Skill-Biased Technological Change and the New Economics of Web Agencies

The concept of skill-biased technological change is a fundamental issue in labor economics. The theory holds that as technology improves, there will be an increasing need for highly skilled workers and decreasing need for low skilled workers who perform repetitive tasks. Because the rapid growth of artificial intelligence is creating changes in many industries including web development, skill-biased technological change has become more apparent. While it is evident that not all jobs will be lost to AI, many types of jobs will change dramatically and therefore will change the value of different types of jobs to organizations.

Historically in web development, building a website required a multi-step process i.e. writing code, building design elements, and putting those two elements onto a host server. Many of the tasks performed by the developer required a significant amount of time and extensive technical knowledge to complete. However, with AI, there are tools that can create an entire functional website, write the required code for the site, and create the design elements in a matter of minutes. This is a very typical example of the substitution of labour with technological innovation, thus displacing human input from the routine production processes involved in web development.

Nonetheless, web dev agencies aren't about to go out of business any time soon, but their duties will shift. Tasks that can be easily standardized are still being standardized (like your typical layout design or template-based website building), while tasks that are more complex are becoming more valuable (strategic consulting and communicating with clients, niche-level decisions in UX, complicated systems integration, and optimizing revenue).

Technological development has two sides—it both substitutes for standard (routine) jobs, as well as creates opportunities for labor complementarity (where human skills improve the effectiveness of technology). Therefore, agencies using AI tools will be able to produce results that can't be produced by automated systems without combining AI tools with business insight, industry knowledge, and strategic thinking.

There are a number of economic forces driving this transformation due to productivity and cost savings. AI tools greatly reduce the time and cost of producing a basic website. Because of these reductions, there is a lower barrier to entry and increasing competition in the generic web service market. As such, prices for generic services are anticipated to fall, and the margins for companies that simply focus on standard offerings will compress.

Concurrently, the interest in distinct and high-quality differentiated service is rising. The type of service that businesses want from web development is not just a website; it's in measurable results like a higher conversion rate, more engaged users, or more sales. This is why there is a premium on services that provide results in terms of the outcome rather than merely producing something. Economically, the market continues to trend toward work that brings increased marginal return through human input.

Evidence from the real world supports this trend. According to the latest research in web development, while the web development sector is still growing, most of that growth is attributed to areas such as digital marketing strategy, user experience (UX) improvement, and integrated marketing solutions. The cost for creating a basic website has fallen dramatically as a result of the availability of no-code solutions and artificial intelligence tools.

For example: the position that businesses find themselves in (ie: web development agencies in Manchester) are being changed by how they are selling their website services. Instead of selling the same service; services are being sold as different; i.e. providing business-to-business sales leads; developing web-based eCommerce solutions; developing technologies that comply with specific industry standards; etc. The ability for development agencies to provide "specialty" services, allows them to provide their clients with value-added services by providing them expertise, rather than just services generated through automated tools.

Furthermore, another area where there are opportunities for differentiation for agencies is in their ability to provide integrated systems. More than ever before, websites are integrating with multiple systems including: customer relationship management (CRM), analytics tools, payment processing, and marketing automation. While it might be possible that ai could help create some components for each of those web-based components, no computer can articulate how to connect all of them into a single, well-functioning website. Therefore, this presents additional opportunities for agencies to differentiate themselves and remain relevant in the marketplace.

Skill-biased technological change leads to wage polarization (having workers who do routine work being paid less than they used to due to fewer jobs being available) and requires workers to upskill (i.e., learn new skills) if they want good-paying jobs. Workers who have advanced skills in strategy, analysis, and integration will have many more opportunities and be paid more than those who perform less skilled, routine tasks (e.g., automation of factory floor workers). This labour market dynamic is typical of all kinds of industries as they become automated (not just in web dev, but throughout many industries).

In terms of the future of work, the value of human labor will increasingly depend upon its ability to complement, rather than compete, with technology; therefore, those firms and individuals that succeed will be managers or individuals who focus on developing competencies that are difficult or impossible to replicate through automation, allowing them to work alongside automation and create value through complementary skills.