Digital Services Outlook Update – Second Half 2019


Digital Services Outlook Mid-year Update

Digital service firm owner’s expectations for hiring increased, while revenue expectations remain relatively unchanged 

Executive Summary

 We recently completed a midyear update on the digital services market and we have identified two key takeaways:

Digital service firm owners have slightly tempered their revenue growth expectations for 2019 compared to the initial survey results in January. Owner expectations for revenue growth have fallen slightly, with revenue growth expectations falling from 18% in January to 16% in June.

Owners are more optimistic when looking at hiring expectations for 2019 since the beginning of the year with expected headcount growth of 22% in June compared to 14% in January. We believe owners are preparing for additional growth throughout the second half of 2019 and into 2020.

Revenue Growth Outlook

We categorize respondents to our surveys into four sections according to firm size: Studio (less than 10 employees), Small (10 to 24 employees), Medium (25 to 49 employees), and Large (50 or more employees).

In our midyear update, survey respondents adjusted revenue growth rate expectations for the year significantly compared to the 2019 outlook published in January. Revenue expectations from Studio owners fell the most to 12% Y/Y growth, followed by Small firms that fell to 15%, and Large that fell slightly to 18%. The outlier was Medium firms that became significantly more optimistic with revenue growth expectations jumping to 29% Y/Y growth, a 48% increase from six months ago. The January results showed Studio, Small, Medium, and Large firms expecting year-over-year revenue growth in 2019 to be 16%, 18%, 19%, and 19% respectively.

Headcount Growth Outlook

The other primary growth metric that we track, hiring expectations, reveals owners’ longer-term growth expectations for the industry. If management is willing to invest in additional headcount, we view this as a strong positive signal.

Owners expect to grow their firm’s headcounts by an average of 22% in 2019. This is up significantly from the 14% growth expected in January. The increased hiring expectations is led by Studio (expect 29% y/y headcount growth) and Medium (24% y/y) firms. Small (16%) and Large (10%) firms also expect to grow, although more in line with revenue expectations. In January, Studio sized firms were the most optimistic about hiring plans for 2019, however all four size categories provided results that were in a tight range between 12% and 17%.

About Our Research

Results were derived from two surveys that we conducted in 2019. The first survey of 169 digital service firm owners was completed in January 2019. The second survey of 67 digital service firm owners was finished in June 2019. Both surveys incorporated responses from 24 countries, but the majority of respondents are based in North America, specifically the United States.  




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