Date: August 14, 1998
From the print edition of CityBusiness
Ad agencies unravel a tangled Web
Agencies take various paths
Tim J. Johnson Staff Reporter
In any industry, it's rare to brag about lagging behind the competition.
So why is Ron Sackett proudly proclaiming that his advertising agency is merely dipping its toe into the pool of Internet-related advertising, while others boast that they're doing a cannon ball?
"We want to be `fast followers,' " says Sackett, principal at the 42-person shop. "We've been quite successful on our own doing the things we've been doing. We'll let the other people out there test the waters, and see what works and what doesn't work."
Foley Sackett is doing some interactive work and plans to explore it further, but it has good reason to feel gun-shy.
A number of agencies that got into interactive early made costly mistakes. Nationally, firms that picked up interactive agencies had trouble assimilating technical and creative cultures. Locally, Fallon, one of the early players, confesses that it had its own troubles.
Still, agencies are plowing ahead, and even though Internet-related activity -- Web-site development, marketing and e-commerce -- doesn't yet account for double-digit percentages of total revenue at most full-service agencies, they say that they plan on boosting that business.
Some already go well beyond: New Brighton-based Risdall estimates that a third of its revenue comes from Internet-related work.
Advertising on the Internet has evolved quickly, from companies wanting a Web site just for the sake of having one, to companies now realizing that they need to create an effective marketing tool that will attract 'Net surfers and hold their interest.
It isn't easy.
Just ask Minneapolis' second-largest agency, Fallon McElligott, which has dedicated significant resources to interactive efforts through its Revolv unit.
"You're starting a business that's brand new, so there are no tried or true processes," says Mark Goldstein, president of integrated marketing at the Minneapolis-based shop, which has already picked up awards for its work. "There was a lot of stumbling along as we made our way through that minefield."
For example, he said the agency hired people with specific skills that it thought it needed, only to find out it didn't need those skills.
The industry as a whole went through fits and starts, said Drew Ianni, an online advertising analyst at Jupiter Communications in New York. "It's a major pain and it takes a while to learn how to do it right," he said.
Larger agencies started their interactive divisions by buying interactive agencies in 1995 and 1996, but soon ran into problems. "It comes down to they simply didn't get it," Ianni said. He noted that combining the creative side of an agency and the technological capabilities of some of the interactive agencies wasn't a solid fit.
Some of these interactive divisions were pared down or folded completely, said Ianni.
Interactive divisions stayed with their advertising client rosters in 1996 and 1997 and didn't pursue new business on their own.
But they've gone back into an acquisition phase recently, and are getting more aggressive with new business as they figure out the medium. "A lot of these have built a track record, and now more frequently are competing with traditional interactive agencies," Ianni said.
Fallon's been dabbling in interactive since the spring of 1995, formalizing its identity through Revolv in 1997.
Like other agencies, it did it to offer its clients another service in the integrated-marking shop, whereby customers can select a variety of different services at one stop.
But it also felt it could go head-to-head with some of the larger stand-alone interactive companies.
While many larger agencies gobble up these smaller shops in order to get a ready-made interactive division, Goldstein said Fallon eschewed the idea. "It's counter to everything we believe in," said Goldstein. "It's easier and more culturally consistent to find the kind of people we want and get the kind of business we want."
That business has expanded to include about 70 percent of Fallon's existing clientele, as well as 30 percent non-Fallon clients. It's difficult to estimate revenues for Revolv because this figure is combined with work from the Joe Duffy design division, but roughly 10 percent of Fallon's $48 million in revenue comes through Revolv; Goldstein said Fallon's work with interactive broke even in its first 18 months. About 30 to 35 people have some involvement with Revolv, though some work in other areas of the agency as well.
Getting the right kind of people is a challenge that many agencies face, and it's a primary reason that Campbell Mithun Esty, Minneapolis' largest agency, bought an interactive shop this spring. Digital Cafe, a 12-person agency in St. Paul, quickly brought on a team of talented individuals with interactive capabilities, said Bob Safford, senior vice president and general manager of integrated marketing services, and now CEO of Digital Cafe.
Those workers were integrated with the dozen or so CME interactive employees. It operates as an independent unit.
"It's very tough to attract the talent," Safford said. "These people are extremely hot commodities."
