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Back to the Future: Olde JWT Comes Back and Agency.com Feels the Pinch

Written By: R. Krause
Published On: August 16 2000

Back to the Future: Olde JWT Comes Back and Agency.com Feels the Pinch
E. Robins & L. Talarico - August 16, 2000

Event Summary

JWT lost a major account of six years standing to Agency.com in 1998 because it simply did not understand the drive to the web, and lacked the technology and vision to accomplish the goal. Two years later it got it back - because Agency.com essentially failed to recognize a traditional customer with a built brand, rather than one that had to be built (among other issues). JWT had also by then gained experience and built up its Internet technology team to meet Lipton Brisk's new needs, as well as its old.

Market Impact

Like many ad agencies, JWT was caught off-balance by the sudden appearance of the web as an advertising and customer relationship medium. The rise of new kinds of agencies that combined technology, branding and marketing skills in the new medium essentially wrought havoc with old Brick & Mortar (B&M) accounts as clients panicked to get to the web - something they little understood at the time.

Lipton Brisk was an example of a traditional advertising client that needed to go to the web. All JWT offered (or could offer) was to place ads on other people's websites. JWT missed the boat when Agency.com gave a slick and exciting presentation. Their presentation of multimedia websites they had already done and seemed relevant to Brisk, (a young persons product) won Brisk over.

Later, Brisk, upon reflection, realized the slick presentation may have skewed their team's thinking. Agency was thinking about a different and perhaps less mature client than what Brisk had in mind - perhaps an artifact of the way the web has come into being, and how Agency evolved. Agency seemed to forget that Lipton-Brisk had an established brand with one target audience, and instead, seemed to direct their branding to another they perceived was on the web, which led to a major issue with their client. According to Wall Street journalist Kathryn Kranhold ("Lipton Brisk Found Online Ad Firm Was Just Too Cool for Its Taste", WSJ, July 21, 2000), Agency.com personnel did not seem to grasp that the brand could continue to address Lipton Brisk's audie nce on the web; instead they directed the brand message at another audience Agency perceived as existing on the web.

Slickness of presentation, however, does not mean a good understanding of the client business, nor a long-term build on an image, particularly on one that already exists. Moving into a new medium also does not necessarily mean a complete change of image and brand.

During the engagement, Agency's way of operating and doing business did not jive well with the senior executives of Lipton Brisk. The differences ranged from the project and engagement methodology through the concept that brand ideas that should have some continuity. In Brisk's judgment an appropriate conceptualization of the future should follow from its current brand position, established by its successful TV ad campaigns. As well, the project demanded different skill sets, and the varying consistency of the team and rate of turnover of senior personnel became an issue for Lipton Brisk, used to the traditional ad agency/client relationship where the vendor team often stayed the same for many years.

Essentially, the cultures of the two organizations did not match.

Vendor Winners/Losers

From a market perspective, the world has changed. Exciting and new dot-coms, the darlings of venture capitalists but a few months ago, are finding it harder to raise funds today. Further, the image of the dot-com as the young whiz-kid executives realm (a perception that is only partly true) is at an end: though the initial bright idea may have been ignited by young passionate visionaries (who are now maturing), the Internet as a place for serious business needs more than whiz: it needs substance. Interviews with a number of vendors and their clients indicate that the interest has dramatically shifted to those with years of successful business experience behind them, good long term industry contacts, and a real sense of how to create revenue streams in the new medium.

The stock market has also reacted to the need to see profits, not claims of snazzy traveling executives where great profits would suddenly appear if only a website were built. This means the whiz-bang years are now settling to sensible business regimes: and real earnings are needed within the next year or so as this is probably the limit of investor patience.

Service providers must now look at providing services to more mature and better-informed clients. Lipton Brisk's experience underlines key points that service providers must take to heart: the market is shifting to established companies and mature executives who see a real need for more traditional project handling. To add to this, projects have also increased in size and expense. Cheap service providers are likely to find themselves eventually at a disadvantage since low salaries and low quality may not payoff for their clients in this new environment.

From a recent TEC survey of nine vendors of varying size, all vendors stated that project sizes were increasing, and have roughly doubled since January 1999. The project size increases may in part be due to vendors wanting to move into more lucrative and long-term projects in the mid- and high-end market range. However, the complexity of the web as a place to do business is increasing, and most projects are still for most businesses in the build-out stage, meaning high expense for years to come to reach the magical point of automated SCM, CRM, and extended ERP systems. Complexity will only increase as technologies come online and the web extends its borders internationally as well as technically.

