I have a good friend who works at an agency and he does it for these reasons:
1) As a consultant you have to be constantly networking, and selling yourself, to keep the pipeline full. He hates that, being on the antisocial side.
2) As an employee at a traditional firm one works on one product in one industry, for multiple years in a row. He works on about 4 products in 4 industries a year.
3) Working for an agency he makes more than he would as an in house employee, yet has a number of employee like perks. This is largely because he's good, and has negotiated hard - but this stuff would be harder as a freelancer.
You are unkind but not entirely wrong. If you read my previous comment closely: that's something which gave us an edge early on but later became an albatross around our necks.
lol, implying completing "the illusion that everything was done in-house at the agency" wasn't wrong in the first place.
Anyway, I still can't imagine why people found agencies.
If I want to do consulting, I'd become a freelancer, this pays much better and there is plenty of work.
If I don't, I would work at a real software company that builds and sells software products...