Close-Up: Live Issue/Dotcom Advertising - How dotcoms are changing the way agencies work/Agencies have had to look at new ways of working and charging, Emma Hall says

Agencies are getting more than they bargained for from the dotcom bonanza. Although the abundance of online clients has, in some ways, put agencies in the driving seat, these new companies have a foot on the accelerator.

Agencies are getting more than they bargained for from the dotcom

bonanza. Although the abundance of online clients has, in some ways, put

agencies in the driving seat, these new companies have a foot on the

accelerator.



Dotcoms demand that agencies rethink the way they work, not just in

terms of speed and organisation, but in terms of compensation methods.

Agencies find themselves taking the risk of accepting a stake in the

client in lieu of payment rather than miss out because a client can’t

commit to the usual remuneration contracts.



Maher Bird Associates took a stake in the online insurance broker,

Inspop.



’We don’t have an overall policy,’ Stephen Maher, the agency’s chief

executive, says. ’But if we think there is potential for the agency to

benefit and the company is not cash-rich initially, then we will be

flexible. But only in very special cases. Agencies are not investment

houses.’



Most agencies, however flexible, will ask that their costs be covered so

that they are only taking a gamble on the profit. Nevertheless, you have

to be pretty confident in a client’s potential to waive the normal fees

and venture into the risky territory of jam tomorrow.



’I get endless, endless dotcoms,’ Juliet Soskice, the marketing director

of St Luke’s, says wearily. ’But the more you talk to, the quicker you

get at making judgments. There are always brilliant ideas that you don’t

want to miss.’



Smartgroups.com was one such company for St Luke’s. Ben Bilboul, who

runs the business at the agency, says: ’It provides communications

services for groups on the internet. It sticks to the fundamental

principles of the web and could be as useful to groups as e-mail is to

individuals.’



A good idea is not enough in itself to make an agency take a leap of

faith. The financial directors of Smartgroups.com and St Luke’s went

through the new company’s business plan together.



It is this sort of detailed analysis of a client’s business that makes

it so rewarding for agencies to do these new types of remuneration

deals.



OK, so the risk factor does not go away, but agencies are given access

to much more information and contribute to many more top-level

decisions.



John Harlow, the managing director of the Omnicom-owned Rocket, approves

of the concept. He says: ’It makes you proper business partners. It gets

rid of the master/servant relationship.’



Maher agrees: ’It can lead to a more rewarding relationship. You develop

a deeper involvement and both your fortunes are reliant on the client’s

success.’



The risk factor can be an extra fillip for the more entrepreneurial.



’Dotcoms are energising,’ Bilboul says. ’You are pioneering something

together as a team.’



Even if you don’t take the equity risk, there is still an unpredictable

element, however clear cut the fees or commission agreement. And the

principle of taking a stake in a client is, in effect, very closely

related to the performance-related bonus.



J. Walter Thompson has developed a questionnaire to send out to

potential dotcom clients in an attempt to weed out the chancers. Even

so, the marketing director, Mark Robinson, admits a lot of it has to do

with whether or not he ’likes the sound of them’.



In such a transitory market, the idea of taking a stake in a client

brings some feeling of permanence to the client/agency relationship. It

says you are serious.



For media buying agencies, the risks are taken care of by long-standing

agreements with media owners. Any first-time advertiser must either

provide the money up front or have a system of credit insurance in

place.



Media owners, on the other hand, are reported to be considering doing

direct deals with dotcoms. A source says: ’Channels 4 and 5 have

considered taking stakes in return for airtime. We are entering a whole

new era. Some of these talks must surely bear fruit.’



Larger agencies or those tied to holding companies are too inflexible to

accommodate such radical payment structures. Robinson says: ’The

complications of being part of WPP are prohibitive.’



Still, concessions are being made to dotcoms by agencies of all

sizes.



In order to benefit from the glut of new companies out there, many

agencies work out payment plans whereby the client is charged very

little at first but is expected to more than make up for this when cash

flow escalates.



Predictably, the US is ahead of the UK in this area. Young & Rubicam in

San Francisco has declared itself ’open’ to stock and equity payment

options and Goodby Silverstein & Partners - part of Omnicom - has agreed

to take stock as partial compensation from an online golf site called

Chipshot.com.



Nobody wants to miss out. A new company that consists of no more than an

idea, some venture capital and a rudimentary business plan can’t commit

to the sort of monthly fees charged by most agencies.



As well as bringing in a wealth of new clients, the dotcom revolution is

having an effect on the way ad agencies work. Bilboul says: ’Dotcoms are

giving us new ideas. They all want the agency to work fast but they are

much less bureaucratic, so it’s swings and roundabouts.’



Although it is doubtful that anyone can create a lasting brand in just a

few months, they are giving it a go because that is what their dotcom

clients demand. ’Advertising can be slow,’ Soskice says. ’It is exciting

to have such a buzzy section of the market. Everyone has had to improve

their game.’



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