During the short history of the internet, 1998 may be remembered as
the year the web agency market started to grow up. It will also be
remembered as the year when things got complicated. Closures, takeovers
and the inexorable march of American agencies have all helped reshape
the industry.
A couple of years ago it was simple. If a client wanted a website, it
went to a company that built them. Some of these companies were
divisions of ad agencies or below-the-line specialists, some were
standalone digital agencies. Some were big, most were small, but they
had one thing in common: they designed and built websites.
That’s all changed. Quite a few of them are no longer in a position to
build websites because they’ve gone bust. The veteran UK agency,
Webmedia, shut this spring, retaining just a skeleton staff and retiring
into its shell company; the Cambridge-based New Media Factory went to
the wall; Lowe Howard-Spink closed its Lowe Digital new-media division;
and the production-led digital agency, AMX, was bought by its
competitor, Real Time Studio.
Moreover, the agency market has been transformed by an influx of
American companies setting up in the UK, buying British agencies and
merging with each other. The Omnicom-owned US giant, Agency.com,
acquired the UK’s Online Magic after a lengthy period of partnership.
USWeb, which claims to be the largest of all the web consultancies with
1,200 staff, bought the British company, Xplora, as part of a global
expansion which has also seen it buy the marketing agency, CKS. The US
agency, Poppe Tyson, merged with its media specialist compatriot, Modem
Media; and the UK agency, CHBi, was acquired by its American peer,
Razorfish.
Put this together and you have what looks like a shakeout. Of the
agencies who have emerged intact at the other end, however, few would
still position themselves as companies that build websites. Clients are
moving away from ’we want a website’ to ’we want a new-media strategy’,
and agencies have had to change. The upshot of this is that agencies
that operate in the new-media sphere have increasingly tried to
differentiate themselves.
Online Magic’s managing director, Eamonn Wilmott, believes that agencies
need a global reach to cope with the requirements of multinational
clients.
’On one level, you do have to acknowledge the fact that there’s a
globalisation happening anyway, quite apart from the internet,’ he says.
’Companies need a global strategy. A lot of companies have had totally
incompatible web strategies in different countries, and a lot of
multinational companies are now looking for a global agency: that’s a
client-led requirement.
’US companies are looking to buy agencies in the UK because it’s a
difficult market to start up in. Building the necessary infrastructure
is just no fun. The smart US companies are looking for partners.’
Ian Charles Stewart, chairman of the internet consultancy, Aztec, which
includes the BBC and Pearson among its clients, believes the influx of
American companies is motivated more by fear than strategic nous. ’US
companies want to expand here, they see a lot of deals being done and
they’re afraid there won’t be anything left to buy,’ he says.
’It’s a bit of a feeding frenzy. People are talking about really vacuous
things: they just think bigger is better. Some are trying to take over
as many companies as possible so they can inflate their value. Others
buy the wrong company: you have companies that are effectively
management consultants trying to buy web designers. If you’re going to
buy something, know why you’re going to buy it.
’The thing is, a lot of the smaller UK agencies need the Americans. The
problem for them is that once you get to 30 people, it becomes a real
company, and you need both capital and process. A lot of those companies
have no experience of that. If you don’t grow, there’s a possibility
that you’ll stagnate and die. So to grow, you need to find partners, and
the logical place is with US companies.’
’The US is a year or two ahead in terms of structure,’ CHBi Razorfish’s
managing director, Mike Beeston, agrees. ’The market is larger there,
and financial backing happened sooner, which fuelled accelerated
growth.
They worked out a business model before we did. The decision we made to
go with Razorfish was based on asking: strategically, what are the
opportunities?
It’s clear the US is coming to the UK. There will be consolidation and
there will be winners. Where do we want to be? The option to go with a
US company proved to be the best: they have money, they have learning
and there’s empathy between the two companies which you don’t
necessarily get with pure cash investments.
’The people who eventually emerge as the winners in the UK will have
gone through this route. I think the UK industry will consolidate and
sub-divide into companies with specialisms. Over the next three years,
there might be one big UK company which emerges but most of the big
players will be those who joined with a US company.’
Not every British agency believes investment from a US company is the
correct route. Clarity, for instance, has opted instead for a
partnership with Market Relations Group, part of the US IT marketing
consultancy, Regis McKenna. The arrangement between the two companies
involves an exchange of intellectual property but no equity swap. ’We
have different skillsets in different areas,’ Clarity’s chairman, Martin
Chilcott, says. ’They have core competencies in areas where we would
otherwise have gaps, particularly on the technology side.
’This way is much better than flogging off your company. People may say
all these buyouts are for strategic reasons, but the reality is that so
many British companies are short of cash and what US companies really
give them is a future.’
Before reaching the deal with Market Relations Group, Clarity had
conversations about a similar relationship with McCann-Erickson’s
Thunder House. ’We decided we weren’t interested because we didn’t have
a shared vision,’ Chilcott comments.
’They think of the internet as a marketing communications channel. To
them, it’s not about coming up with a strategy for a client and
following it through; it’s about developing ways of marketing their
existing business.
Clarity now sees itself as an online business development
consultancy.
