What is the difference between a digital product studio and a digital product agency?


Steph Schaffer

May 13, 2024

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One of the most critical yet risk-prone undertakings for a business is the creation or transformation of its digital products. Designing, building, and launching a digital product that meets your customers’ needs, looks incredible, is simple to use, and is secure, is challenging and costly to say the least.

To embark on this endeavour successfully requires a cross-functional team of product building experts, not a generalist digital agency or software shop. That’s where a digital product studio like Paloma comes in.

In this blog post, we will explore the advantages of working with a digital product studio and how they help businesses create products that meet their unique needs and achieve their main goals.

Let's dive in and explore the benefits of working with a digital product studio like Paloma in more detail.

A few callouts to get us started…

Before we get too ahead of ourselves, it’s important that we make something clear: The term ‘digital product studio’ doesn't have a singular, black and white definition.

In this post, we're going to explore what it means to us to be a digital product studio, and how our definition differs from that of a more traditional software agency. Other companies might see things differently and that's completely fine! We wanted to take this opportunity to share our distinctive views on the topic. So, with that, let's get started.

First thing’s first: It’s essential to understand what a digital product is. 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 an end in themselves (i.e. a way of converting new customers or retaining existing users).

When you are at the idea stage for a new product or keen to transform your existing technology, a common dilemma arises; do I try to build this thing internally, or get help from a company that lives and breathes this stuff?

Some of the common options considered at this stage are: freelancers, hiring internal team members, or outsourcing the tech build to an agency. But, one of the lesser known and most reliable ways of building a digital product or venture is by working with a digital product studio. Although it might sound similar to a software or digital product development agency, there are several key differences that in fact set digital product studios apart.

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So, what exactly is a digital product studio?

Digital product development agencies are paid to perform particular tasks to a specific roadmap, brief, or standard, whereas digital product studios are paid to take an idea and develop it into a world-class product that simultaneously solves business problems and customer problems. It's a subtle but important difference.

Digital product studios specialise in helping entrepreneurs and companies bring their nebulous product ideas to life and turn them into market-leading businesses.

Many digital product studios, including Paloma, service a wide range of companies. We help day one startups with their launches, accelerate growth for scale-ups, and empower large players to become number one in their respective industries.

Digital product studios help their clients navigate the complex process of bringing a product to market. From concept to launch and beyond, they act as a true partner, providing guidance and support every step of the way.

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Order takers vs. impact makers

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 a business’ requirements within a specific time frame for a specific budget. The product brief a client submits to the agency is the guide for the entire project, and unless they’re exceptional, the team will not stray from these requirements.

Even if the development team believes the requirements aren’t the best fit for the product, their job is to meet the expectations the client has put forth. They will usually not question these requirements or offer input to make the product viable. Even if they know a product is likely to fail, they will rarely challenge a client on this.

With an agency, whether it's design or development, a client comes to them with a brief or a very well outlined structure of what they want to be done. It's basically - here's the job, go and do it.

Typically, there is no one at the agency who will be asking hard questions like: is the problem you’re trying to solve actually a problem worth solving, will the technology you're deciding to go with still be relevant down the road, and are there more effective ways to reach product-market fit quicker?

Digital product agencies are order takers. They will take requirements and provide a client with a stable and functional product that meets their criteria. This is not inherently bad, but if the specifications a client brings to an agency are not well-suited to meet the needs of the market, a product will likely not thrive the way they’d imagined.

The agency approach isn’t inherently bad, but it does have some definite drawbacks. The agency’s job is to develop to a client’s specifications, and that is precisely what they will do. In essence, they build what is asked of them to build, whether it's what users want or not.

Digital product studio approach

On the other hand, a digital product studio takes a vastly different, and in our opinion, optimal approach to product building. Digital product studios' core strengths are collaboration and validation.

Rather than simply taking a specification list and building it out, digital product studio teams work cross-functionally across the entire product development cycle, from ideation and strategy, to delivery and scale. They put ample time and energy into discovery, validation, and user testing in the earliest stages to ensure a product actually solves a real problem for its target audience in the most seamless way possible.

