Shine a Light by Chris Trayhorn, Publisher of mThink Blue Book, January 1, 2008 It’s been seven years since interactive agency Razorfish embarrassed itself on national television. When reporter Mike Wallace of CBS’ "60 Minutes" asked the agency’s co-founders what the company does, the answer was none too clear. Jeff Dachis, co-founder of Razorfish, said to Wallace, "We’ve asked our clients to recontextualize their business." Asked for clarification, he added, "We’ve recontextualized what it is to be a services business." Wallace didn’t understand the answer. "We radically transform businesses to invent and reinvent them," Dachis explained. Even though Dachis couldn’t seem to come up with an answer to satisfy Wallace, earlier in the program Dachis said of interactive agencies: "This is absolutely real; this is a revolution; we’re packing rifles; and this is going to be something that’s going to change the course of the way the world is functioning." On that point he seemed to be right. Razorfish, now known as Avenue A/Razorfish, owned by aQuantive, survived the ensuing dot-com crash and is currently ranked among the top 10 interactive agencies. Avenue A/Razorfish has even flourished, counting a roster of clients that includes Best Buy, Coors, Starwood, Wal-Mart and Weight Watchers. The company has reinvented itself from a Web design firm into a metrics- and response-focused house. The majority of the top 10 interactive agencies in the U.S. have taken that mantra to heart, spinning out digital firms from their more traditional agency parents and combining Web design with a myriad of client services and metrics-based programs. While this focus on the end-to-end as well as the most creative solution has indeed changed the way the digital agency functions, there are still lingering questions about who all this change is good for. The two tiers of interactive agencies – the digital arms spun out of traditional Madison Avenue powerhouses and the independent firms that got purely into digital about 10 years ago – are doing fairly well. Still, one faction points to the other a slacking in the forward-thinking bright ideas that will increase innovation and profits in the next phase of Internet advertising, mainly the social Web and search. "Marketing on the whole still favors the traditional agencies," said Mark Kingdon, CEO of independent agency Organic. "But interactive is coming into its own. How do we work together, is the question." Organic emerged in 1993 as one of the first digital agencies and weathered the dot-com crash to thrive as an agency that specializes in deep customer profiling. Big vs. Boutique Organic may call itself an independent, but it is actually owned by giant Omnicom Group, which also owns Agency.com, Tribal DDB and Tequila in the interactive field. WPP owns Grey’s digital marketing arm and Ogilvy Interactive. Interpublic owns MRM Worldwide, R/GA and DraftFCB. The top 10 digital firms earn between $92 million and $235 million annually, according to AdAge. Avenue A/Razorfish leads the interactive pack with revenue of about $235 million in 2006. Omnicom is currently the holding company with the most revenue from its advertising units- about $11.4 billion worldwide in 2006. That’s about $6.2 billion in the U.S. It has also done well on Wall Street. In February of this year, its stock hit $106.90 per share, about 50 cents short of its all-time high in December of 1999. While Organic is considered a smaller player, with revenue of about $102 million in 2006, Kingdon says that "marketing is under enormous pressure right now." He says that "people want to create a war between traditional and interactive agencies. "War may be a strong word, but the perception is that while independent digital agencies get all the "fun" work, bigger houses spun out of the traditional agency environments are still coming to terms with how to handle search marketing and the impact of social media. Spun-out digital agencies say they are best equipped to scale and meet all the client’s needs, be they digital or older media. "Traditional agencies started to niche themselves," says Rohit Bhargava, vice president, interactive marketing at Ogilvy Public Relations Worldwide. "They broke themselves into search and email marketing, etc. Now you have social media agencies. But the traditional agency is in real trouble now. With word of mouth, search and social media all coming from interactive agencies, traditional agencies don’t do that well, yet. " Interactive agencies that came from the ranks of traditional agencies haven’t been hurting. DraftFCB, for example, earns about $95 million a year, and is the fairly recent marriage of FCBi and Draft Digital. FCBi was an outgrowth of traditional agency Foote, Cone & Belding. DraftFCB’s mantra is to stay response-driven but with the added value of more and better data. "In the past decade, the terrain went from silly money to accountability," says Brad Kay, executive vice president, executive director, digital, at DraftFCB. He says that the team has become younger and younger to help stay on top of innovation in thought and technology. The shop also has an elaborate intranet where employees can post "cool" stuff they encounter on the Web. This helps the "stay fresh or die" attitude, Kay says. The small boutique shops may get a lot of adventurous creative work, but that’s how it was in the purely traditional agency universe in the days before digital. The two-man firms always got the regional business where your ad could feature grandmas in tattoos or precocious babies driving Harleys. "Sure," Kay adds, "some business goes to the boutiques and we’ll just have to get used to it." He says to help win new business they need to take on more people – something they do to stay abreast of innovation and the "hip factor." The benefit to bigger traditional agencies is their deep pockets. To build a digital house from scratch seems to be a thing of the past. Buying a digital firm is easier. WPP Group has put Schematic, 24/7 RealMedia and Blast Radius in its corral. Publicis back in January doled out $1.3 billion for Digitas and also bought Web agency Business Interactif to bolster its presence in France, Japan and China. Omnicom, as mentioned, owns Agency.com, Tribal DDB and Organic, and continues to grow existing digital assets by taking a 50 percent stake in EVB, based in San Francisco. Even among some of the independent shops, there is consolidation of the players. The big advertising parent companies now own a mix of big and small digital firms. Omnicom, Interpublic and Publicis, to name a few, own big earners who began as offshoots of traditional agencies and smaller companies that started as two guys with a little Web coding experience. "You don’t need to streamline everything across an agency anymore," says Ogilvy’s Bhargava. "We’re going to use JWT for billing and Ogilvy for PR because it is the same parent