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Large Ad Agencies Slowly Discovering the
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Staff Writer: Judith Graham (6/22/99)
Not Godzilla.
Not Mark McGwire.
Like this Article?
Not even Madison Avenue can make the Internet go away.
While Godzilla and Mark McGwire don't have to concoct
responses to the rise of the Internet, big ad agencies must
dance a new jig.
So far, they're not exactly diving in head first, but they're not
turning a blind eye, either.
Mindful that the fast-growing market is still miniscule, the
biggest names in advertising--Omnicom (NYSE: OMC -
Quotes, News, Boards), Interpublic (NYSE: IPG - Quotes,
News, Boards), WPP Group (NASDAQ: WPPGY - Quotes,
News, Boards), True North Communications (NYSE: TNO)
and Young & Rubicam (NYSE: YNR - Quotes, News,
Boards)--so far have been content to quietly lap up pieces of
the small interactive ad players in preparation for the future.
Sure, online ads are expected to generate about $3.5 to $4
billion in revenue this year, says analyst James Dougherty of
Prudential Securities. This would double the $2 billion
racked up last year, which was more than double the $900
million for 1997. And the eternally optimistic Forrester
Research expects the number to double again in 2000.
However, 'it's a small number to the ad industry and small to
ad firms,” Dougherty adds. Afterall, the total ad market is a
whopping $280 billion, he points out. “All believe it's (the
Internet) an important factor and are serious about being in it
within the context of the total business. But, it's still a
number of years away. '
At this point, Omnicom arguably stands out as the most
aggressive player among the major companies. Grouped
under its Communicade Interactive Media division, Omnicom
boasts six top firms: Agency.com, Interactive Solutions,
Organic Media, Razorfish, Red Sky Interactive, and Think
New Ideas, among its holdings. In AdWeek magazine's
most recent ranking of the top 50 interactive agencies, four
of Omnicom's six online firms ranked among the top 20.
Even so, keep in mind that Omnicom's company-wide
revenue in 1998 came to $4.1 billion. So, Omnicom's online
revenue is estimated to be only about 5% of that sum.
And Omnicom's competitors are not about to concede this
market either. 'I would say we're very bullish on the growth
potential for interactive ads based on our success over the
years,' says Carla Hendra, president of OgilvyOne. 'We
believe it's going to be very fundamental to clients' marketing
mixes. And we're making sure interactive grows up and
takes its rightful place in agency capabilities.'
WPP Group, which owns ad firms Ogilvy & Mather and J.
Walter Thompson, finds its online presence with
components such as the aforementioned OgilvyOne, which
generated an estimated $60 million in revenue last year.
Interpublic is on the map with its stake in Thunder House
Online, which focuses on marketing, public relations, and
brand equity in addition to advertising. It also holds a stake
in USWeb/CKS (NASDAQ: USWB), among the smaller ad
companies that are making big strides in the interactive
market.
True North holds Modem Media.Poppe Tyson (NASDAQ:
MMPT - Quotes, News, Boards), another interactive leader,
and R/GA Interactive.
Y&R recently sold its interactive agency, Brand Dialogue,
AdWeek's 14th-ranked agency to Clarant Worldwide, an
online business consultant. However, following Brand
Dialogue's planned IPO, Y&R will become its top
shareholder, with a 12.8% stake.
Will the ad giants ever become big players, or will they
continue to concede this rapidly expanding market to the
feisty upstarts like DoubleClick (NASDAQ: DCLK - Quotes,
News, Boards), the dominant ad sales firm. 'The real issue
is broadband,' says Michael Krauss, an interactive
marketing columnist at Marketing News and partner at
Diamond Technology Partners. “When broadband hits, the
opportunities will be so enormous.”
Why will broadband be such a seminal event? Because
broadband--the cable modem--and its technological
competitors will enable advertisers to deliver much more
sophisticated, creative ads and without the current
seemingly endless wait to download, which borders on
aggravating. “Once we can deliver on the web the same
caliber of creative we currently see on T.V., agencies will
take note,' Krauss predicts.
In fact, in the next five years, interactive cable and digital TV
are expected to blur the lines between web and traditional
ads, resulting in what could be the big bang for interactive
advertising.
That said, the best companies for investors to watch in the
interactive agency sphere are still the up-and-comers such
as Modem Media.Poppe Tyson and USWeb/CKS, firms that
might even be better positioned than the Omnicoms and
WPPs to sweep the market.
About 53% owned by another ad giant, True North
Communications, Modem Media.PoppeTyson was formed
last spring after the merger of Modem Media, one of the first
interactive marketing pioneers, and Poppe Tyson, a global
ad firm. The resulting firm, which went public in March, plans
to add only about six new clients a year so it can focus on
advertisers whose overseas online spending is expected to
balloon in the next few years. Among its current clients:
AT&T (NYSE: T - Quotes, News, Boards), General Motors
(NYSE: GM - Quotes, News, Boards), IBM (NYSE: IBM -
Quotes, News, Boards), 3M (NYSE: MMM - Quotes,
News, Boards) and CitiGroup (NYSE: C - Quotes, News,
Boards). Not too shabby. |
