How 10 i-shops coped

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The i-shops Advertising Age chose to profile this year represent a cross section of the disparate companies that derive some of their revenue from interactive marketing, ranging from tech-oriented stand-alones to wholly owned units of ad agencies. That said, there was only one skill that really mattered this year: the ability to survive, by translating creative and technical expertise into a business that can sustain itself through the bursting of the Internet bubble to the creation of the next new economy. Expanded versions of these profiles are available at

2.5 stars had a tough 2000. It laid off 190 people and closed its Vail, Colo., office in December.

Founder and CEO Chan Suh describes it as "a year of maturity," in which the i-shop, formed in 1995, became less of a start-up and more of an established company.

While it had revenue of $56 million in the fourth quarter of 2000, the company announced last week that first-quarter 2001 revenue was $41.1 million. (However, that figure was in line with 's previous guidance for the quarter.)

Clients include British Airways, Reuters and Heineken USA. "There are a lot of companies that are desperate right now, slashing prices and giving away work," Mr. Suh says. "By the end of the year, however, I think the industry will have rationalized itself."


3 stars

Digitas, which went public in March 2000, has had success building digital businesses for the same solid bricks-and-mortar companies it's done business with in the past when it was direct marketing agency Bronner Slosberg Humphrey. Its client list includes American Express Co., Charles Schwab & Co., Delta Air Lines and Federal Express. But Digitas recently stumbled; in April it laid off 65 of its approximately 1,900 employees, gave top management a temporary 5% pay cut, and downgraded its earlier rosy prediction that it would grow in 2001 by 20% to 25%. Now, the company says its revenue could be flat, and won't increase by any more than 6%.

Still Digitas continues to gain blue-chip clients such as FleetBoston Financial, but remains aware of the dismal economic climate. "My concern now is that, because so many people were so disillusioned, they've gone to the other extreme," says CEO David Kenny.

Grey Interactive

3.5 stars

From where Managing Directors Norm Lehoullier and Orin Wechsberg sit, it looks like Grey Interactive has made some pretty prescient moves.

Its clients are solid bricks-and-mortar mar- keters like Procter & Gamble Co., Liz Claiborne and Philip Morris Cos.' Kraft Foods. More clients are focusing their attention on the agency's specialty, interactive marketing. And, unlike most of Grey's competitors this year, the agency has not laid off any employees, though it has lost some to attrition.

"Grey Interactive has been able to leverage the clout of being associated with a huge traditional agency, though its principals say only 25% to 30% of the group's business is shared with Grey Global Group. Grey New Technologies, a unit that includes Grey Interactive and other holdings including Be- yond Interactive, reported $232 million in revenue for 2000, as opposed to $106 million in 1999.

"Last year, there was a significant growth curve, but in the fourth quarter we began to see softening of online advertising dollars in the U.S. and Europe, a leveling or flattening, by all means," Mr. Wechsberg says.

Luminant Worldwide

1.5 stars

Luminant Worldwide Corp. insists it will be profitable this year, despite a precipitous drop in client billings and major shifts in both corporate focus and leadership.

WPP Group's Young & Rubicam remains a major investor in Luminant, with a 20% stake in the company that was founded in 1999 as a rollup of eight agencies. But its value has fallen far from its post-IPO high of $700 million, at $18 per share. Luminant's value now hovers around $30 million, and its shares have been trading recently at around $1.

Last September, Luminant founder and CEO Guillermo G. Marmol, an 18-year McKinsey & Co. veteran before leading the rollup, was replaced as CEO by James R. Corey, another consulting industry veteran, who retained the title of president.

Luminant laid off about 200 people or 18% of its work force in 2000. The company closed and consolidated operations, moving its Seattle office to San Francisco. Still, Mr. Corey has repeatedly said Luminant had positive cash flow in March and has "adequate funding" to operate "through 2001 and into 2002," at least.

Modem Media

2 stars

Marc Particelli, former Booz-Allen consultant, succeeded founder G.M. O'Connell as CEO in January. Soon after, Modem laid off 850 employees in March and closed its Tokyo office. For the first quarter, it reported revenue of $33.4 million, a 17 % increase over a year earlier, and only slightly down from the fourth quarter, when the company had revenue of $35.2 million.

