AGENCIES LEFT IN COLD AS MARKETERS EXPAND ONLINE. NET TREND: WHY WILLIAMS-SONOMA, GM, NIKE AND OTHERS HAVE LOOKED ELSEWHERE FOR WEB STRATEGY HELP

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When pat connolly started looking for a company to develop Williams-Sonoma's first Web site last fall, he had two requirements: The potential partner had to be experienced in e-commerce, and it had to be large enough to support the housewares retailer's aggressive Web-expansion plans.

"We wanted somebody who had the size to support us," says Mr. Connolly, exec VP-general manager of Williams-Sonoma's catalog business. "That would eliminate a very creative but very small firm."

Mr. Connolly invited five companies to his "bake-off." The smallest, Viant, had revenue in 1998 of $20 million. The largest, IBM Corp., had '98 services revenue of $29.4 billion. The remaining contenders -- USWeb, Cambridge Technology Partners and CKS Group -- brought in nearly $850 million in combined revenue last year.

In the end, Williams-Sonoma gave the business to USWeb and CKS, which merged during the review process.

Williams-Sonoma's first site, a wedding and gift registry (www.wswedding.com), launched last month. The site had 175,000 visitors in its first five weeks. USWeb/CKS is now at work on Williams-Sonoma's second site, an online store due out in time for the holiday season.

"With the Internet, we wanted to make sure that when we went after it, we could do it well," Mr. Connolly says. The wedding site "came in on-time, on-budget and on-scope. That doesn't happen very often."

ALL SHAPES, SIZES

As marketers such as Williams-Sonoma turn their attention toward e-commerce and begin to integrate Web and traditional business, they're relying less on the two types of companies that everyone a few years ago thought would duke it out to dominate the business of building Web sites: interactive shops and traditional ad agencies.

These days, Internet business strategy comes in all shapes and sizes, and from all corners. Jupiter Communications identifies no fewer than eight categories of Web development expertise, ranging from Web-hosting companies to systems integrators to consultancies.

Companies such as Viant, a San Francisco-based Internet business strategy company, bring high-level consulting expertise and offer to mold a marketer's entire Internet presence. In Internet pitches, Cambridge Technology Partners, Cambridge, Mass., touts its long history of helping companies develop information technology systems.

AGENCIES 'MOST EXPENDABLE'

Ad agencies are just one of an increasing array of options -- and aren't often a marketer's first choice for Internet work.

"Marketers are really looking for Internet business strategy. That's the first thing they've got to figure out," says Jim Nail, senior analyst with Forrester Research, a Cambridge-based research company. "That's a whole different thing than advertising/marcom strategy."

The result? Marketers are first calling Web developers and systems integrators -- companies that can tie back-end computer systems to nimble Web-based businesses. Last on the list? Ad agencies, Mr. Nail says.

"The agency's probably the third person you call," he says. "Of the three, they're the most expendable."

SITES TAKE COLLABORATION

Consider the way Ann Noel Blakney, national director of General Motors Corp.'s GM BuyPower initiative, describes it: "We work with many partners in Internet development. We do have our traditional agency [D'Arcy Masius Benton & Bowles, Los Angeles] develop media plans for broadcast and online.

"They are also instrumental in developing the strategic positioning for the brand," she adds.

For site development, however, GM BuyPower (www.gmbuypower.com) depends on Zentropy, a Los Angeles Web design company, and Electronic Data Systems, which handles the integration of GM's automobile inventory system with the Web site.

Nike last month rolled out a Web store, selling everything from a Mia Hamm soccer shoe to Nike branded apparel (www.nike.com). In press materials, the company takes great pains to credit all its Web partners, including Red Sky Interactive, San Francisco, which handled creative and site production; Digex (Web and applications hosting); Fort Point Partners (systems integration); CyberSource (credit-card security); and InterWorld Corp. (e-commerce engine).

