In a realm of midgets, the giants have emerged.
1996 was the year that three companies with different roots--CKS Group, TN Technologies and Poppe Tyson--moved from the Internet's cutting edge to the brink of hugeness.
Calling them agencies may in fact be the wrong word entirely.
"These [companies] are getting bigger very quickly. They're doing it by getting involved in all the facets of [digital marketing], and they're doing it from a marketing perspective. That clearly differentiates them from the smaller niche players," said Lauren Fine, analyst with Merrill Lynch & Co.
Each of the three reached the top through a different route, and each has a significantly different strategy.
Each is intimately familiar with the others, and each knows its position as a leader in a young, turbulent industry is far from assured. (Only one has learned how to make money.)
What they most have in common is that they took a path years ago that placed them at the center of the collision between marketing and the digital age.
COMBINING DUAL EXPERTISE
"We're fundamentally changing the way we communicate as a society," said Mark Kvamme, chairman-CEO of CKS. "We're not an ad agency and never have been. Our creatives aren't tied to any one discipline. We help our clients communicate using any means possible."
Almost since its inception 10 years ago, CKS has viewed itself as an integrated marketing agency. Because interactive media offer applications that are broader than advertising, the holistic approach has helped CKS win clients.
Poppe shares the integrated positioning.
"We're a communications company that understands interactive," said Chairman-CEO Fergus O'Daly.
Founded 80 years ago, Poppe would seem an unlikely candidate for the cutting edge. But in fact, it was the likeliest candidate, Mr. O'Daly claimed.
"We're an agency that's been waiting for the Internet to happen for 50 years," he said.
Over the decades, Poppe had evolved into a specialist in considered-purchase products and services, with a leaning toward business-to-business clients. Those generally have proven to be the accounts that most lend themselves to interactive marketing.
TN's parent, True North Communications, set itself on the path to interactive excellence several years ago.
Deciding that it needed a point of difference from other multinational advertising agencies, True North picked technology. It began investing heavily in international computer networks and systems that would help it communicate faster and better around the world, internally and with clients.
BIG CLIENTS, MEANINGFUL PROJECTS
Ultimately, what the three companies share is digital expertise grounded by the traditional marketing and account management skills required in the blue-chip world of advertising.
Thus, their client lists contain all the big names at the intersection of advertising and new media: Apple Computer, Citibank, MCI Communications Corp., National Semiconductor, United Airlines and Visa International at CKS; Chase Manhattan, IBM Corp., Merrill Lynch and Netscape Communications Corp. at Poppe; AT&T Corp., Delta Air Lines, Motorola and the U.S. Postal Service at TN.
CKS developed MCI's online service, internetMCI, and the integrated launch of networkMCI. Poppe has developed major online services for consumers of financial companies such as T. Rowe Price and Chase Manhattan; its biggest client, IBM Business Information Services, is as big as they get.
TN's Modem Media is AT&T's interactive agency of record and reaped nearly $15 million in revenue from AT&T interactive projects last year.
All three also have big holding companies behind them. As TN is owned by True North, Poppe is owned by Bozell, Jacobs, Kenyon & Eckhardt. CKS, while independent, sold a 30% stake to Interpublic Group of Cos. and has drawn on IPG's expertise in going public and making acquisitions.
The giants also share big ambitions. CKS went public in December '95 and for a time was worth more on Wall Street than all of True North. It wants to be nothing less than "the communications company of the future," Mr. Kvamme said.
Funded by its high-flying stock, CKS has gone on a buying binge. Since early fall, it has acquired a general ad agency, McKinney & Silver, Raleigh, N.C.; a New York design house, Donovan & Green; a business marketing agency, Schell/Mullaney; and a European clone of itself, Prisma Holding.
CKS is the only one of the three companies to achieve profitability; it earned $5.7 million in its latest fiscal year.
So far, the company has met or exceeded forecasts. And investors keep ratcheting up the bar. Though down from a high above $40 a share, the stock is trading at about 60 times trailing 12-month earnings.
"The market demands profits. And it's hard to make money in this business, because there's so much technological--and expensive--change," Mr. Kvamme said.
