Web shops savor their differences from ad agencies

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Are interactive agencies, as we once knew them, dead? You'd think so, reading through self-descriptions of companies that develop Web sites, e-commerce capabilities and online advertising for marketers.

They cover a wide range, from Internet marketing company to end-to-end business solutions provider.


Even Agency.com, New York--seemingly with the most appropriate name--doesn't consider itself an interactive agency.

"We feel we are agents working on behalf of our clients," says Agency.com CEO Chan Suh. "Like a talent agency."

Despite their media-buying and banner-development offerings, many Web marketing companies distance themselves from the mainstream advertising business.

"I wouldn't call Web-site development an advertising endeavor," says G.M. O'Connell, CEO of Modem Media-Poppe Tyson, Norwalk, Conn. "What we are doing here is more than advertising."

Glenn Meyers, CEO of New York interactive shop Rare Medium, agrees.


"Ad agencies and traditional media buyers are so caught up in where their agencies have been that their eyes are [caught] in the headlights," says Mr. Meyers, whose parent company, Rare Medium Group, also owns a music entertainment site.

Some companies, such as Razorfish, New York, and iXL, Atlanta, balk at the notion of being grouped with the likes of Organic or Modem Media.

"We are a new niche player," says an iXL spokesman.

Whatever that is, oodles of outfits claim to be niche players.

Along with the niche game, the debate also continues about whether interactive shops tied to traditional agencies should retain the agency's name.

"You have to brand the interactive division separately because the traditional agencies have proven unable to break out of traditional advertising thought processes," contends Jim Nail, senior analyst at Forrester Research, a tech research consultancy. "They don't understand interactivity and direct selling, which is really what's going on on the Web. So if you have an agency name on the door, they are going to be perceived as not getting the Web."


With such a melange of monikers to choose from, what's a marketer to do?

Interactive shops, in their attempts to define themselves clearly, may actually be creating more confusion. That leads to a bigger question: Do marketing service providers understand themselves?

Perhaps the answer lies not in their names, but in their services and revenue streams. As descriptors vary, so do shops' areas of expertise.

IXL, for example, whose clients include Budget Rent A Car, General Electric Co. and Keds Corp., reaped $64.8 million in revenue for the last six months in 1998--but only $800,000 of that was from interactive advertising-related activities. The bulk was from back-end technology development and systems integration.


Staffing patterns also hint at interactive agencies' strengths and how they identify themselves in a crowded marketplace. Boston-based Strategic Interactive Group, a division of Bronnercom, has 100 employees in its marketing department, 90 in its creative department, 60 in technology and 50 media specialists. That roughly aligns with its revenue breakdown.

Kathy Biro, SIG's president-CEO, says the shop receives 40% of its revenue from marketing-strategy services, 25% from online creative execution, 20% from technology development and 15% from media planning and buying services. SIG's clients include American Express Co., AT&T Corp. and General Motors Corp.

Meanwhile, a recent classified ad in an industry publication from Modem Media--seeking people to fill creative director, project manager, architect, graphic designer, copywriter, art buyer and art director positions--implies this shop focuses much of its energy on creative execution for clients.


"Our strengths are in e-business and marketing consulting," says Mr. O'Connell of Modem Media, whose clients include Citibank, Delta Air Lines and Intel Corp. "A strong creative and technology capability provides the foundation for these strengths, and our project Shops savor differences management expertise enables us to execute on-time and on-budget."


Giant Step, the interactive arm of Leo Burnett Co., Chicago, whose clients include United Airlines, pitches diverse services, including Web-site and software development, consulting, and ad planning and placement.

Unwittingly or not, interactive shops are becoming experts in back-end technology integration, leaders in creative work, powerhouses in online media-buying or top-shelf consultants.

"Interactive agencies can't and aren't offering a full solution," Forrester's Mr. Nail says. "And there isn't one category of interactive ad agency anymore."

In fact, Forrester uses the term "interactive agency" to refer solely to interactive shops tied to traditional ad agencies.


"Transactive content integrator," meanwhile, is the term Forrester applies to independent shops that develop Web sites with content as well as transaction and interactivity capabilities for clients. Such shops, according to Forrester, are still evolving; few can seamlessly deliver marketing strategy, creative design and technical integration.

Shops such as Organic, San Francisco, have a strong focus on buying media: Organic has nearly 90 employees in its media-buying department, says Jonathan Nelson, CEO.

"We are one of the largest--if not the largest--online media planner and buyer," Mr. Nelson says.

He says Organic, which buys online media for clients such as Compaq Corp. and online music retailer CDnow, also devotes much of its time to back-end systems development for clients' Web sites. In fact, of its 600 employees, more than 150 are technology engineers.


In comparison, Agency.com buys online media only for existing clients for whom it does other work, says Mr. Suh.

"Media buying is important, but we can only do a few things at a time, unfortunately," he says. "We are making a concerted effort to centralize and grow media buying. We see that area as a growth opportunity."

Agency.com splits its revenue stream into thirds: design and creative, strategy consulting and systems integration. Employees from each discipline sit together in account teams, Mr. Suh says.

"That's a key differentiator in how we work," he says.

Red Sky Interactive, San Francisco, whose clients include Seagram Americas' Absolut vodka Shops savor differences and Nike, considers itself a creative shop, says Michel Sergio, worldwide e-marketing and business development officer-partner.

"We think of [what we do] as experience engineering--we create compelling consumer experiences and bring them to market," Mr. Sergio says.


Red Sky doesn't do database development, he says. Instead, it partners with back-end technology developers, such as InterWorld Corp., to do that work. Like SIG and Organic, Red Sky's focus is mirrored in its staff of 65: "Easily 60% to 70% [of the employee base] is involved in the creative process. A good 50% is technology engineers," Mr. Sergio says.

Web marketing companies have their work cut out for them. As the Internet bubble expands, the challenge becomes greater.

"Five years ago, the Web was a little backwater project the technical guys [at companies] happened upon," says Paul Sonderegger, a Forrester analyst. "Then marketing took over the Web site. But a marketing department's ability to understand technology is limited--their expertise is in how to talk to customers, not in constructing shopping interfaces.

"Now they have to tackle major technical integration issues of reaching into legacy, back-end systems to effect the customer's interaction with the Web site," Mr. Sonderegger says.


Independent interactive shops might be in a better position to take on this challenge than traditional agencies, Forrester's Mr. Nail says, because it's easier for them "to add the online advertising piece. It's easier for them to do that than for an ad agency to add deep technical skills. "I'm waiting for the day when one of the standalones buys a traditional agency," Mr. Nail continues. "I don't think that day is too far off."

Copyright July 1999, Crain Communications Inc.

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