Agencies probe interactive role
Talk is cheap, but investing in interactive excellence is not.
That's why within a storm of hype, many big ad agencies are still proceeding cautiously in developing interactive service functions.
"There's a lot more money to be lost than earned at this point," said Allen Rosenshine, CEO of BBDO Worldwide, New York. "We will not overinvest in things we don't know if our clients will want or need."
A year ago, agencies were scrambling to solidify interactive marketing units amid rapid encroachment from interactive specialty agencies, multimedia developers and World Wide Web designers. An Advertising Age report published last August found that nearly all the Top 20 U.S. agencies had an interactive team, but few had work to show for it.
All, however, said they considered interactive expertise vital to their future.
Now, some major agencies are passing up interactive projects, in effect admitting it's OK if the expertise comes from elsewhere.
BBDO, for example, never set up an interactive unit, instead letting managers from different agency departments determine what each client should do.
The results of BBDO's actions? Client Delta Air Lines awarded a Web home page project to Modem Media, Westport, Conn. Visa International brought on Redgate Communications Corp., Vero Beach, Fla., to develop online and Web projects. And BBDO declined to participate in a pitch for client General Electric Co.'s Web agency of record review, which netted the winner, tiny developer Meta4 Digital Design, Jersey City, N.J., a nearly $5 million account.
Such agency moves are surprising: Nearly every agency review these days includes an interactive credentials presentation, signifying that experience with interactive media remains important to marketers.
"There was a lot of hype, and there still is. The Internet is unquestionably a great opportunity. But I think [agencies] are slowing down and assessing what it means to truly do business there," said Jim McBride, president of Central Coast Communications, a New York Internet consultant and publisher.
Part of the problem is that for most agencies, interactive media still don't generate much income. No agency interviewed for this article said it generated more than $10 million in revenue from interactive work; most are making far less than that.
DDB Needham Worldwide, while it has a 15-person interactive unit, is generating only "a little" profit on $2 million to $3 million in annual revenues, said Page Thompson, New York-based U.S. media director. "We will invest in the future, but not at a loss," he said.
Many agencies with formal interactive structures are ceding design and placement of interactive communications to specialists--in some cases, the same ones that seemed so threatening a year ago.
"While a lot of clients are saying they want to get on the World Wide Web, a lot of agencies aren't qualified to do that soup-to-nuts," Mr. McBride said. "What I see out there is a lot of Internet service providers picking up the slack."
For example, Coors Brewing Co.'s Zima has established a compelling presence in online marketing with its home page. Modem Media gets the credit, not Zima's ad agency, Foote, Cone & Belding, San Francisco.
For some big agencies, the answer to last year's interactive frenzy was simple: Buy a specialist.
D'Arcy Masius Benton & Bowles, for example, bought Einstein & Sandom, New York, an 11-year-old interactive agency. The acquisition gave DMB&B's clients instant access to some of the more experienced people in the interactive realm, but it also meant the agency had to invest heavily in technology infrastructure.
"The only bad part is that in a whole new development area, we're not profitable because of heavy [research and development] expenditures," said Ray Rizzo, chairman of DMB&B unit Clarion Marketing & Communications and overseer of Einstein & Sandom.
For many agencies, as for much of the marketing world, the Internet was a surprise development. Agencies could understand how interactive TV could fit into a media plan, but the online world was a whole new frontier.
"A lot of these [clients] just want to be able to say, `Yeah, sure,' when a guy at a cocktail party asks them if they have a Web site," scoffed one New York agency CEO.
Still, online ad expenditures are expected to skyrocket from $37 million this year to $2.6 billion by 2000, according to Forrester Research, Cambridge, Mass., meaning someone's going to make money at this stuff.
This month alone, three agencies at the vanguard of interactive marketing made moves to boost their visibility and expertise.
Foote, Cone & Belding, San Francisco, created a group called True North Technologies. Ogilvy & Mather Direct, New York, gave its struggling 12-year-old interactive unit more independence--and a big vote of confidence--by setting up the 38-person department as a separate business unit. And direct marketing agency Wunderman Cato Johnson, New York, invested in Tyee Group, an infomercial production company in Portland, Ore.
For O&M's interactive group, the move to independence capped a year of turmoil. After losing its charismatic leader, Martin Nisenholtz, the group nearly crumpled in the past year.
Now, the unit, under President-CEO Michael Troiano, must work to regain lost prestige. "We have a real business here. We have an infrastructure that includes not only systems but philosophies of interactive marketing," Mr. Troiano said.
Wunderman, meanwhile, sees its investment in Tyee as a way to bring more video into interactive marketing.
"We have a real strategic interest in Tyee because we see long-form video as the building blocks for interactive content, and it will take us into the future," said Hal Zwick, exec VP-director of media and communication services at Wunderman.
Still, the bigger success stories so far have tended to be written by specialists.
And that may still be the case years from now, BBDO's Mr. Rosenshine said. He compared the hyping of interactive to the rush big ad agencies made to become "one-stop shops" for integrated marketing 10 to 15 years ago, in hopes of luring all of their clients' marketing business to their doorsteps.
"Agencies poured huge amounts of money into buying direct marketing and public relations units . . . I'll bet they would like to have that money back," he said.
Kim Cleland contributed to this story.
Copyright August 1995, Crain Communications Inc.