CME's interactive work accounts for a small percentage of its overall revenue, but Safford sees the division potentially growing 50 percent a year. Like Goldstein, he sees it as another offering, and one whose full range of potential has not yet been tapped -- including as a money-making venture for agencies.
"Right now it's being viewed as an adjustment to a marketing plan," he said. "Ultimately, it will be a more fundamental part of a marketing program. Clients will value it at a higher level."
Agencies will likely stick with that pitch, claiming that while darn near anyone can design a Web site, agencies can offer marketing capabilities that will attract Web surfers.
"It's not Web-site development, it's Web-site performance," said Gregg Sampson, managing director of Martin/Williams Interactive, which has been around for about three and a half years. "People are feeling increased pressure to make their Web site do more than it's doing now," he said.
The division counts 14 employees, with hopes of doubling in the next 12 months, he said. About 80 percent of its clients have accounts with Martin/Williams, and while it generates less than 5 percent of Martin/Williams' overall revenues now, Sampson hopes to double revenue in its next fiscal year.
It plans to build from within. "Acquisition is not a growth strategy," he said.
Carmichael Lynch hasn't been as aggressive as its other big-agency brethren. "It's a wave, but it's a wave that's followed by many other waves," said Doug Spong of Carmichael Lynch Spong, the public relations arm of Carmichael Lynch that handles most of its interactive work. "Right now, it's the wave on the horizon."
The company started handling its interactive work through its public relations arm, because of the design capabilities as well as the expertise at compiling content. "It probably evolved by the simple fact that we were the ones doing most of the work," said Spong. "We have the expertise merely by the fact we've done it."
Still, the agency isn't creating a single division to handle the work. "Right now, our strategy has been not to designate a department called `interactive,' but rather we have pockets of that work happening."
The agency also isn't sure of the 'Net's various applications for advertisers. "I think everybody is just discovering what's possible," Spong said.
Sackett echoed that comment.
While it's taking a somewhat cautious approach now, Sackett said it had considered going even slower, until an upsurge in demand prompted it to devote more resources. Currently it devotes three to four people to the work, which generates 5 to 10 percent of company revenues. Sackett can see it increasing to 15 to 20 percent, and even higher. It might go outside its current clientele roster.
"For those agencies who don't acknowledge it [interactive], it may find clients shifting elsewhere," said Sackett.
Others are sold on the Internet, but are waiting for the business and the revenue to justify investing in it.
BBDO Minneapolis, with about 63 employees, doesn't have anyone working exclusively on interactive activity, other than one employee working on its own Web site.
The Web site for Hormel, an advertising client, is undertaken through a partnership with Larsen Interactive in Edina, which incorporates BBDO's advertising and marketing message with its Web presence. "It has the same look and feel with the advertising," said Jon Firestone of BBDO.
He said that they'll add staff for interactive when there's a demand from clients, and when the work pays for itself. "As we see the need from additional clients, we'll add additional staff. Right now the need and revenue don't justify it."
BBDO, of course, also has something that some other Twin Cities don't necessarily have: the ability to partner with other BBDO agencies around the country, as well as the resources of its parent company. "Our company is very much a part of it," he said.
But what of the smaller agencies in town?
One advantage: it's not a capital-intensive enterprise. Many of the firms have the technology in their graphics equipment to do the creative graphics work, and on the tech side, most companies, including the biggies, still prefer working with vendors that offer advanced programming skills, Web hosting and e-commerce capabilities that would be difficult to build in-house.
However, it is people-intensive, and sources note it's a tight market.
Bolin Advertising, which has 24 employees, makes no bones about its progress. "We're a little behind the curve in terms of selling it to our clients," said Todd Bolin. "It's a big area, and one that we're working on."
Two designers work on interactive activity, but not full-time, at Initio Advertising, which counts Red Wing shoes among its clients, said Geoff Grassle. It has been doing interactive work for the past two and a half years.
Interactive accounts for a "couple percent" of total company revenues.
Jupiter's Ianni said it's critical to get online with interactive capabilities. "It's becoming rapidly a part of the marketing communications mix," he said. "If you haven't decided to get aggressive, or get a real focus, if you're still sort of floating, you have to make your decision now," he said.
Others are not as alarmist -- for now.
"I don't think it's a detriment to small companies at this point, but over the next five years, it will become another point of differentiation," Initio's Grassle said.
For more information, contact:
Agencies take various paths
Tim J. Johnson Staff Reporter
In any industry, it's rare to brag about lagging behind the competition.
