AGENCY.COM – interactive marketing agency’s activity
Karl Greenberg
By sticking to its core philosophy and eschewing one-off projects, the handwriting really is on the walls at Agency.com.
Now that interactive agencies are starting to resemble sled dogs in a Jack London Klondike novel, where only the fit and the long-in-tooth survive, Agency.com might be the White Fang of the bunch. The company knows the lay of the land; has a corporate culture that keeps it nimble and alert to what’s coming; and has kept its bearings by sticking with the same essential business principles–and principals–it’s had since day one.
Like large, traditional agencies, Agency has aimed for agency-of-record or long-term service deals with non-dot-coin Fortune 1000 companies. “Call it ‘nontraditional’ (for dot-corns,],” says Kyle Shannon, co-founder, former chief creative officer, now chief people officer at Agency.com.
“If anyone has a shot at surviving long-term, it’s Agency,” says Christine Overby, an analyst with Forrester Research, Cambridge, Mass. “They’ve got good leadership and a strong culture.”
That “strong culture” is evident in Agency’s headquarters. If a company’s face, like a person’s, describes the owner’s disposition, Agency’s main office in New York’s financial district is effusive about how much it wants ideas batted among all its employees, regardless of job descriptions. In fact, anyone can scribble on almost anything at Agency. The walls are chalkboards or white-boards. Open workstation and conference room arrangements are designed to thwart “silo thinking,” and “smart boards” are everywhere, so someone in New York can illustrate his or her point to someone in Singapore. All of it infuses an ethos that the company is not segmented by skills, but by projects.
The company now has 1,600 employees in seven offices in the United States, with outposts in Amsterdam, Copenhagen, London and Paris, and a list of blue-chip clients. When the company was founded by Shannon and CEO Chan Suh in 1995, it was considered preposterous by some for an Internet startup to even consider winning long-term contracts with traditional Fortune 500 or 1000 clients, but that’s what Agency.com did.
Suh claims that only about 6 percent of Agency.com’s current business is with dot-corns, and more than 93 percent–or about 75 of Agency’s clients–are Fortune 1000 businesses, including current clients British Airways (for wireless), Colgate-Palmolive, Pfizer, Bank of America, Texaco and Compaq. Suh explains that a potential client’s size and age don’t benefit Agency much if the relationship lacks longevity. That, he says, is why the company targets a 60 percent return business within its client list.
“The advantage of repeat business is well known. In every business loyal customers get rewarded, in part because the cost of sale, which is significant in our business, is not there,” says Suh. With repeat business, interactive agencies don’t have to mount the same cost of sale again and again. Also, a portfolio of work for dead or unknown companies packs less punch than a client list of globally recognized power hitters.
Agency’s focus on avoiding short-term one-off type deals is evinced in its work for Compaq’s interactive business, for whom Agency.com has executed several projects. “We have worked with Agency for a long time in helping us define our user-experience strategy, information architecture and online brand experience,” says Seth Romanow, worldwide director of e-marketing and user experience at Compaq’s eBusiness Systems division. “They came to us with the complete package.”
Romanow adds that Agency was able to tackle a particular challenge inherent in the development of the Compaq.com user experience strategy: visitors to Compaq.com fall into categories that range from typical consumers shopping for desktop PCs to techies seeking servers. “Our customers run the gamut,” says Romanow. “But Agency understands our products– everything from MP3 players to servers.”
While many i-shops went public over the past couple of years, not all of them have fared so well following the dot-coin bust last year. Suh, however, believes that interactive shops are too often unfairly lumped together when things go bad.
