TUMULT AHEAD FOR IBM, OGILVY

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It was the marketing shot heard 'round the world, and more than 40 agencies ended up taking the bullet.

But for IBM Corp. and Ogilvy & Mather Worldwide, the recipient of Big Blue's $500 million global advertising dowry last week, the honeymoon is already over.

"We will have a very difficult three to six months as we try to put the pieces together," acknowledged Charlotte Beers, O&M's chairman-CEO. Abby Kohnstamm, IBM's VP-corporate marketing, said IBM is willing to endure short-term turmoil for long-term gains.

Rival marketers are gleefully waiting to pick off more business as struggling Big Blue and its new agency try to get their act together.

"On June 1 [the official start], there's going to be an army of IBM people and an army of Ogilvy people bumping into each other," said a happy executive at one IBM rival.

O&M becomes IBM's first worldwide media buying agency, replacing U.S. agency of record Lintas, New York, and various agencies around the world.

How much was financially hard-pressed IBM motivated by cost-cutting considerations?

"We feel [O&M's compensation] is in the range of competitiveness," Ms. Kohnstamm said. "I don't think you want to nickel and dime on fees."

Some reports put the fee as low as the equivalent of a 7% commission rate. O&M wouldn't comment. A source close to the situation said the compensation package includes a 10% commission plus incentives, saying 10% alone would be "awful" because of the large amount of work involved.

An executive close to O&M, however, said compensation details are still being hammered out.

The biggest savings will come from the efficiency of one shop coordinating everything, Ms. Kohnstamm said. Practicing what they pitch, IBM and O&M also vow to break new ground on using technology to improve communications.

"We won't necessarily put [savings] to the bottom line," Ms. Kohnstamm added. "We may decide we need to put them into media spending."

IBM is following a slew of technology marketers-including Apple Computer, Unisys Corp. and Hewlett-Packard Co.-in relying on one agency to either create all advertising or, at a minimum, plot strategic direction for global ads.

More winner-take-all deals are possible. Microsoft Corp., which had used O&M, Los Angeles, as its lead agency, is looking at all options, including supplanting two dozen remaining incumbents with one global shop.

"It's certainly something we're going to look at," a Microsoft spokeswoman said. At stake is an estimated $165 million in ad and direct mail billings.

Because computer products, brands and publications have few geographic boundaries, a world approach makes sense.

Technology ushered in a world market, and now technology marketers are simply reacting to a monster they created, said Kelly Conlin, exec VP of International Data Group, the world's largest publisher of computer periodicals.

IBM is three times the size of its closest rival, $21 billion Hewlett-Packard, and whether the one-shop approach can work on Big Blue's scale is the $63 billion question.

But Chairman-CEO Louis V. Gerstner Jr., recruited a year ago to revive an ailing giant, received positive press last week, in part for simply making a radical move. A single agency meshed neatly with Mr. Gerstner's strategy to centralize controls and bring independent units like the PC division back into the fold.

IBM still faces massive problems outside advertising, including confusion about product lines and technology, a shrinking mainframe computer market, a high cost structure, and falling profit margins. IBM hasn't made a dime since 1990. Compaq Computer Corp. early this year took over first place from IBM in world PC sales.

Inside IBM, fear, uncertainty and doubt abounds: The action on advertising shows Mr. Gerstner's willingness to do the unthinkable.

IBM picked New York-based O&M for its brand-building acumen, international network and tech experience. Ms. Kohnstamm and Mr. Gerstner, both American Express Co. alums, knew the agency and Ogilvy North American President Rochelle Lazarus from their AmEx days, but Ms. Kohnstamm insisted relationships were "not a major factor."

IBM's stunning hiring of O&M and firing of its more than 40 incumbents culminated one of the quietest, biggest and shortest agency reviews ever.

Ms. Kohnstamm and seven other worldwide ad executives spent the past several months reviewing how IBM communicates. They concluded IBM needed one agency to give it one voice and then, over the past four or five weeks, quietly invited a handful of shops to pitch.

Ms. Kohnstamm and crew heard a full pitch from incumbent Lintas and presentation from Wells Rich Greene BDDP, two shops that have handled most U.S. work since 1988.

IBM was more than willing to pick off a rival's agency. It approached BBDO Worldwide, but Chairman-CEO Allen Rosenshine refused to meet with IBM out of loyalty to Apple Computer, said executives familiar with the situation. Ms. Kohnstamm said only: "We did not have any conversations with them."

O&M traded loyalty for the big chance. It has been lead agency for Microsoft, the world's largest personal computer software marketer, for six years and has been with Compaq since that company's start in 1982. O&M lost Compaq's U.S. business to Ammirati & Puris, New York, three years ago but still handles Europe.

Even as O&M was in the finals for Digital Equipment Corp. and a new Microsoft account, the agency quietly pitched IBM.

"It was so confidential we didn't mention the letters I, B or M together," said Kelly O'Dea, O&M's president of worldwide client service. Only seven agency executives knew.

For IBM, the biggest benefit from one-shop stopping, Ms. Kohnstamm stressed, is in advertising effectiveness.

"When you have 40-plus agencies who have a little piece of IBM, there's no way that they would be able to put it all together in a way that makes sense," she said. "Unlike some other companies where they have separate brands that are very important, by and large our brand is IBM, and our advertising needs to reflect that."

There had been rumblings something was up at IBM, but every incumbent agency was caught off guard by the mass firing.

"We all knew there was some kind of consolidation afoot," said David Sklaver, president of Wells Rich Greene BDDP, New York, IBM's U.S. corporate shop. "But no one ever dreamed of the radical nature of it all going to one."

Firing all the agencies was a task in itself. In Germany, an executive at Springer & Jacoby, which lost the $8 million to $10 million German business, was surprised by a reporter telling him the news. On another phone, his boss was getting the termination call from IBM.

In Tokyo, O&M Representative Philip Goodstein received the fateful fax at 11:30 p.m. May 24. An hour earlier, executives at Hakuhodo, an IBM agency in Japan along with Dentsu and McCann-Erickson Japan, got calls at home.

O&M also picks up "substantial amounts" of IBM direct marketing.

IBM's major U.S. direct marketing incumbents-Grey Direct, New York; Bronner Slosberg Humphrey, Boston; Barry Blau & Partners, Fairfield, Conn.; and Rockett, Burkhead, Lewis & Winslow, Raleigh, N.C.-all received assurances that they're safe. But Rod Wright, the North American CEO of O&M Direct, said he hoped to add domestic assignments "down the road."

Advertising Age reporters and correspondents around the world contributed to this story.

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