LURE OF PUBLIC OWNERSHIP
CKS' initial public offering whetted the appetites of TN and Poppe. Even though neither company has achieved profitability, both have IPOs in the works.
After acquiring Modem Media last fall, TN can claim to be the most purely digital company of the three. It reaps 76% of its revenue from digital work, vs. about 40% for Poppe and 30% for CKS. (CKS had reached 40% before its recent McKinney acquisition.)
"The big difference between us and the other guys is that 80% of our heritage is in digital media and digital solutions," said G.M. O'Connell, TN president-chief operating officer and a founder of Modem.
TN's business plan is centered on the "emerging digital current," Mr. O'Connell said. It has structured its various operations into three sectors: content development, digital marketing strategies and technology development.
TECHNOLOGY PLUS MARKETING
CKS, Poppe and TN actually are technology companies as well as marketing agencies. All view the Web as a commercial environment, not merely a communications medium. All work just as much with clients' information systems people as with their marketing departments.
"We're driving our clients to use the growing digital infrastructure for better products and services, electronic commerce and customer care--all of which hopefully will really bind people to their brands," Mr. O'Connell said.
Poppe has been the front-runner in leveraging the Web for more than just advertising or one-way marketing communications. It has delved deeply into systems development and boasts one of the first full-circle transactional systems for electronic commerce. It hopes to sell that to clients and to license it to other users, including even competitors like CKS.
"They are ahead of us in that area," Mr. Kvamme admitted.
"We're becoming a software company; we can't help it," Mr. O'Daly said.
TN has set up the Relationship Technology Group, which offers a range of systems solutions including intranets and database tools.
All three companies have in some manner found themselves competing not just with marketing firms but also with systems providers like Electronic Data Systems. Again, Poppe has been most aggressive in this area, becoming expert at middleware, the systems used to bridge online interactions with marketers' invaluable and security-hungry databases.
The three companies all have global aspirations as well. Helped by its sister agency network Foote, Cone & Belding, TN has the broadest global reach. TN and Poppe both have offices on three continents, North America, Europe and Asia. CKS has decided to wait before attacking Asia, but its acquisition of Prisma could give it an edge in Europe.
Poppe has fledgling operations in London, Hong Kong and Malaysia that have successfully cultivated local clients. The Malaysian office, in particular, has won contracts with enormous potential, Mr. O'Daly said.
Closer to home, Poppe would like to expand to Chicago, probably with an acquisition or two.
"I think Chicago is going to be the next big hub in this industry, after California and maybe even ahead of New York," Mr. O'Daly said.
Recruiting is a major priority for the Big Three. All have more than doubled staff in the past year, and there isn't that much talent to go around.
"Can we continue to attract the world-class people? That's our biggest challenge," Mr. O'Connell said.
"We've got 40 open positions right now," Mr. O'Daly said. "It's hard to find people who know the technology and who also really understand marketing."
The recruiting battle underscores why big ad agencies will never get far past the starting gate in digital communications, Mr. O'Daly said.
"Their cultures can't do what needs to be done. They can't pay $125,000 to 22-year-old kids, but that's what it takes," he said.
While CKS, Poppe and TN often find themselves competing against each other in pitches, none feels cutthroat toward the others.
"This area is still growing extremely quickly. There's lots of work for everyone," Mr. O'Connell said.
Added Mr. O'Daly: "The best thing to happen to us is having CKS and TN as competitors. I learn from them every day."
They'll probably need each other as partners, too.
Having asserted themselves as kings of the hill, the three agencies have grabbed a big chunk of the responsibility for making the hill into a mountain. Advertisers are still showing reluctance to spend more than tiny sums on the Internet, in large part because of inadequate audience tracking.
Poppe, CKS and TN will have to help lead the industry's effort to come up with reliable audience audits.
On top of that, they need to develop other tools for convincing advertisers to spend, Mr. O'Daly said.
"We need to find a way to measure return on investment of a Web site," he said. Poppe has developed a model for measuring ROI on an intranet. "The ROI on an intranet is higher than anything these companies have ever seen. Now we need to know how much it's worth for a customer who looks up a dealer online, or for someone who requests a sample."
If Poppe and the others can do that, they'll be a lot more likely to realize a return on their own investments.
Copyright March 1997, Crain Communications Inc.