company." Trevor Kaufman, CEO of Schematic, has said that in a case where Schematic is bought by WPP, the intent is to "help change the DNA of the operating company and make them inherently more digital." He says in the case of his company, "it’s a way of leveraging specialized skills over the entire network. It has been successful because, in the end, it is providing better, more integrated solutions for clients." The CMO Factor Chief marketing officers may need some convincing. A recent study done by Sapient said that more than 50 percent of chief marketing officers believe that the traditional, large advertising agency is not prepared to meet their online marketing needs. It said that one in 10 CMOs expected to align with traditional agencies for their online marketing, stating that traditional advertising firms have a hard time thinking beyond traditional print and TV media models. A report by Forrester done in February 2007 said that "agencies struggle to help clients capitalize on emerging channels and technologies. In the meantime, marketers are diffusing agency power by turning to a portfolio of players in search of specialized expertise. As marketers select new agency partners, they must revise their evaluation criteria to build an integrated marketing team." And a March 2007 study by the Chief Marketing Officer Council said that 54 percent of marketers surveyed stated they plan to quit one of their agencies this year. The study summed up by saying that "marketing is undergoing substantial changes due to a mandate for CMOs to improve the relevance, accountability and performance of their organizations." A brand may know what they want but have a hard time finding it. "Most interactive agencies have a hard time getting human resources together," offers Robert Tochterman, interactive brand manager for Ralston Purina. "Some agencies don’t know who’s going to be on an account until the work begins. You’re really buying into the confidence of the people at a director level." Tochterman looks for a team that "has rigorous methods for measuring the impact of a campaign, keeping an eye on return on investment. That’s the kind of discipline we’re looking for. Most agencies don’t talk about that. It’s comforting when they do." Getting in the Network Game Some big agencies are attempting to streamline their synergy by creating their own networks. The Omnicom Group, for example, announced it is erecting a "digital creative network" to be called Redurban. The aim is to globalize marketing and creative in an Amsterdam-headquartered endeavor out of recently acquired Redurban agency of the Netherlands. Euro RSCG, owned by Havas, also recently announced that its 4D digital arm would be moving into its New York office, with "integration" as its intent. Publicis, headquartered in France, has taken three of its agencies to create what it calls a "central services operation" named The InsightFactory. Leo Burnett, Starcom MediaVest Group and Digitas will contribute labor and technology to The Insight Factory, making a full-service mix of their media, digital and creative services. This news comes after Omnicom’s push to integrate TBWA/Worldwide agency and Agency.com failed. TBWA was put in charge of Agency.com in 2005 and they just never made it work, according to news reports. In addition, Agency.com’s Dallas office announced it would close down completely, putting half of its small staff on the streets. Agency.com founder Chan Suh returned to the company in April as chief executive after CEO David Eastman held the top spot for less than a year. Organic CEO Kingdon still maintains that there are some things the bigger digital companies can’t do that they do – what he calls a "client contact strategy." He says the client wants to know not the "what" of defining the traditional brand but the "how" of the digital approach. "Interactive agencies can handle the pace of innovation," he says, "but digital is always changing, so pure digital agencies know no differently. They were there when HTML first came along and when there was no money and they learned to thrive through Flash and Ajax and all that." A case in point is the vanishing campaign microsite – websites built around a specific product. When Coca-Cola recently launched a new character for its Sprite drink, it did not launch a microsite, but set up the character on Facebook, complete with videos, music and discussion pages on the profile. Microsites are now seen as the "old model," shifting instead to where younger audiences gather – Facebook, MySpace, widgets and mobile applications. Adam Lavelle, chief strategy officer at iCrossing, points out that campaign sites tied to short-term promotions or products consistently rank low on search engines. "I don’t understand how, long term, a site builds brand equity," he says, "and with search, I don’t see that having long-term visibility." The quandary for some brands, then, is do they sign up with a hot new interactive agency or do they stick with their shop of record? Ogilvy’s Bhargava believes the "top 10 are taking low-hanging fruit," with the bigger clients getting "a lot of follow-on business from other unit business. It is not cold calling. It is qualified leads." Lavelle says there is no monopoly on the best ideas, a sentiment that seems clear from the success of some independent interactive agencies. He says the "most important thing for marketers to think about is, ‘as I move more money from traditional into digital, does this agency have the capabilities that I want? Are there types of activities online, in mobile devices or other things I could be doing?’" "You’re in trouble if you’re just building websites," says Bhargava. "We don’t want any one type of thinker," adds DraftFCB’s Kay. "The channel changes on a minute-by-minute basis. "We want to compete with the pure-play and the behemoth." And Razorfish’s Dachis? Has he recovered from his embarrassment on national TV? After the dot-com crash nearly killed Razorfish, he left the company and formed Bond Art and Science, a consultancy that he says is not in the ad business even though reports seem to indicate it covers at least some of the same ground as Razorfish. Evan Orensten, a partner at Bond, says the company does "experience design," which sounds like an interactive agency. Filed under: Revenue Tagged under: 21 - January/February 2008, Advertising, Agencies, Branding, Columns, Cover Story, Industry Trends, Media Buying, mtadmin About the Author Chris Trayhorn, Publisher of mThink Blue Book Chris Trayhorn is the Chairman of the Performance Marketing Industry Blue Ribbon Panel and the CEO of mThink.com, a leading online and content marketing agency. He has founded four successful marketing companies in London and San Francisco in the last 15 years, and is currently the founder and publisher of Revenue+Performance magazine, the magazine of the performance marketing industry since 2002.