The ad industry is struggling to get to grips with the Internet. As if there weren’t enough media choices available already, the agencies must learn to live with this multi-faceted, ever-changing communication tool.
Some are further advanced than others. Just as with other elements of the marketing industry such as PR, direct marketing, sales promotion and design, ad agencies are embracing Web expertise with varying degrees of success and enthusiasm. Some have bought whole Internet design and production companies. Others have taken a minority stake in digital media agencies, or set up alliances. There are also those which have set up their own in-house teams, such as the new M&C Saatchi business eMCSaatchi. In addition, the major creative agencies, which are part of international agency networks, have sister companies dedicated to digital media. These include Ogilvy Interactive, the wholly-owned WPP Group consultancy which operates in 30 markets alongside Ogilvy & Mather.
Eric Salama, director of strategy at WPP, argues that some agencies’ digital media capabilities are more about image than substance. He says: “Everyone is jumping on the bandwagon. Credibility is not built just through launching something with a sexy name.”
Some creative ad agencies have been slow to realise the opportunities of digital media. TV is still the dominant medium for the majority of consumers and it is also highly visible, expensive and glamorous. For many ad agency “dinosaurs”, it remains very much at the top in a hierarchy of communication methods. They have found it hard to look beyond just advertising on the Web, where revenues are still tiny, to the much more fundamental issues of how businesses must adapt to trade in the digital world.
For the major creative ad agencies, the biggest strides in digital media investment are usually taken by their holding companies. These are run by businessmen, whose job is to maximise returns for shareholders and set investment strategy across the whole group. For example, WPP, which owns J Walter Thompson and Ogilvy & Mather, has a stake in website developer Syzygy. It also owns Clevermedia in the UK, which it has merged with Entreprise IG. It has also set up its own venture capital funds to invest in fledgling e-businesses.
Omnicom, the holding company for UK agencies BMP DDB, Abbott Mead Vickers-BBDO and TBWA GGT Simons Palmer, is widely seen as the most far-sighted agency group in the digital media field. It has bought minority stakes in highly-regarded businesses such as Razorfish, Agency.com and Organic. The holding companies have the cash to buy a stake in digital media businesses on a scale which the creative consultancies cannot afford. In return for these minority stakes, small interactive operations receive the financial backing to expand abroad, and are introduced to new international advertisers.
However, some of the top ad agencies which sit within these holding companies have also set up their own in-house digital media operations. In the UK, BMP DDB has set up a division called BMP Interaction. The DDB network recently created a new worldwide board position, titled director of digital strategy to pull together all these individual businesses.
James Best, group chairman of BMP DDB and president of DDB Northern Europe, says: “Agencies are notoriously conservative, but not stupid. They are not necessarily first out of the starting blocks but they do get there in the end.”
The smartest agencies recognise that, as an increasing proportion of their clients’ time and money moves towards the Internet, they have to ensure they stay in control of that business or they risk losing it, possibly to management consultancies or IT companies.
Mark Tomblin, one of the partners at ad agency Cold Eye, says: “The issue for agencies is keeping up-to-date with what can be done on the Web.” He believes that agencies will assimilate the parts of digital media business that they can do – the brand strategy – and outsource the less highly-paid implementation work which needs technical knowledge, just as they do with TV commercials.
He says: “If capitalism teaches us anything, it is that people are willing to pay more for brands. The biggest repository of brand knowledge and brand understanding is concentrated in ad agencies. “Just being a Web designer doesn’t make you a brand strategist. Look at all the terrible websites there are out there.”
However, this is not how the successful digital media design consultancies see it.
Gary Lockton, chief executive at Deepend, accepts that ad agencies are the “guardians of the brand”. But he believes there is still little danger of the ad agencies moving in on their creative territory, leaving them with just production work and not design.
“They don’t have our agility. We can change the direction of the consultancy very rapidly. Agencies don’t have the same commitment and focus to this area,” he maintains.
Deepend has formed a non-exclusive alliance with J Walter Thompson, but is still independently owned by its founders. Deepend managing director Peter Beech says: “It gives us greater flexibility. We can pick and choose the work we want to do.”
Where ad agencies may yet find themselves fighting for the clients’ ear is with the media agencies, the companies which plan and buy ad space and are sometimes part of an ad group and sometimes independent. Media agencies have set up their own interactive units to plan and buy on-line advertising, some are also involved to a greater or lesser degree in setting strategy.
Motive Communications, the media arm for ad agency Bartle Bogle Hegarty, set up Motive Digital Services in July. Independent media agency CIA MediaNetwork has a consultancy called MVi which sits at the centre of a group of six digital media companies that CIA’s holding company Tempus either owns or has a minority stake in.
The ad agencies argue that they have the expertise to build new brands and maintain the power of existing ones, making them best placed to lead clients’ e-commerce strategies. Whether they can capture this high ground before someone else does is a challenge they cannot afford to ignore.
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