So why is Ron Sackett proudly proclaiming that his advertising agency is merely dipping its toe into the pool of Internet-related advertising, while others boast that they're doing a cannon ball?
"We want to be `fast followers,' " says Sackett, principal at the 42-person shop. "We've been quite successful on our own doing the things we've been doing. We'll let the other people out there test the waters, and see what works and what doesn't work."
Foley Sackett is doing some interactive work and plans to explore it further, but it has good reason to feel gun-shy.
A number of agencies that got into interactive early made costly mistakes. Nationally, firms that picked up interactive agencies had trouble assimilating technical and creative cultures. Locally, Fallon, one of the early players, confesses that it had its own troubles.
Still, agencies are plowing ahead, and even though Internet-related activity -- Web-site development, marketing and e-commerce -- doesn't yet account for double-digit percentages of total revenue at most full-service agencies, they say that they plan on boosting that business.
Some already go well beyond: New Brighton-based Risdall estimates that a third of its revenue comes from Internet-related work.
Advertising on the Internet has evolved quickly, from companies wanting a Web site just for the sake of having one, to companies now realizing that they need to create an effective marketing tool that will attract 'Net surfers and hold their interest.
It isn't easy.
Just ask Minneapolis' second-largest agency, Fallon McElligott, which has dedicated significant resources to interactive efforts through its Revolv unit.
"You're starting a business that's brand new, so there are no tried or true processes," says Mark Goldstein, president of integrated marketing at the Minneapolis-based shop, which has already picked up awards for its work. "There was a lot of stumbling along as we made our way through that minefield."
For example, he said the agency hired people with specific skills that it thought it needed, only to find out it didn't need those skills.
The industry as a whole went through fits and starts, said Drew Ianni, an online advertising analyst at Jupiter Communications in New York. "It's a major pain and it takes a while to learn how to do it right," he said.
Larger agencies started their interactive divisions by buying interactive agencies in 1995 and 1996, but soon ran into problems. "It comes down to they simply didn't get it," Ianni said. He noted that combining the creative side of an agency and the technological capabilities of some of the interactive agencies wasn't a solid fit.
Some of these interactive divisions were pared down or folded completely, said Ianni.
Interactive divisions stayed with their advertising client rosters in 1996 and 1997 and didn't pursue new business on their own.
But they've gone back into an acquisition phase recently, and are getting more aggressive with new business as they figure out the medium. "A lot of these have built a track record, and now more frequently are competing with traditional interactive agencies," Ianni said.
Fallon's been dabbling in interactive since the spring of 1995, formalizing its identity through Revolv in 1997.
Like other agencies, it did it to offer its clients another service in the integrated-marking shop, whereby customers can select a variety of different services at one stop.
But it also felt it could go head-to-head with some of the larger stand-alone interactive companies.
While many larger agencies gobble up these smaller shops in order to get a ready-made interactive division, Goldstein said Fallon eschewed the idea. "It's counter to everything we believe in," said Goldstein. "It's easier and more culturally consistent to find the kind of people we want and get the kind of business we want."
That business has expanded to include about 70 percent of Fallon's existing clientele, as well as 30 percent non-Fallon clients. It's difficult to estimate revenues for Revolv because this figure is combined with work from the Joe Duffy design division, but roughly 10 percent of Fallon's $48 million in revenue comes through Revolv; Goldstein said Fallon's work with interactive broke even in its first 18 months. About 30 to 35 people have some involvement with Revolv, though some work in other areas of the agency as well.
Getting the right kind of people is a challenge that many agencies face, and it's a primary reason that Campbell Mithun Esty, Minneapolis' largest agency, bought an interactive shop this spring. Digital Cafe, a 12-person agency in St. Paul, quickly brought on a team of talented individuals with interactive capabilities, said Bob Safford, senior vice president and general manager of integrated marketing services, and now CEO of Digital Cafe.
Those workers were integrated with the dozen or so CME interactive employees. It operates as an independent unit.
"It's very tough to attract the talent," Safford said. "These people are extremely hot commodities."
CME's interactive work accounts for a small percentage of its overall revenue, but Safford sees the division potentially growing 50 percent a year. Like Goldstein, he sees it as another offering, and one whose full range of potential has not yet been tapped -- including as a money-making venture for agencies.
"Right now it's being viewed as an adjustment to a marketing plan," he said. "Ultimately, it will be a more fundamental part of a marketing program. Clients will value it at a higher level."