AGENCY MISSING OUT

Nowhere in the credits is Wieden & Kennedy, Portland, Ore., Nike's longtime ad agency.

"Wieden & Kennedy is not too active in the Internet project to date. That's not to say they won't have a role going forward, but there's nothing going on right now," says Bob Lambie, creative director for Nike.com.

There are those who would say that a shop such as Wieden doesn't need to worry anymore about losing business to Internet shops.

Though Internet contracts now range into the tens of millions of dollars, they also include work that few ad agencies specialize in, such as linking online and offline product inventory; creating a shopping engine; and analyzing site traffic data.

It's as if McDonald's Corp. had to decide whether it was going to start to sell accounting software or keep doing what it does best: sling burgers.

CLOSING A SALE ONLINE

But for every agency like Wieden, there are plenty still trying to stake a claim in the Internet landscape. The ones that are making it work realize that Internet business has turned a corner: It's no longer about branding and creating a cool online image (some say it never was), it's about closing a sale with a customer.

"The identity of Web advertising has gone from glitzy to practical, and that's good," says Burke Stinson, advertising spokesman for AT&T.

"Wouldn't it make sense to have a group of people [working on AT&T Internet business] for whom selling is a key to their business?"

AT&T put that philosophy in action last month, consolidating its Internet work at Strategic Interactive Group, a subsidiary of AT&T direct agency Bronnercom, Boston. Modem Media-Poppe Tyson, Norwalk, Conn., AT&T's longtime interactive agency, resigned its portion of the business when it and AT&T couldn't agree on Internet business philosophies.

AT&T was Modem's largest client, accounting for 20.7% of the company's 1998 revenue.

"The key is electronic commerce," Mr. Stinson says. "How do people who are at their PC see something from AT&T and have the ability to learn more about it, order it and pay for it [all at once]? If these efforts result in greater sales, that will be the key to success."

Even companies such as Procter & Gamble Co., for which online selling isn't a priority, are demanding that their suppliers be able to mesh online and offline marketing, and prove that Web initiatives can impact sales.

AN INTEGRATED SOLUTION

"We're looking for [partners] that are proactively looking at how they will create an integrated solution and who are pushing us to do that internally," says Vivienne Bechtold, director of interactive marketing at P&G.

Procter & Gamble works with nine Internet partners, and five of them have ties to P&G's traditional ad agencies: Giant Step ( Leo Burnett), JMCP Touch (Jordan McGrath Case & Partners), Darwin Digital ( Saatchi & Saatchi), Grey Interactive (Grey Advertising) and Blue Marble (D'Arcy).

As P&G moves toward integrating online and offline marketing initiatives, the business is traditional agencies' to lose, Ms. Bechtold says.

"I wouldn't want to box in our agencies and tell them how to organize," she says. But "we could start to look for agencies that are moving toward that direction [of integration] and reward them by partnering."

CREATIVITY AT RISK

Amid all the hustle and bustle to build Internet business, there's the very real concern that the creativity that was the hallmark of some early Web sites (the ones that weren't brochureware, that is) will be lost.

"I'm excited when I see people who haven't yet turned the corner to corporate-speak," says Nike.com's Mr. Lambie.

"That's what has always attracted us to Red Sky -- the creativity and a willingness . . . to take risks."

Working with a company such as USWeb/CKS, with its business strategy and technology emphasis, does mean a trade-off in creativity, acknowledges Williams-Sonoma's Mr. Connolly.

"We keep pushing back to USWeb to get the right partner on the creative side," he says. But, he adds, "At the end of the day, it's about merchandise and selling merchandise. The creative resources can only do so much. You've got to have great merchants, too."

Marketers will demand return on investment and bankable results, no matter which partner they choose.

When it comes to hiring an Internet partner, says GM's Ms. Blakney, "what I'm going to make the decision on is their evaluation of the site and its metrics."

"One of the most exciting things about the Internet is that you can have pretty precise measurement," adds Ms. Blakney.

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