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CONFLICTS CLOG HIGHWAY TECH CONVERGENCE CREATES GLOBAL HEADACHE

By Published on .

The technology world's urge to converge is creating conflict on Madison Avenue.

Computer, phone, cable and consumer electronics companies are on a collision course on the information superhighway, creating rivalries among companies that hadn't competed before.

That is setting up a host of real or potential agency conflicts.

AT&T's decision this month to fire Ogilvy & Mather from an estimated $100 million in business because the agency won IBM Corp.'s $500 million global account is the biggest highway wreck yet for agencies. But it was neither the first nor the last.

Convergence conflicts recall the frenzied period of mega-mergers among package-goods marketers and agencies in the '80s, when many advertisers concluded that two major marketers couldn't possibly employ the same agency.

"AT&T is betting heavily on the fact that computers and communications are converging in the networking arena," said Dick Martin, AT&T VP-corporate advertising. "It's clear to us that if other companies are going to have strategic partnerships with agencies, and so are we, we cannot share the same agencies with anyone directly competing with us."

O. Burtch Drake, president of the American Association of Advertising Agencies, said the issue "has become more complex than ever with the convergence of telecommunications and technology."

"All of this is creating new lines of business and it's extremely confusing," Mr. Drake said. "Agencies with clients in these sectors will increasingly find it a minefield."

In recent years, package-goods marketers somewhat relaxed their conflict stance. "Over time, some of these big telecommunication companies will have to make similar compromises or they will run out of agencies that can handle their business," Mr. Drake said.

In the tech arena, though, there is little agreement about the scope of the problem or the solution.

"It's one more headache, but there are no formulas [to resolve convergence conflicts] here," said Charlie Holleran, VP-communications at Digital Equipment Corp.

Digital, the nation's No. 3 computer marketer, is searching for a lead world agency on its estimated $90 million account and is more flexible on the conflict question than some companies. DDB Needham Worldwide, one of five finalists, also is a finalist on Compaq Computer Corp.'s $40 million European account. Finalist Messner Vetere Berger McNamee Schmetterer/Euro RSCG, New York, handles MCI Communications Corp. However, Mr. Holleran doesn't see those as conflicts.

IBM switched to O&M from more than 40 agencies to present a singular image around the world, but the move also has a secondary result: helping Big Blue resolve lingering conflict questions. O&M has had to part with three IBM rivals-Microsoft Corp., Compaq and Oracle Corp., a large-computer software marketer.

Like IBM, AT&T wants to do more with fewer agencies. "We're going to have much deeper and much more extensive relationships with a much smaller number of agencies," Mr. Martin said.

AT&T competes worldwide in telecommunications, computers, software and emerging areas like interactive TV. Rivals include the likes of IBM, Microsoft and computer chip king Intel Corp.-not to mention Baby Bells metamorphosing into telecommunications giants.

"AT&T is doing a lot of things in everybody's back yard," said Tim Bajarin, president of Creative Strategies Research International, a San Jose, Calif., market research company.

Convergence conflict is destined to be an international issue.

"It's a growing problem because you have more and more globalization happening," said Robert Bean, British Telecom's advertising director. "You can get nervous very quickly about how much information is being passed on. Frankly, I don't really think agencies do trade secrets. There is very little evidence of it. [However,] we would look very closely at whatever our agency is doing."

All this client convergence is putting new stress on relationships with agencies. After AT&T named FCB/Leber Katz Partners, New York, as lead consumer ad agency last December, former AT&T unit Pacific Bell fired FCB's San Francisco office on a $35 million account, ending a 20-year relationship.

This makes for artful dancing at agencies. Leber Katz in May was named first worldwide agency for the $30 million to $40 million AT&T computer unit account. FCB/Technology, San Francisco, handles rival Tandem Computers.

"So far, there have been no indications that it's a problem," said Robert Stetson, Tandem's worldwide advertising manager.

But David Clauson, senior VP-general manager of FCB/Technology, is keenly aware of convergence. "The air," he said, "is getting a lot thicker out there."

FCB isn't alone. J. Walter Thompson USA's overlapping telecom-related clients include Sprint and Prodigy Services Co. in San Francisco, Bell Atlantic in New York, Motorola and Northern Telecom in Chicago.

Leo Burnett USA, Chicago, meanwhile, juggles Sony Corp. consumer electronics and Nintendo's estimated $50 million video-game account.

Burnett says Ameritech poses no conflicts to its existing clients, including Hallmark Cards. However, Hallmark has a joint venture with Sprint to offer greeting cards featuring prepaid long-distance calling from Sprint.

Conflicts often are driven more by emotion rather than by true competitive business issues. Ingo Krauss, chairman of Y&R in Germany, said psychological factors-like if the chairmen of two clients involved in a conflict hate each other-drive at least half of the conflicts.

"If everything's digital, then everything's a conflict" in the eye of clients' minds, said Steve Hayden, chairman of BBDO Worldwide, Los Angeles, Apple Computer's agency. "That's like [a package-goods marketer] saying everything that comes in a can is a conflict. We need a new definition of conflict."

But frictions often are real in technology, where agencies have access to sensitive information.

"Any conflict is too risky when you are working in advanced technology applications," said Carl Jones, corporate advertising director at Ing. C. Olivetti Co. The computer marketer is helping set up Italy's second cellular phone system, a direct competitor to the state-owned phone company.

"Convergence is creating new opportunities and new businesses and no one knows where they're all going," said Bob Schmetterer, a partner at Messner Vetere. "For sure, it will be more certain three years from now, but the reality is that if a client [perceives] a conflict, it generally should also mean that an agency has a great opportunity."

Contributing to this story: Elena Bowes, Tim Clark, Bruce Crumley, Alice Z. Cuneo, Kate Fitzgerald, Julie Liesse, Ira Teinowitz, David Kilburn, Gary Levin, Melanie Wells, Michelle McCarter and Laurel Wentz.

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