In the design and building phase, a digital product studio team will start gathering feedback and data on the first version of a product as rapidly as possible. This forms the beginning of an iterative process whereby a product’s success is constantly driven by customer feedback and analytics. This means a product is continuously improved upon based on how customers are interacting with it.

Digital product studios provide value through quick and repeated validation. Rapid validation processes leverage user testing to ensure that a 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 its end users.

Working with a digital product studio is unique because a client does not need to come to them with a blueprint of exactly what they need. Requirements, features, and technology can be selected collaboratively throughout the product development process.

Moreover, digital product studios can help with multiple critical areas of the product development process because of their diverse suite of capabilities. Instead of hiring and managing 3-4 different partners, digital product studios can simplify processes and help companies cover multiple gaps. We’ve personally seen this synergy improve a) final product quality, b) time to market, and c) overall client and user experience.

Collaborative working relationships built on trust

A digital product studio offers a highly collaborative approach. 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, 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 optimise your product through multiple iterations.

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

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

Full-service product development under one roof

The product development process can be a slow, risky, and disjointed experience. Unless a company has the means to hire an entire team internally, they would inevitably end up working with multiple agencies, each doing their own thing. As a result, subpar experiences, products, and results are the outcome in most cases.

Digital product studios like Paloma solve this problem by bringing all these different but critical areas of product development under one roof. Great digital product studios function as an extension of the company they partner with, and take on the most critical parts of a product development journey from day one to infinity.

Forward-thinking companies partner with digital product studios because of their subject matter expertise in developing products, which saves time, money, and effort. Developing digital products from scratch is a complicated undertaking with many moving parts, that requires well thought-out systems, highly-trained teams, and seamless processes to ship successfully.

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What makes a digital product studio team unique?

Digital product studios look to build empowered, cross-functional teams to assist their clients in the strategy, validation, design, and development of new products or to improve existing products. They take ownership of the product development process across strategy, design, development, and scale.

The individuals that make up a digital product studio team, like ours, are a diverse group of professionals with a common goal – to help bring the best possible products to market.

They are characterised by their entrepreneurial spirit, innovative thinking, and customer-centric approach to problem-solving. This unique mindset sets them apart from their peers and allows them to bring a fresh perspective to the challenges faced by their clients.

The teams are often made up of strategists, visual designers, product designers, engineers, quality engineers, and product managers. Each member brings a unique ability to the table, and the combination of their skills allows the team to offer clients a comprehensive end-to-end suite of services.

The people who typically work in digital product studios share the mindset of the firms they work with. They are often innovative, customer-focused problem solvers that see the world differently to their peers.

Compared to a generalist team at a digital agency or a company’s own internal team, a digital product studio has refined their systems and processes to give products the best chance of success.

The teams are experienced in gaining deep levels of customer empathy, and building product features based on customer-centricity. Specialist product-led teams like ours are used to the pace of working in innovative spaces with speed to market and differentiation being paramount.

At Paloma, our digital product studio is comprised of an epic cocktail of designers, engineers, product managers, and other experts who collaborate to create digital products for businesses. We work closely with our clients to discover, design, and deliver the right software for the right reasons.

Of course we love building software, but more importantly, we love creating user-friendly experiences that solve human problems and address a businesses’ needs. It’s this combination that makes us tick.

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Key advantages of working with a digital product studio

They are thinkers and doers

Everything that goes into creating a digital product, these in-house teams can handle. Across deep product and design thinking, functional user experience, beautiful design, and industry-leading engineering, they’ve got a client’s back from the very beginning.

They ship fast with no surprises

Their process is the best in its class. A reputable digital product studio will work transparently, ship frequently, and learn constantly. They understand the need for speed required to launch and scale a digital business of any size.

Their products are built to soar

Whether they’re building net-new products from day one, or transforming existing technology, these teams know what it takes to make a digital product succeed. The products they’ve built are hopefully in the hands of millions of users each month, and continue to unlock enormous value for their clients.

Their approach is customer-centric

A digital product studio team is free from the internal biases that might prevent a product from reaching its fullest potential. Product improvements are driven by user feedback and demand, rather than the requests of a subjective and distractedly motivated stakeholder.