Agencies will likely stick with that pitch, claiming that while darn near anyone can design a Web site, agencies can offer marketing capabilities that will attract Web surfers.
"It's not Web-site development, it's Web-site performance," said Gregg Sampson, managing director of Martin/Williams Interactive, which has been around for about three and a half years. "People are feeling increased pressure to make their Web site do more than it's doing now," he said.
The division counts 14 employees, with hopes of doubling in the next 12 months, he said. About 80 percent of its clients have accounts with Martin/Williams, and while it generates less than 5 percent of Martin/Williams' overall revenues now, Sampson hopes to double revenue in its next fiscal year.
It plans to build from within. "Acquisition is not a growth strategy," he said.
Carmichael Lynch hasn't been as aggressive as its other big-agency brethren. "It's a wave, but it's a wave that's followed by many other waves," said Doug Spong of Carmichael Lynch Spong, the public relations arm of Carmichael Lynch that handles most of its interactive work. "Right now, it's the wave on the horizon."
The company started handling its interactive work through its public relations arm, because of the design capabilities as well as the expertise at compiling content. "It probably evolved by the simple fact that we were the ones doing most of the work," said Spong. "We have the expertise merely by the fact we've done it."
Still, the agency isn't creating a single division to handle the work. "Right now, our strategy has been not to designate a department called `interactive,' but rather we have pockets of that work happening."
The agency also isn't sure of the 'Net's various applications for advertisers. "I think everybody is just discovering what's possible," Spong said.
Sackett echoed that comment.
While it's taking a somewhat cautious approach now, Sackett said it had considered going even slower, until an upsurge in demand prompted it to devote more resources. Currently it devotes three to four people to the work, which generates 5 to 10 percent of company revenues. Sackett can see it increasing to 15 to 20 percent, and even higher. It might go outside its current clientele roster.
"For those agencies who don't acknowledge it [interactive], it may find clients shifting elsewhere," said Sackett.
Others are sold on the Internet, but are waiting for the business and the revenue to justify investing in it.
BBDO Minneapolis, with about 63 employees, doesn't have anyone working exclusively on interactive activity, other than one employee working on its own Web site.
The Web site for Hormel, an advertising client, is undertaken through a partnership with Larsen Interactive in Edina, which incorporates BBDO's advertising and marketing message with its Web presence. "It has the same look and feel with the advertising," said Jon Firestone of BBDO.
He said that they'll add staff for interactive when there's a demand from clients, and when the work pays for itself. "As we see the need from additional clients, we'll add additional staff. Right now the need and revenue don't justify it."
BBDO, of course, also has something that some other Twin Cities don't necessarily have: the ability to partner with other BBDO agencies around the country, as well as the resources of its parent company. "Our company is very much a part of it," he said.
But what of the smaller agencies in town?
One advantage: it's not a capital-intensive enterprise. Many of the firms have the technology in their graphics equipment to do the creative graphics work, and on the tech side, most companies, including the biggies, still prefer working with vendors that offer advanced programming skills, Web hosting and e-commerce capabilities that would be difficult to build in-house.
However, it is people-intensive, and sources note it's a tight market.
Bolin Advertising, which has 24 employees, makes no bones about its progress. "We're a little behind the curve in terms of selling it to our clients," said Todd Bolin. "It's a big area, and one that we're working on."
Two designers work on interactive activity, but not full-time, at Initio Advertising, which counts Red Wing shoes among its clients, said Geoff Grassle. It has been doing interactive work for the past two and a half years.
Interactive accounts for a "couple percent" of total company revenues.
Jupiter's Ianni said it's critical to get online with interactive capabilities. "It's becoming rapidly a part of the marketing communications mix," he said. "If you haven't decided to get aggressive, or get a real focus, if you're still sort of floating, you have to make your decision now," he said.
Others are not as alarmist -- for now.
"I don't think it's a detriment to small companies at this point, but over the next five years, it will become another point of differentiation," Initio's Grassle said.
For more information, contact:
| John Risdall | or Michelle Vandesteeg |
| Chairman and Chief Executive Officer | Vice President, Account Supervisor |
| Risdall Advertising | 651.631.1098 (tel) 651.631.2561 (fax) |
| 550 Main Street | |
| New Brighton, Minnesota 55112 | www.risdall.com or www.risdall.net (web) |