Before we get into it, let's clarify something. The term digital product studio doesn't really have a clear-cut, black and white definition. In this article, we're gonna go by Jules Ehrhardt's interpretation of what a digital product studio is, and how it differs from a more traditional agency. Other companies might see things differently and that's fine and dandy. We're just sharing our view on the subject. Let's get started.

Digital products are software-based tools that provide value or utility for the user. These products can range from websites and platforms, to web-based or native applications. In a business context, these are also often a means to an end, rather than just an end. A nice online store is there to convert new customers, a companion app is there to retain users...

Once you have an idea for a digital product and need to bring it to market, you'll need to work with several technical experts to bring it to life. When you are at this stage with an idea, a common dilemma arises; trying to build this thing internally, or get help from a company that does these sorts of things for a living?

Two of the most common types of businesses that can help you are digital (product development) agencies and digital product studios. These sound like they might be the same thing, but they are distinctively different. So what's the difference?

One of our veteran product managers, Simon Floré, agrees with Jules in that digital product development agencies are paid to perform specific tasks to a specific standard, whereas digital product studios are paid to take an idea and develop it into a product that meets the needs of the market. It's a subtle but important difference.

Order takers versus solution makers

Digital product agencies are considered to be order takers. They will take your requirements and provide you with a stable and functional product that meets your criteria. This is not inherently bad, but if the design you bring to an agency is not well-suited to meet the needs of the market, your product will like not thrive the way you'd imagined.

Digital product studios provide value through quick and repeated validation. Rapid validation processes utilize user testing to ensure that your product will actually provide the envisioned value to the end user without any frills. This process helps develop what's called a minimum valuable product (MVP) which is to say, a functional product containing only what's needed to validate one or more leap-of-faith assumptions about the product with end users.

By putting this MVP into the market, and seeing how users react to it, they then start iterating. For example, if people are using an app three times and then never again, they might implement a loyalty hub to keep the users coming back. Ultimately leading to a more complete product, tailored exactly to the needs of your users and your business.

The agency approach

Digital product development agencies charge customers for software development based on a list of product requirements. Their core competency is technical work: if the client wants the product to perform a specific function, they will design it to do just that.

Agencies focus on developing a product to your requirements within a specific time frame for a specific budget. The relationship with an agency is best described as client-supplier, much like ordering an industrial supply. The product brief you submit to the agency is the guide for the entire project. They will not stray from your requirements.

Even if the development team believes your requirements to be out of date or otherwise ill-suited for the current digital product market, their job is to meet the specifications of your product. They will usually not question your requirements or offer suggestions to make your product viable. Even if they know your product is likely to fail, they will rarely challenge you on this.

The agency approach is not a bad way of doing business but it does have drawbacks. Your product requirements are not going to be evaluated in terms of the existing market or trends. The agency’s job is to develop to your specifications, and that is precisely what they will do. In essence, they build what you ask them to build, whether it's what your users want or not.

The studio approach

A digital product studio is a company with cross-functional teams of experts who come together to build the best digital products possible. These experts are usually product managers, designers, strategists, and engineers. Digital product studios' core strengths are collaboration and validation. Rather than simply taking a specification list and building it out, creators at a studio might begin with what's called a design sprint.

A design sprint is a process of building a non-functional prototype of your idea that looks and feels real. This prototype is then tested during user interviews with members of your target audience. This process helps validate what you'd set forth to learn during the first day of the sprint. In other words, a digital product studio tests your business challenge and builds a unique product specifically to meet those needs.

The next step is to build an MVP. This is the most basic version of your product that's usable enough to start gathering feedback and data. They want to bring that first version to market as soon as possible. The MVP is only the first iteration of a series of development cycles driven by customer feedback and data analytics. This means your product is tailor-made based on how your customers are using your product. Every cycle, they'll build something new based on the data.

Studios view customers not just as clients but as partners in development. Clients working with a digital product studio can expect a strong working relationship with their experts. You are not just the customer; you are part of the team. This collaboration spans the entire product cycle, from the initial challenge to validating it, to continuously improving the product based on the needs of the market.

An example of a digital product designed by a studio

Insurance companies need to be able to take claims from their customers. This requires gathering information, formatting it in a way that can be understood by the insurer's infrastructure, and making sure the claim data is received by the correct parties. Belfius Insurance is one such company, and they came knocking with a challenge: their old damage claims filing process was like a maze to its clients. People had to contend with a byzantine mess of documents and online forms to file a claim. We performed a detailed analysis of current workflows and recognized several opportunities for improvement. The end result was an easy-to-use chatbot flow, including automated follow-up.

