INTERACTIVE: BEHIND THE HYPE/AGENCY CLOSURES: Why some of the sector’s top agencies are going to the wall - It’s not unusual for young companies to fail but why is this happening to such big names?

All is not well in new-media land. The huff, puff and promises of the past few years have been exposed in a few short weeks.

All is not well in new-media land. The huff, puff and promises of

the past few years have been exposed in a few short weeks.

The closure at the end of last month of Lowe Digital, Lowe

Howard-Spink’s new-media unit, preceded by just one week the demise of

Mark Dickinson’s and Robert Hamilton’s company, Indexfinger, and

followed hard on the heels of the widely reported troubles at AMX

Digital, New Media Factory and Webmedia.

That several young companies in what is still a very young industry

should fail is of little surprise. But such casualties are normally a

natural consequence of competition, the bottom line being that they’re

just not good enough. In contrast, the names lost to the new-media

industry are among its cream. So what’s gone wrong?

The fact that both Lowe Digital and Webmedia have not gone out of

business, but have downsized and restructured, gives a few clues. Both

have dropped their labour-intensive, low-margin production functions and

are to concentrate instead on strategic consultancy.

There is a growing school of thought in the industry which believes

that, alongside other factors of genuine importance - including

cut-throat price competition from cowboy operations and the

unwillingness of clients to commit too heavily to what they still regard

as an unproven medium - the structure of new-media agencies is a crucial

issue for those still trying to prosper in the area.

Three types of new-media agency have emerged: strategic consultancies,

an approach typified by most ad agencies; online production companies

such as Hard Reality and Good Technology, which often work in tandem

with ad agencies to deliver a service akin to that of TV production

companies; and full-service shops, such as AKQA, Syzygy and Bates

Interactive, which deliver a one-stop shop package, including strategy,

project management, design and production.

Is any one of these models doomed to fail? Which one will emerge as the

blueprint for the future of new-media agencies?

Ross Sleight, a director at BMP InterAction, BMP DDB’s strategic

new-media unit, claims it is a difficult industry in which to operate as

a full-service agency. ’If you go to an agency that has Web programming

and production staff on its payroll, you’ll find it coming back to you

with an idea that’s production-based. It has to pay for them somehow,’

he says.

’No one person can do creative, programming and account handling. It’s

not right to have production in-house. When a creative comes up with an

idea, they should employ someone to facilitate that idea in a way that

will add to it.’

Like many others, however, Sleight only mentions structure in the

context of those other pressures currently afflicting the industry:

’Another issue is that there’s an awful lot of competition out there and

it’s harder and harder to make money.’

Ajaz Ahmed, managing director of AKQA, believes the problem lies more

with new-media agencies’ reluctance to assign to new media the

disciplines that traditional media religiously follow.

’The most important disciplines in advertising are planning and account

management. We have account managers with a strong business background

who are able to advise clients on structure. A new-media shop should

have exactly the same personnel as a ’normal’ one,’ he says.

’If we tried to mix technology and creative it could be disastrous

Everyone thinks you should be flexible in your roles but I don’t want

creatives doing programming or account managers providing operational


Ahmed admits AKQA works as it does because its clients, which include

BMW, Sainsbury’s and Orange, have come to demand it.

’A lot of clients are used to the traditional structure,’ he says. ’But

this industry is dealing with a medium unlike any that existed


Part of the problem is that you have to generate enough income to

bankroll such an expansive structure. Robert Hamilton, the technical

director of Indexfinger, thinks companies undercutting each other is at

the root of the malaise.

’The new-media agencies that focus on strategy rather than site-building

have probably found that production has rapidly become a commodity

market,’ he says.

But he also blames clients for a lack of proper marketing discipline in

their approach to the Web. ’Often a client considers that just having a

Website is enough, as opposed to setting business objectives and

evaluating a site’s performance against them. So when a company around

the corner will produce a site for half your price, it’s difficult to

convince a client that your solution is worth what you’re asking.’

However, Ahmed believes agencies that are prepared to invest in their

futures have nothing to worry about. ’Few agencies are prepared to

invest in providing their clients with leadership, direction and

education to ensure the client embraces the medium to the benefit of its


Agencies need to take a long-term view. When this doesn’t happen, client

and agency suffer,’ he says.

Of course, there may be a simpler explanation for some of the recent

closures - bad management. As Ahmed puts it: ’There’s another very

important equation in all this: profit. Agencies make a profit because

their overheads and expenses are less than their fees. If agencies can’t

get this equation right, they die.’

Mark Westall, joint managing director at Hard Reality, agrees that bad

management rather than structure causes companies to fail. ’If you look

closely at the industry, you have new-media companies such as AKQA

working successfully with a traditional agency structure but also

companies with no structure to speak of working equally well,’ he says.

’It comes down to quality of management. The fact that there are people

making money, however they work, shows that the market isn’t in decline.

It’s just growing up and shedding some weight.’