Bob Allen, Modem's president and chief operating officer expects business to grow-slowly-in 2001. "We were here at the beginning," he adds. "I hope to be here at the end, if there is an end."

Ogilvy Interactive

3 stars

WPP Group's Ogilvy Interactive has been bucking trends since its creation, remaining part of its traditional agency and working for established brands. "What we have been building here all along is to be proficient in building technology, but technology with a purpose, to make cash registers ring for (our clients,)" says Jeannette McClellan, president of Ogilvy Interactive North America. "We must continually develop relationships with the customer to ride through the economy in good times and bad, and grow business."

While the agency has not had the layoffs faced by many of its competitors, Ogilvy Interactive did slow its hiring, which had been at a level of 600% annual growth.


1.5 stars

While Organic chairman and former CEO Jonathan Nelson says he does not lose sleep questioning the survival of the company he founded in 1993, he does ponder what the future holds for the San Francisco-based shop. "I stay up at night saying, `Amidst all this reorganization, what's really core here? "

That's a good question during a year in which the company appointed former PricewaterhouseCoopers consultant Mark Kingdon its new CEO, had two rounds of layoffs-270 people in December and 300 people in March-and reported first quarter 2001 revenues of just $14.3 million, down 42% from the fourth quarter of 2000 and down by more than 50% from the first quarter last year. The company recently renewed its contract with DaimlerChrysler, also a core client of Organic minority-owner Omnicom Group.


.5 star

Last week proved the denouement for Razorfish, after a more turbulent year than even most of its competitors experienced: founder and CEO Jeff Dachis resigned from the high-profile i-shop, as the company posted another bad quarter. It had revenue of $42.7 million down from $64.1 million a year earlier

Dachis' resignation comes after a year in which the company experienced more than 400 layoffs. Recently, the company has also had a barely-there stock price. The day in October when the company announced poor third-quarter results, after not warning Wall Street, its stock fell 43%, dropping from $8.75 per share to $5. Investors were not pleased, and several class-action lawsuits were filed.

Despite massive problems, former COO Jean-Philippe Maheu, who takes over from Dachis as CEO, maintains that Razorfish can ride through the tough times. "We intend to play a critical role in the maturation of this industry," he says.


2 stars

Sapient Corp., considered by many observers to be a standout among interactive consultants, has been increasingly affected by declining demand for e-commerce consulting services. Last week, the company posted a pro forma net loss of $6.2 million for the first quarter of 2001, compared to pro forma net income of $12.7 million for the first quarter of last year. It had Q1 revenue of $109.1 million. The disappointing results come after CEO Jerry A. Greenberg had to lay off 20% of the workforce in the U.S. and in Australia last month.

The cutbacks, affecting 720 employees, included shutting Sapient's 70-person Sydney office and consolidating office space in some of the 18 cities around the world where the company operates. But it speaks to the company's overall strength, and its relatively robust stock price hovering in the low double digits, that Sapient was one of the last in the industry to make such cuts.

Zentropy Partners

1.5 stars

If 2000 can be summed up in a word for interactive marketing, confusing is probably it. Michael Tey, president of Zentropy Partners, says clients didn't know what they needed in the face of the changing economic climate.

Zentropy owner Interpublic Group of Cos. didn't know what it wanted out of the unit either. At one point, it was possible that Interpublic would bring the unit public, but eventually it was folded back into the McCann-Erickson WorldGroup last October. In addition, Zentropy suffered layoffs and a reshuffling of management: CEO John Connors III, the 33-year-old son of Jack Connors, himself the chair of Interpublic's Hill, Holliday, Connors, Cosmopulos was reassigned to Inter-public's Internet Ventures Group. Mr. Tey, who had been Zentropy's chief engagement officer, was named president.

Its McCann relationship may end up as Zentropy's real strength. "There's an opportunity to have a more thoughtful approach in this space, more solution-centric rather than just driving the branding," he says.

Reporting by Kate Fitzgerald, Adrienne Mand and Bonnie Tsui

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