How and Why Marketing Services is Going Digital

Interactive is upending and blending direct, promotion and other services

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What a difference a year makes. Marketing services agencies interviewed for this Agency Report told Ad Age how enormously interactive communications have changed their business in just that time.

The rise of digital is upending and blending marketing services. "In the past 12 months, the lines between [marketing services] disciplines have completely disappeared," says Chris Weil, chairman-CEO of Momentum Worldwide, a promotions agency aligned with McCann Erickson Worldwide and owned by Interpublic Group of Cos.

Adds Joe Celia, global chairman-CEO of WPP Group-owned marketing services firm G2: "What we have recognized is that as certain of the [marketing services] areas eventually increase in convergence, digital is bringing disparate disciplines together."

Marc Landsberg, president of Arc Worldwide, a marketing services agency owned by Publicis Groupe, notes: "There is almost no marketing solution we can recommend today that would not have a digital component."

Numbers back up how marketing services dollars are moving into digital. Consider Hawkeye, a $61 million (U.S. revenue) agency offering direct, promotions, interactive and a smaller traditional advertising segment. "We had some falloff of gains in 2006 as clients moved," says Hawkeye CEO Richard Beanland.

Hawkeye's direct-related U.S. revenue rose 5.9%, and sales promotion increased 5.8%. But interactive shot up 53%. Put another way, interactive generated 23% of Hawkeye's 2006 U.S. revenue, up from 16% in 2005.

Total U.S. agency revenue figures tell a similar story. Agency revenue from marketing services grew 13.1% in 2006, roundly beating the 4.2% growth seen by traditional ad agencies. But within marketing services, agency revenue from interactive jumped 23.1%, far above growth in agency revenue from direct marketing (12.9%) and sales promotion (3.5%).

Lines also are blurring inside interactive agencies. Matt Freeman, CEO of Omnicom Group digital shop Tribal DDB, explains: "The work we do generally is separated by only a porous line from various disciplines. It's hard to distinguish. We may communicate on blogs, through new marketing groups, by video sharing, etc."

Marketing services executives make the point repeatedly: Interactive gets you to the consumer and measures what happens. "It's a highly measurable medium," says Scott Savitt, VP-director-interactive operations of Arnold One, the interactive and direct segment of Havas' Arnold Worldwide, "and it's more engaging with the consumer, reaches the one-to-one level."

The marketing services convergence story extends beyond digital. That point is illustrated by Bob Horvath, CEO-North America of Omnicom's Rapp Collins, the nation's largest marketing services firm with 2006 U.S. revenue of $306 million. "As a direct agency, we're making sure we hit all touch points, measuring, covering promotion, in-store, events, customer experience," Mr. Horvath says. "We are now defining direct more broadly, driven by client experience and interactive, which is huge and being integrated into pretty much of all we do, including our CRM programs."

The convergence story is affecting agencies, consumers, clients and chief marketing officers.

What drove the 2006 joining of Interpublic's Draft and FCB Worldwide? "We ran into a radical change in the market," says Laurence Boschetto, the merged agency's COO and global president. "That change was the consumer. A new phenomenon in marketing was the emerging role of the consumer—how, when and where to serve the consumer."

That's Part 1 of the inspiration for the new DraftFCB splicing, Mr. Boschetto says. Part 2, he says, is the "changing role of the chief marketing officer ... the intense need for immediate performance, immediate accountability."

The idea of melding advertising and marketing services is hardly new. Even Draft, long known as a marketing services agency, was in the ad business long before it merged with FCB. "This joining, with (Chairman-CEO) Howard (Draft) and me, was long in preparation," says Mr. Boschetto. "Ten years ago, Howard, with a direct marketing background, bought my advertising agency, Adler Boschetto Peebles, for a convergence to one discipline. Now we have joined Draft, for its accountability, with FCB, for its creativity, under one management, one P&L statement."

The convergence play extends to George P. Johnson, a Michigan-based events agency long involved in car shows. CEO Robert Vallee Jr. explains: "Before, we were a bit player. Now clients want to get the whole thing from us. Our business has required us to offer integrated services such as direct mail, interactive, collateral print, a web site."

Other shops are forging their own alliances. Marketing services giant Carlson Marketing in January 2007 formed an alliance with Hawkeye to operate a global channel marketing service called Conduit. The new service is aimed at maximizing sales by building the strongest possible customer relationships. "The hardest integration but the greatest success," says Carlson President-CEO Jim Schroer, "is to have sales integrated with marketing." Conduit is designed to combine Hawkeye's expertise in global channel marketing with Carlson's work in performance improvement.

Marketing services agencies are learning to work with other agencies on clients' rosters. "There's a blurring of lines also among agencies," says Mr. Weil, CEO of Interpublic's Momentum. "We work with Ogilvy (WPP) and Digitas (Publicis), for example. Always have had to work with other agencies sometimes. The difference now is that we are all sitting around the same table."

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