JWT recognized the need to provide additional technologically based services, and also that traditional project control, management and dedicated teams gave comfort to their more formal client. Technology companies with advertising arms that have adopted consulting practices where a premium would be charged to maintain personnel on a particular project may need to rethink if they want to hang on to traditional B&M accounts, or they may risk losing them to traditional agencies with technology arms.

Vendor Recommendations

There is a sense that the marketplace has shifted gears, and pure plays should take note of the fact. The JWT's and DDB Needham's are on your tail if you focus in the B2C/B&M world in particular. Strangely, it seems, those who trumpeted the world was changing and the old would have to adapt, may find the world is changing back, and they will need to adapt. Even personnel may want to have more stable job offerings, a grouch these authors have heard more than once, and perhaps evidenced by personnel shifts (in some cases according to the Wall Street Journal) from Agency.com to JWT, despite the attractiveness of share options.

Share options, must of course have value, and that comes from earnings not just revenues, as the stock market has given decided notice about recently. Agency's stock price is currently trading at about $25, down from its high in 1999 of $98 - hardly an attractive position for many of its employees with stock option plans who joined around that time.

Figure 1. Agency.com Revenue/Earnings since 1996

However, the bright side for Agency.com is that it may spin a small profit for the first time since 1997 (see figure) this quarter, and Chase H&Q has moved Agency from a Strong Buy to its Focus list (although many think it is a strong buy because it is relatively cheap). Agency still has a long way to climb, and the more it can adapt to the market the better for its stock.

JWT had billings of $9.5B last year. It recently acquired Imagio that provides traditional and online advertising, marketing, PR and branding services to dot-com as well as B&M companies. Imagio generated $75M in revenue with just over 90 people - a very high per capita revenue that Agency would off course enjoy having.

For a large traditional ad agency, it would not be completely surprising for them to be looking at an Agency.com as a potential acquisition. This would give the ad agency the technology. Against this, however, is the cultural match, and ad agencies simply do not have any experience with this kind of merger. The probability is low (at about 20%) this would happen, but is not ruled out.

APPNET was recently bought by Commerce One, largely because Commerce One was in need of two things: the first that it needed more bodies to throw at the marketplaces it was building. These were proving more costly and complex than anticipated, and secondly, that it needed to start earning profits rather than notching up losses. According to Commerce One, this acquisition should make it profitable a quarter earlier than otherwise - still projected to third or fourth quarter of 2001.

User Recommendations

Users should take a careful note of the culture of the organization with which they team. Though this may not appear important at first, project success, efficiency and costs can depend enormously on how well your organizational needs and methods of operating are mirrored by the vendor.

B&M's may well find that they need the technology and the branding. In this case they may need to seek multiple sources of services to reduce risk. On the downside is the management cost of dealing with more than one vendor, if this is necessary.

Verify with the vendor that at least the core of the team you talk to at first are going to be there for the duration of the project. However, be aware that technologist turnover in these companies can be as high as 20% (this author has heard as much as 28%) or more per annum. Be prepared to pay a premium if you want core team consistency throughout a project; but also be aware that this is almost impossible for many service providers to guarantee, even with the added premium. If you need this guarantee, you should rethink what development you want the service provider to handle. You may want to consider sourcing other providers to spread your risk.

However, be aware also that consultant organizations consider it fair game to shift people to more lucrative projects, or defend situations such as late delivery by taking personnel from your project and throwing them at another, or replacing experienced hires with novices. This is not generally the practice, but in a desperate situation it can happen. If a vendor is doing this frequently, it means they are understaffed and do not have proper project coordination capabilities.

Generally speaking, larger consulting organizations have the capacity to absorb these varying demands: however, there are other issues such as quality, costs, geography, and the availability of the right mix of talent needed to achieve your objectives. Ensuring these conditions are met can be difficult by any service provider. Contractual clauses including specific requirements (such as core team retention), cost structure changes and penalties related to project performance should be considered in the contracts. Few service providers consider project performance guarantees in their contracts - it is an unheard of practice in this area because service providers are reluctant (for reason) to guarantee anything. However, opportunities to tie the vendor down to some kind of performance guarantee could pay off.

As projects get more costly and longer, stricter controls on project management should be sought. If the vendor does not want to play in this direction, you may want to reconsider your choice of vendor. There is something to be said for good old project management and discipline, even in the Internet age.

 
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