NEW MEDIA: SPOTLIGHT ON AGENCY PROFITS AND LOSSES - Power of the ad networks extends to digital media

By Alasdair Reid, campaignlive.co.uk, Friday, 28 February 2003 12:00AM

Does independence create real advantages for digital agencies?

Conventional ad agencies have always assumed that they will inherit the new-media sector as a matter of historical inevitability. Their reasoning has always been that the purveyors of grown-up, mainstream advertising (whether on the media or creative side of things) ultimately "own" all the clients that matter.

Where digital is concerned, the mainstream people may have got it wrong now and again, and some of them have now and then been forced to retreat from the field altogether. However, they know in the end that they'll be back to tidy up the loose ends if and when digital becomes a major consideration for marketing departments.

As new media becomes less of a novelty and just another channel, it will be properly integrated within all the 360-degree offerings and through-the-line propositions that feature prominently in the mission statements of most major groups.

And if you want any concrete evidence of the canny nature of the game being played by the big agencies, look no further than the report published last week by New Media Agencies Financial Intelligence. It looked at digital agency profitability and its broad conclusion was that those owned by the big ad agencies made a higher profit per employee (or smaller loss) than true independents.

Which is worrying for independent, venture capital-backed outfits such as Profero, surely. Daniele Fiandaca, the agency's chief operating officer, doesn't think so. In fact, as he points out, there's no simplistic analysis of the figures - you could even argue, he says, that they show, on average, that independents are more prudently managed.

And he would certainly argue they have had to be more flexible in their approach and make the sorts of investments that ensure they retain their clients on merits, not according to the dictates of roster consolidation.

He states: "We have not been constrained by the politics of working within a group. Independents have not spent their time feeding off the budgets that are drip-fed by their parent's clients but have rather had to win clients who understand the importance of digital ."

Fiandaca also points out that the number of businesses that communicate digitally with their client base is growing. When an advertiser begins to communicate with, say, more than 10 per cent of its consumers online, it tends to look to a specialist that lives and breathes and understands the medium rather than an offshoot that just services it.

Unsurprisingly, that's not a view endorsed by Bruce Winfield, the chief executive of Arnold Interactive. He argues that belonging to a worldwide agency network is a key component in providing a secure environment within which an agency such as his can offer its services to large organisations and global clients. He states: "It also gives an agency such as Arnold Interactive the ability to call on its sister companies to contribute to comprehensive marketing solutions for our clients."

But Ajaz Ahmed, the chairman of the top-ranked agency, AKQA, says we shouldn't confuse the discipline of running a business with the actual capabilities of that business. The challenge is to ensure that an agency delivers great work for clients and also has strong financial disciplines in place.

"Traditional advertising networks are publicly traded and must keep their house in order for the benefit of the shareholders. Their ability to support and embrace the challenges of running pioneering and innovating businesses is open to question though. The best clients will always go to suppliers that have good performance, a strong track record and provide the best ideas combined with value for money. It's that simple," he concludes.

TOP 10 NEW-MEDIA AGENCIES

Rank Company pounds profits Major shareholder

per employee

1 AKQA 24,058 AKQA Inc

2 Arnold Interactive 12,083 Havas

3 Modem Media (UK) 11,825 Interpublic

4 Zentropy Partners UK 6,458 Interpublic

5 Profero 3,902 Independent

6 RL Design 1,356 Independent

7 Good Technology 550 WPP Group

8 Syzygy UK 390 WPP Group

9 IS Solutions -2,238 Various investors

10 Wheel Group -6,965 Primedia

Source: New Media Agencies Financial Intelligence.

WORST 10 NEW-MEDIA AGENCIES

Rank Company pounds losses Major shareholder

per employee

1 CCG.XM 70,856 Cordiant

2 Rubus 67,941 Venture Capital

3 Quidnunc Group 57,938 Venture Capital

4 Grey Interactive 48,811 Grey Global

5 PixelPark UK 44,714 Bertelsmann

6 Conchango 36,395 Enron

7 Integra-Net UK 32,545 Genuity

8 Zinc 22,113 Havas

9 Oyster Partners 22,028 Various investors

10 Fi System UK 14,511 Fi System

Source: New Media Agencies Financial Intelligence.

This article was first published on campaignlive.co.uk

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