In the past year or so, numerous digital gurus have left agencies owned by the major ad holding companies for a host of different ventures, from new-media plays to small or lesser-known agencies. Most recently, Mark Kingdon, CEO of Omnicom Group's Organic, jumped to the company that created Second Life. OMD's Sean Finnegan left the massive media buyer for Vibrant Media, which puts ads in text on websites. Even gray-haired CEO types have done it. Former Initiative chief Alec Gerster went to interactive-TV-ad company Navic, while David Verklin of Carat is being tapped to paddle Project Canoe, the cable-industry effort to get targeted ads through set-top boxes.
While each exec moved for different reasons, the trend is clear. "You are going to see a continued evolution of top talent leaving respected digital agencies and going to start-ups," said Andrew Holtvedt, partner at executive- search firm Heidrick & Struggles. "It's only going to continue to be a problem because there is a lot more competition in the marketplace."
It boils down to this: Even if it holds out a lower salary initially, a job with a pre-IPO or pre-acquisition start-up can offer equity that could one day be worth millions, something a holding-company-owned agency could never match.
Building an industry
But it's not just about money. The unwritten part of many an agency job description includes mucking about with unwieldy bureaucracies, warring with sibling agencies or rivals over turf, getting kicked around by clients, schlepping around the globe to put out fires and pitching till your throat hurts. In some cases, the new ventures offer the chance to build not only a company but an industry. That's pretty heady stuff compared with the often-limited existence of an agency.
"At agencies you get exposed to lots of different challenges and great brands, but it's filled with compromise," said Troy Young, a former Organic executive who's now chief marketing officer at VideoEgg. "Someone can always say no if they don't like your idea; it's somebody else's brand. Lots of what you create in agencies never sees the light of day."
For agencies, the risk is losing the digitally savvy guys who woo young talent and can be wheeled out to sweet-talk about current marketing issues in new-business pitches.
Not even the drying up of the credit market has stanched the flow of capital into the ad and media space. That's because of all the bullish predictions for the growth of online-advertising investment. Pressure on marketing budgets may even help funnel more money into digital channels.
"There is a lot of money to be had, and certainly anyone worth their salt is looking at venture deals, at what's out there and what's likely to be bought," said Liz Ross, president of Omnicom's Tribal DDB West.
That outlook means we could be see more of the kind of move Mr. Kingdon made last week. He gave up on agency life to go try to inject some spark into Linden Lab, best known for the virtual world Second Life, a one-time hype machine that's lost a lot of its buzz. The terms of Mr. Kingdon's deal aren't public, but it's a safe bet he'll benefit should Linden offer shares or get bought up.
So how do agencies compete with this kind of opportunity? Offering more-competitive compensation is the obvious fix -- and easier to say than it is to do. After all, the holding companies are subject to Wall Street pressures to keep costs down. An equally tough challenge is to make the job and lifestyle more rewarding. A lot of agency defectors say a big problem is lack of ownership -- not just of equity but of ideas and of the product itself.
Here's how Mr. Young explains it:
"In the agency world, you do lots of pitching. ... And pitching is about telling a great story. But a lot of times, the stuff you pitch, it evaporates. There's the pitch and the reality of managing the account. It feels like you're crafting these wonderful stories that never get made. A startup is real. You're driving bottom line, user base."
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Contributing: Abbey Klaassen