Traditional agencies build competitive advantage by embedding engineers in client companies at low cost, then gradually increasing demands until contracts hit seven figures. Once deeply integrated across multiple services and custom systems, clients find them nearly impossible to replace.
And the only moat, in my opinion, that a traditional agency has, at least for today, is switching costs, right? Obviously, they popularized the 4 deployed engineering models. The main thing that they did in the beginning, they just made sure that they got their tentacles in there in terms of the 4 deployed engineers working at these companies, right? And then doing some stuff for maybe not too expensive to start with. But what ends up happening is because they end up asking for more and more overtime, the expansion revenue just goes up to— we're talking about 7 figures, we're talking about multiple 7 figures, we're talking about tens of millions of dollars a year. But when you do a damn good job and you're so integrated, it's hard to get rid of you, right? It takes a lot to get through procurement, you're a global organization, you're working with them in different areas, you have multiple services in there, it's hard to rip you out. Now, if you're talking about multiple integrations you have and things that you build, it's even harder to rip you out, right? So that's what you want to think about, switching cost.
