It may be a small world after all, but U.S.-based interactive agencies want to make it smaller still.
American Web shops are spreading their wings, hoping to help U.S.-based marketers expand their interactive advertising globally to win new business and cull revenue in other countries. Agencies are opening offices everywhere from Hong Kong to Sao Paulo to Toronto.
It's the next rung on the ladder for many shops, and executives are sporting a now-or-never attitude toward a global landgrab.
"[The Web's] an international medium, and one of the big praises for the Web is you can reach anyone in the world," says Jonn Behrman, CEO of Ann Arbor, Mich.-based Beyond Interactive.
To be sure, it's not just U.S. shops that are taking foreign excursions. British interactive agencies, such as Deepend and Outrider, have moved into the U.S. Meanwhile, other international agencies are expanding regionally and scoping opportunities in the U.S. At the same time, an Australian i-marketing venture, Spike Networks, opened a branch in Los Angeles last year only to shut it months later as it focused on opportunities closer to home.
International expansion, Mr. Behrman says, "has gotten hot again," having been pushed to the background while U.S. interactive shops got their houses in order on home soil. Now, he says, the first-to-market race has begun.
"For us, there's a lot of opportunity [globally]. The markets aren't as cluttered. We look to be a dominant player or at least first in position without a lot of competition at our level," Mr. Behrman says.
Many interactive shops claim they are growing organically by setting up outposts rather than acquiring existing agencies in other countries. Some executives, such as Neve Savage, president of the international division for Seattle ad media-services venture Avenue A, say there are few Web shops outside the U.S. that are worth buying.
According to an April report on integrated advertising/marketing services providers from investment financial researcher ING Baring, online advertising overseas is "still in its nascent stage," but is expected to take off in Europe and Asia in 2001 and 2002.
The report cites Forrester Research statistics that predict almost 60 million people are expected to be online in 2003 from Germany, France, the Netherlands and the U.K., up 76% from 1999. (In contrast, the more mature U.S. online audience is expected to have 67.4 million households online by 2003.) Forrester defines a household as 2.02 individuals older than 16.
LOOKS GOOD ON PAPER
The report contends that, "as the Internet population continues to grow overseas, online advertising dollars will grow in kind."
Most interactive shops setting up outposts outside the U.S. are responding to client pressure, says Marissa Gluck, a Jupiter Communications analyst. However, few seem to be doing any substantial work for clients in foreign offices. Many agencies promote their global presence because it looks good on paper, she adds.
"Some of these expansions are geared more toward the PR department rather than toward the actual paying clients," Ms. Gluck says.
But some agencies are expanding boldly and broadly in hopes of reaping rewards from global positioning.
Beyond Interactive is one such example. The shop, acquired last year by Grey Global Group, is using its new parent's money for an aggressive international expansion this year. The agency's Mexico City office opened in April. In Asia, Beyond opened a Hong Kong office under the direction of Viveca Chan, CEO of Grey China and Hong Kong. The Web shop has two Asian clients, 36.com, a Hong Kong-based portal, and Volkswagen.
Beyond Interactive also is opening offices in Beijing, Guangzhou and Shanghai as well as in Australia, Brazil and Japan this year.
The agency also has plans to expand to India, Malaysia and the Philippines in the next couple years.
Beyond last month bought London-based online media-planning and buying agency media21, which will become the hub of Beyond's European operations.
Now that it has international offices, Beyond is hunting for clients: Mr. Behrman says Beyond has multinational clients in the U.S., such as Oracle Corp. and Nortel Networks, for which it hopes to do overseas interactive work.
DDB Digital is another example of how having a relationship with a traditional advertising agency helps. The interactive arm of DDB Worldwide, New York, DDB Digital has 26 offices in 20 countries in Asia, Europe and Latin America. It is in the midst of consolidating its international operations by creating a global management team, says Steven Marrs, chief operational officer-managing partner, DDB Digital.
But while it may be easier for shops tied to traditional agencies to expand internationally, "it doesn't mean they are doing better work or have talent there to work on interactive projects," Jupiter's Ms. Gluck says."It just means they pay rent there."
