ONLINE AGENCIES SEEK IDENTITY AS BORDERS BLUR: NEW TECHNOLOGY, WAVE OF MERGERS ADD TO DILEMMA OF WHAT SERVICES, SKILLS TO OFFER

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As technology and marketing converge, the debate is intensifying over the role of the interactive agency in serving clients.

Indeed, executives say the very term interactive agency may be an inadequate description of an evolving business that provides a spectrum of services from brand strategy to back-end database integration.

Fueled by the recent rash of mergers of technology and media companies, such as US Web/CKS Group and Sapient Corp./Studio Archetype, as well as technological advances that are expanding marketers' distribution channels, interactive agencies in every niche are trying to figure out how to position themselves.

TRYING TO DEFINE THEMSELVES

"All agencies in this evolving space are trying to figure out what they should be,"' said Mike Donahue, exec-VP of the American Association of Advertising Agencies, whose interactive management committee discussed this topic during a meeting in New York last week, said executives who attended the meeting.

"The issue for agencies isn't so much what businesses they can be in, but what businesses they can win in," said Norm Lehoullier, managing director of Grey Interactive, New York, and chairman of the Four A's interactive management committee. Grey Interactive is a wholly owned subsidiary of Grey Advertising.

CHANGING ROLES

The issue is being debated by interactive agencies affiliated with traditional shops as well

as independents. Many interactive agencies that started out as back-end Web developers and technology integrators are busy acquiring people, skills and companies with traditional media strengths such as brand strategy and media planning.

And agencies that began with an emphasis on front-end marketing and advertising are adding technology capabilities or merging with systems integrators to round out their back-end capabilities.

"In the interactive space, the name of the game is synthesis," said Paul Sonderegger, an analyst at Forrester Research. "Many, many skills are required."

But just how broad their skill set should be, and how to acquire these skills, is unclear.

"There is a pissing match going on over who offers the most services, not over who is creating the right model," said Mr. Lehoullier.

FULL-SERVICE OFFERINGS

Grey Interactive offers services required for it to be credible in this space, he added, such as online advertising, Web site development, research, consulting and database marketing. But he says technology is a constantly moving target.

"Do you want your interactive agency integrating your legacy [mainframe] systems with your Web site?" said Mr. Lehoullier.

Gil Fuchsberg, corporate director of new media-technologies at Interpublic Group of Cos., New York, agrees.

"We recognize the technology curve is rising," Mr. Fuchsberg said. "The question is: How far up that curve do agencies need to go; how far can they afford to go; and how far do clients expect them to go, either completely in-house or in association with a partner?"

Mr. Fuchsberg added, "I'm not clear that we need to be experts in mainframe development or writing transaction processing systems for clients looking to build brands on the Internet."

Interpublic is the parent organization of agencies with interactive businesses, such as Ammirati Puris Lintas' APL Digital and McCann-Erickson Worldwide's ThunderHouse.

ALL ABOUT BRANDING

Mr. Donahue of the Four A's notes that as agencies try to figure out which technology to add, technology companies are just as busy beefing up front-end services.

"There is a danger [for agencies and their clients] if any of them are trying to be all things to all people," he said. "At the end of the day, the agencies will win out, because this is all about branding."

Some traditional marketers agree. General Motors Corp.'s Oldsmobile, for example, uses Leo Burnett USA as its traditional agency of record and the agency's wholly owned subsidiary Giant Step, Chicago, as its interactive AOR.

"[Giant Step] can more consistently communicate brand image because they are closely linked to our ad agency," said Todd Minniear, interactive coordinator for Oldsmobile.

OLDSMOBILE'S EXAMPLE

He pointed to a recent online campaign for Oldsmobile's new Alero model, which included developing a separate sweepstakes Web site at www.startsomething.com. It tied into the auto's TV campaign developed by Burnett.

"Burnett's role is to establish the brand's main message and main positioning," said Mr. Minniear. "Giant Step takes that positioning and works it into the site. For synergy, our sites should look like the ads you see on TV."

Rishad Tobaccowala, president of Giant Step, said there are clear-cut roles for the parent company and its interactive subsidiary.

"We know how to translate brand on the Web, but we are not developers of brand essence," said Mr. Tobaccowala. "We get that from the client and their brand agency."

He said in working with clients for which Burnett is not the traditional brand agency, Giant Step will extend the brand message online, either through the client or in direct meetings with the brand agency.

OUTSIDE THE SCOPE

Even some technology-based companies agree that brand strategy is outside the scope of services that interactive solutions companies should be providing.

"I think it would be foolhardy to claim we'll take over brand management or brand expertise of existing brand agencies or the client," said David Clauson, the new exec VP-worldwide marketing for iXL, Atlanta, an Internet services company that's acquired more than a dozen companies in the past year.

Mr. Clauson was previously senior VP-worldwide account director for Foote, Cone & Belding, San Francisco. But even though Mr. Clauson comes from a traditional agency background, he says this is not the core of iXL's business strategy.

"Very little [of our business] is in the online agency space," Mr. Clauson said.

"Far more is helping clients discover business opportunities and capitalizing on them," he said.

IXL's strength is building out intranets, extranets and other technology systems to serve clients' needs, he added.

Still, some full-service shops argue that offering clients everything from brand strategy to back-end database integration is the best way to serve their needs.

One of these full-service shops is Magnet Interactive, Washington, an Internet solutions company that is expanding its operations through new offices in Los Angeles and Seattle, although it recently opened, then closed, a Web-site building facility in Detroit, but still maintains a sales presence.

BEING CONSCIOUS OF BRAND ONLINE

Magnet, which started out as a technology company in 1989, has been adding people and services to handle brand management as well as other traditional media services.

"Interactive people have to be very conscious of brand," said Ron Boyd, general manager of Magnet, Los Angeles, who was previously senior VP-client services at D'Arcy Masius Benton & Bowles, Los Angeles. Magnet last month was named interactive agency of record for Kellogg Co.

Another agency that provides end-to-end solutions is Think New Ideas, whose clients include Procter & Gamble Co., Avon Products and IBM Corp.

"Our level of strategy goes far beyond media placement," said Susan Goodman, exec VP at Think New Ideas. "As the Internet is becoming more a part of the clients' business, the decisions are going higher up to the CEO and [chief financial officer] level. That team of senior execs is looking at a broader range of applications for the Internet."

While Think New Ideas takes an active role in brand strategy and positioning, it also works with traditional agencies and other brand stewards in extending offline campaigns online.

ONLINE WORKS WITH OFFLINE

For Gillette Co., for which Think New Ideas is interactive AOR, it works directly with the client's traditional agency of record, BBDO Worldwide, New York; its public relations agency, Porter Novelli; and consultants, such as Boston Consulting.

Think New Ideas, like others in the business, still uses the term interactive agency to describe its business, but says the term is inadequate to describe its scope of services.

"For agencies to be truly innovative and competitive, they must re-engineer the whole way they represent the world of interactivity to their clients," said Ron Bloom, CEO of Think New Ideas.

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