The people at Belfius Insurance noted an 87.5% increase in conversions afterwards. Where an agency-designed application may have ended up being meaningless or not adding value for the end user, this studio-designed application is an improvement for users and therefore the company.

Project managers versus product managers

Another distinction between an agency and a studio is their approach to managing the development of the product. Digital product development agencies tend to use project managers, where digital product studios tend to use product managers. This seems like a small difference: why does this matter?

It matters because it again highlights the differences in the approach. A project manager is given a list of specifications and deadlines, then breaks those down into tasks to be assigned to the development team. Project management is focused on meeting goals on time and on budget.Developing a digital product from the ground up requires careful analysis. Does the product meet a need in the market? Does it add value to users? What are our minimum needs for the first version of this product? Does this product solve any kind of real problem for users? Project managers do not drill into these questions, but product managers do. They will challenge you on your ideas.

Product managers take a more holistic approach. They will evaluate the client’s specifications in context. They might recognize that there is a better solution than what the client has proposed. Rather than just developing the product to spec, a product manager will bring this information to the client to leverage their shared knowledge into building a better product.

Product managers live at the intersection of business, UX, and technology. They will always figure out how to match the user's needs with your business needs while considering the technological limitations and opportunities.

A use case for digital agencies

A digital product development agency can be useful to clients who have a well-developed idea, supported by current market research and careful analysis. Or companies that have strong digital strategists and UX- professionals internally. These companies often just need design or development expertise to implement the product.

Agencies will work to your specifications, so the best way to use an agency is to bring them a complete set of criteria to build from. When you're 100% sure on what to build or have people internally that are experienced at the validating and UX process, they might be the correct option for you.

However, if there is any aspect of your project that you are unsure of, you will need a digital product studio to validate your assumptions so that you only build what your users want and your company needs. Often, a firm will think they have done sufficient due diligence, only to end up with a product that was not user-tested early on and doesn’t meet market needs. Building a non-validated digital product can easily lead to investments up to 6-7 figures for a product nobody ends up using.

A use case for digital product studios

A digital product studio offers clients a little more utility than a digital agency would. Studios focus ultimately focus on the growth of the client as a business, by means building digital products with and fore them. Studios prefer to work in conditions where they are empowered to find and address challenges in the most effective way possible, rather than blindly adhering to a rigid set of specifications.

If there still are some assumptions left surrounding your product or idea, or maybe there's some misalignment between stakeholders. In that case a studio is the right choice for you as well. Agile development cycles address the former, preliminary workshops and close collaboration take care of the latter.

Using a studio is likely to lead to a more performant and cost-effective solution. Its inherent downside is the relative insecurity regarding the future. There are no roadmaps spanning two to three years, that's the whole point. User feedback and data is our guide for progress. But that's something that might not always sit well with every stakeholder.

How to tell whether you're dealing with a studio or an agency

Many digital product companies have vague names and descriptions. People give different interpretations to certain terms. Business-speak, jargon, marketing terms, and other linguistic trickery can make it even more challenging to determine whether a particular company is a studio or an agency. How can you tell which kind of business you are interacting with?

The easiest way to find out is look at how the company tackles collaboration. An agency will offer minimal amounts of it. You will submit product requirements and maybe have a few meetings to discuss progress. Beyond that, you will most likely not be interacting with the development team directly.

A studio offers a highly collaborative approach instead. Studio teams are small and cross-functional; they will meet with customers to evaluate the requirements of the product while also evaluating the idea itself, the available market spaces, any technical hurdles, strategic ideas, and other key data points. Product development with a studio team is an ongoing process, as the studio team will continue to refine and optimize your product through multiple iterations.

Studios will meet with clients frequently to discuss changing conditions, new ideas, additional value streams, and other information that will affect your digital product. Hence, the nature of your relationship with a studio is very different than it is with an agency.

Digital product studios are about building solutions

Very few ideas are perfect when they are first formed. No individual is clairvoyant. While there are use cases for digital product development agencies, most customers will get more value from working with a digital product studio, especially in this rapidly evolving economy we're in.

In short, when a digital product studio meets with you and your idea, they will bring in a cross-functional team of experts. These teams will usually have engineers, designers, and a product manager. This added expertise, and having everyone sitting at the table throughout the whole journey, you consistently end up building products that are more likely to be feasible and viable.