SENSITIVITY TO CULTURE
Boston-based Digitas, with offices in New York, San Francisco and Salt Lake City, this month will open an office in Miami to serve Latin American clients and multinationals seeking to do business in Latin America.
San Francisco-based Red Sky Interactive, which in March announced its merger with New York-based Nuforia, has offices in Atlanta, Boston, Chicago, Houston and Irvine, Calif.--plus Hong Kong.
Red Sky intends to establish other international offices in cities including London, says Joel Hladecek, senior VP-national creative director of broadband and entertainment.
"Everything you do in this space, whether you intend it or not, is global," Mr. Hladecek says. "So it's critical that we have stations that have a sensitivity to cultural differences," adding that clients have requested that Red Sky go global--physically through offices and creatively through applications for use in other cultures.
Agency.com, which first went abroad with an acquisition in 1997, generated 22% of its revenue outside the U.S. last year. One telling sign of opportunities abroad: Forty-one percent of Agency.com's revenue growth was outside the U.S. last year.
Other U.S. Internet services ventures have a wide range of non-U.S. income. Razorfish, taking a different path, has expanded aggressively into Europe through acquisition. Europe provided 36% of Razorfish's revenue last year. In comparison, Organic, a Net marketing shop based in San Francisco, last year generated just 6% of its $77.8 million revenue from international operations.
Organic CEO Jonathan Nelson says clients have yet to demand international offices, but he expects they will.
"We need to be global in order to compete," Mr. Nelson says. The interactive agency has offices in Atlanta, Chicago, Detroit and New York, and has expanded to London, Toronto, Sao Paulo and Singapore.
Although he won't disclose where for competitive reasons, Mr. Nelson says Organic plans to open additional international offices this year and next.
"We'll average one a quarter," Mr. Nelson says. "We need to be on the ground, treating people as individuals in their native environment and culture."
CONSISTENCY IS KEY
He adds that consistency in infrastructure, process and even job descriptions among offices is key.
"It's one thing to have multiple offices, but if [operations] are not going to be integrated, it's going to be a trainwreck."
Atlanta-based iXL also recently upped its globalization efforts. In 1998, it opened offices in Berlin, Hamburg, London and Madrid. It opened a Tokyo office in August 1999 and a Sao Paulo office in April.
"A core part of our strategy is to focus on serving large, global companies," says Niraj Shah, chief operating officer of iXL.
One such company is General Electric Co., an iXL investor. IXL is currently doing work for GE in Europe and Asia, Mr. Shah says. IXL also started doing work for U.S.-based client Chase Manhattan Corp. out of its Tokyo office in late 1999. Virgin Atlantic is another iXL client.
"We started expanding into Europe in 1998 a little before clients started requesting it," he says. "But today, they definitely are requesting it."
Like Beyond and other agencies, iXL is "looking to aggressively grow our presence in Europe, enter into Asia and Latin America" this year, Mr. Shah says, adding that the undisclosed clients iXL is after are clustered in those markets.
Even so, iXL has generated "limited" revenue from its non-U.S. offices, according to its annual report filed earlier this year with the Securities & Exchange Commission. "Revenue from our international offices may prove inadequate," iXL warned, "to cover the expenses of establishing and maintaining our international offices and marketing to international clients."
Among other interactive shops, Avenue A, an online media-buying and measurement agency, in May hired Michel Perrin, former senior VP-Europe and Asia Pacific at Getty Images, as senior VP-managing director of its international operations.
He will spearhead the opening of the agency's first international office, London, this month.
The agency will expand into other European markets, likely Paris and Munich, later this year, says Avenue A's Mr. Savage. Offices in Australia, Japan and Latin America also are on the agenda for the near future.
Mr. Savage says it's important for an interactive shop to be on the ground in global markets to effectively and efficiently help clients.
"Superior client service and relationships mean some reasonable frequency of face-to-face contact," he says.
Avenue A's clients, including Microsoft Corp. and Ticketmaster Online-CitySearch, "tend to have international offices and, in order to service them properly, we need to be where the decisions are made and where budgets are allocated and determined."
Some clients "have been coming to us for some time and saying, 'For goodness sake, get going and open internationally,' " Mr. Savage says.
Copyright June 2000, Crain Communications Inc.