the objectives needed.

Williams says his digital and direct teams have often worked from the same creative brief, a testament to the similarities between the two disciplines.

"It helps tremendously to get the inspiration going and the process is made easier," he says. "That's not to say it's the only way you can do it."

This begs the question of whether there is a trend towards clients adopting an integrated approach. For Davis, the issue is not so much about integration but where digital fits best in the marketing mix.

Integration or orchestration?

"How consumers respond to an email, door drop or mailing defines how we communicate with them in the future," Davis explains. "If you talk to advertising agencies, they still have a separate view of digital, whereas with DM, there is much more of a natural interest. But the question really should be what role digital has to play within the broader marketing communications mix. For me, it's not so much about integration but about orchestration."

But however an agency goes about it, cost can be a bone of contention. Traditional marketing demands a big budget that has tended to be allocated first, leaving the digital side as an afterthought, with campaigns more of a bolt-on than part of a strategic whole. Do agencies, therefore, have to prove the value of digital marketing?

"All agencies - not just the digital ones - have to prove all the time that there is value in what they are doing," argues Xavier Adam, the managing director of media consultancy AMC Group. "As a newer medium, there is less awareness of what digital is and does, so, in that context, maybe there is more education needed.

"The digital industry needs to take a step back and see what the general public is thinking, then it can position itself to be taken more seriously and be better valued. Clients are largely clueless about the whole area. When the digital industry realises this, it may start to get a bit further."

Educate clients about costs

The panel points out that serious and large-scale campaigns are not necessarily cheap - and any serious buyer knows this. For Carthy, it all comes down to educating the clients - and making them understand that offering value in the digital space can be very different from offering value in traditional marketing.

"The question of mark-up is also an issue in that volume discounts in digital work have to be handed back to the client - as they should be," says Enver. "But, if anything, this probably makes the medium more appealing. The problems lie more with whether fees should be charged on an hourly or daily rate, and how to resource digital effectively. It can be difficult to house under one roof every type of capability that may be needed."

Is there a growing trend for sister agencies to win joint DM/digital accounts? Last year, online bank Egg awarded its below-the-line account to a partnership of Agency Republic and Claydon Heeley Jones Mason. In March, Agency.com and WWAV Rapp Collins, both owned by Omnicom, won the £10m Ladbrokes account in a process managed by the digital agency.

The overriding view is that clients do not make such a distinction between online and offline, and are far more interested in finding a solution to their business problems. The panellists also acknowledge it can often be easier to work outside a group structure.

To achieve success, it is crucial for agencies to formulate a consistent approach. Davis cites the example of a Peugeot campaign. "We recently created a dedicated microsite to support the launch of Peugeot's new compact car, while our sister agency, EHS Brann, is responsible for the DM element," she says. "Peugeot is telling one uniform brand story across every channel but the element of re-enforcement is also critical. The mailing we used echoed the creative but made it personal and tangible, with a call to action offering the option to go online for more information, Similarly, email marketing will use the base creative."

Digital ownership

And who is best placed to own the digital space? This question provoked a few knowing smiles from the panellists, who were all reluctant to give an answer. "I have no particular view as to who should own digital, other than that DM seems to have had more success with online campaigns than above the line," says Enver.

The panellists clearly see a natural affinity between direct, digital and data and, with a growing number of direct response campaigns calling for a digital element, it seems traditional DM agencies will play an increasingly important role on the digital stage.

However, this is not a simple matter of online now being the domain of DM. The panel concludes that, on the whole, agencies must stop thinking in channels and start thinking like their customers, who choose particular media based on their needs and preferences. But digital ownership is clearly a touchy subject - and one that shows all the signs of a turf war.

THE PANELLIST LINE UP

Jon Williams, UK online creative director, Wunderman Interactive

Williams was formerly at Publicis Dialog, where he was part of the team behind the Hewlett-Packard Hype campaign which scooped the Grand Prix at last year's Interactive Marketing and Advertising Awards.

Xavier Adam, managing director, AMC Group

Adam has 10 years' experience of media relations and marketing. AMC's recent clients in the digital sphere include Firebox, News International, MTV, Endemol, unit9 and WPP.

Karen Enver, planning director, Draft London

Draft London specialises in integrated direct, promotional and digital marketing and is one of the few DM agencies to have restructured its services to deliver direct and digital solutions. Its clients include Stella Artois and Saab.

Wayne Arnold, managing director, Profero Profero, founded in 1998, offers creative and media services. It developed the first pan-European digital campaign for car rental firm Avis and produced creative work for the Government's anti-drugs campaign.

Faith Carthy, group managing director, i-level

Carthy was one of the founding members of Zenith Media and joined digital communications agency i-level five years ago. Its clients include Yell, the Department of Health and William Hill.

Anne Davis, managing director, Euro RSCG 4D

Davis was formerly the managing director of Euro RSCG Interaction. She has taken over as the managing director of Euro RSGC 4D, formed from a merger with EHS Brann, which offers direct and digital services.