It’s not about building websites; it’s about building a strategy, of
which a website may be a component.’
Perhaps the biggest effect of the influx of American companies has been
to highlight the division between companies who see themselves as
traditional marketing agencies and those, like Clarity, that position
themselves as business consultancies. USWeb has repeatedly stated its
intention to be ’the next billion dollar consultancy’, along with the
Andersens and McKinseys of this world. Neal Gandhi, the client services
director for its UK arm, USWeb Xplora, believes the arrival of the
Americans will transform client expectations.
’There’s a move towards a more full-service offering,’ he says. ’You
need to be able to give top-level strategic advice, and you need to be
excellent at the execution level, both creatively and technically.
Consumers’ expectations of the web have grown: they expect
functionality. If someone visits an insurance company’s website, they
expect to be able to buy insurance there, so you also need commerce
skills.
’The bottom line is: you need scale. You have to offer clients the
levels of service they expect. In pitches, we’re coming up against the
same people over and over again: we’re not coming up against small
independents any more. And there has to be a recognition that
traditional agencies can’t service clients’ requirements. They don’t
live and breathe it: they see it as another medium, not as something
which radically alters the way they do business.’
’If you’re going to go after large businesses, you have to be set up
like Andersen Consulting,’ Dan Fine, chairman and chief executive
officer of the US new-media specialist, Fine.com, comments. ’You must
have really smart people, you have to deliver on deadline, and you have
to understand the whole of your client’s business.’
It’s not only the US companies that want to position themselves as
consultancies. David Scolefield, the strategy director of the small
British independent, port80, is even more adamant that his company lies
outside the sphere of marketing services. ’The internet industry is
changing, and much of this is driven from the top end of the market,
where traditional marketing companies are trying to distort a client’s
view of the internet into one where brand is everything,’ he says. ’On
the way, they are buying up older internet production companies in order
to improve their technical credibility.
’Large marketing companies are starting to realise that not only is the
world of the internet lucrative, but they can promote the fact that
there is a strong relationship between the issue of branding and a
company’s online presence. If they do not become deeply involved with
producing and managing websites, then they will lose their stranglehold
on their clients’ marketing budgets.
’However, traditional marketing companies don’t have much experience in
the new medium. Of course, they are capable of buying in internet
expertise, but this is not the point. If an internet consultant within a
marketing company is expected to work within the existing constraints of
the concept that brand is king, then they might as well not be there -
they are not going to be in a position to innovate and develop new
working practices for their clients.
’Any internet consultant worth their salt is going to need to talk
regularly about issues of business practice which the brand guardian is
going to be uncomfortable with.
’The internet has more to do with a company’s working practices and
business model than with the brands owned by that company. The internet
provides an extension to a company’s business model, and to understand
the full implications of this fact requires people who are looking at
management and business practices. The best people to undertake this
work are management and business consultants who have a thorough
understanding of the internet’s potential.’
Unsurprisingly, marketing-driven agencies demur. ’To claim to be a
business consultant is naive,’ Simon Andrews, the strategy director in
the UK for the American new-media agency, Modem Media.Poppe Tyson, says:
’If a client wants business consulting, they’ll go to McKinsey. I don’t
think anyone in this business is a realistic competitor to the
consultants, if only because they can’t recruit hundreds of the smartest
graduates every year and pay them pounds 90,000. It is about marketing
communications and we should be positioning ourselves on the web as
something like the advertising agencies before the unbundling of the 50s
and 60s, when they did everything to do with marketing for their
clients. We’re turning into something like the traditional agency market
and we’ll get the shakeout that happens in any industry.
’You must be a big player with the resources of the traditional ad
agencies to have any chance of succeeding in this market. There’ll be
room for big players, and there’ll be room for very small niche
companies in areas like production, but there’ll be no room in
between.’
’The industry is dividing into two parts,’ Beeston agrees. ’There will
be a small number of big players who are one-stop shops and can sell a
strong strategy, and then offer process: everything from production to
client handling. You have to know how to do that if you’re going to have
a full-service offering. Generally speaking, smaller companies will find
themselves at a disadvantage. So they’ll specialise in a particular
vertical market or in a niche like design, online promotion or
strategy.’
’There’s no doubt whatsoever that most clients who have gone to one
company for strategy, one for production and so on, have got burnt,’
Wilmott says.
’They want one company with ownership of projects. There are not many
agencies in Europe that can sustain that kind of relationship.’
If this vision of the future is correct, more small British agencies are
going to be looking for a buyer. Fine says the sort of deal he’s
interested in would be with ’a ten to 15-man, business-focused,
process-orientated company’. Beeston pinpoints medium-sized UK
independents such as Clarity, AKQA and NoHo Digital as likely future
takeover targets for big US companies.
There’s a notable shortage of British new-media companies with
recognisable brands, however. The real story of the recent shakeout
isn’t one of the Americans invading, or of the internet bubble bursting,
but of a frighteningly immature industry having to grow up double-quick.
Perhaps a new breed of digital consultancies will grow up; maybe
marketing specialists will win out. Only time will reveal the true shape
of the new-media agency market, but the really interesting developments
in the future will be in the area of agency-client relationships.