“At this point,” says Suh, “I think everyone’s being painted with the same brush.” But he adds that in some ways the share-price fall is also a windfall for the company, since investors will likely pay more attention to company fundamentals instead of predictions and buzz, further separating the wheat from the chaff. “I think there will be two or three companies in the major leagues [building full-service Internet commerce sites for major companies] and others who either specialize or commoditize. Our goal is to be one of the top two or three,”
Stock price notwithstanding, Agency’s books reflected–if not astonishing success–at least some resiliency. Suh claims that Agency’s numbers improved with each quarter last year, with increasing profits in quarters two, three and four. According to Agency’s quarterly reports, the company made $38.5 million in the first quarter last year, up more than 82 percent over pro forma first quarter 1999, with 93 percent of its business with brick-and-mortar companies. The company’s second quarter revenues were $50.2 million, up 30 percent the first quarter, with operating loss for the second narrowed to $2.1 million. For the third quarter, Agency reported $57.3 million in revenue, a $8.1 million profit, or seven cents a share, up from a $3.5 million loss the year before, and up 14 percent from second quarter, though the company posted a $5.6 million loss during the period. According to Shannon, 98 percent of third quarter revenue came from non-dot-corn clients.
Also, while others expanded rapidly, Agency.com grew carefully last year. In October 2000, Agency made two strategic investments–essentially joint ventures–that formed Agency.com Korea and Quaxar, a Miami-based venture aimed at the Latin-American market both in the United States and in Central and South America. But they weren’t acquisitions, insists Suh, because they were too distant, either physically and figuratively, from Agency’s practice, and therefore unmanageable. “For Quaxar, we knew we didn’t know anything about the Latin-American market and couldn’t have run it,” he says. “And Korea is a 14-hour difference in time. You don’t want to repeat Napoleon’s mistake of getting to Moscow and having no supply lines.”
The company’s sole acquisition last year, its January buyout of Pictoris Interactive–an interactive shop in France–fulfilled an option that came with the minority stake Agency took in the company in October 1999. It also furthered Agency’s strategy of increasing its interactive TV activity in Europe, where Agency has three other offices. “France is a huge market for us, and they complement us both strategically and culturally. Since we had offices in Amsterdam, Copenhagen and London, and good management there, we knew if we acquired Pictoris we would be able to manage it well,” says Suh. That acquisition, as well as the company’s 1999 acquisition of Copenhagen-based interactive TV company Visionik, reflects Agency’s ambition of being well-ensconced in European ITV content and marketing business before everyone else. In November last year, Agency.com partnered with the Danish Broadcasting Corporation to deliver ROFL, a game and information show for young adults. The show has four interactive components that let viewers choose video streams, participate in quizzes, select more information on issues du jour and participate in polls. Similarly, the company partnered with Latin American DirecTV service, the first interactive TV games for Latin America and the Caribbean, which were available in December 2000.
Agency is also working on an interactive TV project with the Discovery Channel, which happens to be an affiliate partner with Agency’s marketing unit i-Traffic.
“We have a focus on innovation that allows us to be ahead of our clients, in terms of sniffing out new trends,” says Shannon. He says much of that has to do with keeping the workforce up to speed with developments in technology and media. “We chose wireless as a main channel to develop and roll out globally,” he says. “But the first phase of that was to educate the staff.” So each employee of Agency, worldwide, got a WAP-enabled phone gratis. Then there are the classes, developed with Agency’s London and Copenhagen offices. Everyone takes a five-hour intro course, then there’s specialization, with a two-week “academy,” where students end up building prototypes for wireless marketing plans, e-commerce channels, etc. “For a service company,” concludes Shannon, “it’s deadly to be naval gazing.”
But Forrester’s Overby warns that service companies such as Agency still face a struggle with clients choosing advanced technology over the attractiveness of less-complexity from full-service companies.
“Clients want best-of-breed services and less complexity,” she says. “The former does not come from large service companies, in general, the latter does. One trades best of breed for less complexity. What we think smart companies will do is focus on niche services and partner for the services niche companies don’t deliver.”
How about Suh and Shannon’s exit strategy? Wasn’t there a clause in the IPO? “We got that a lot when we sought investments,” says Suh. “‘What’s your exit strategy and time frame?’ My exit strategy is toes up. And the only thing that will change that is realizing someone else can do the job better than we can.”
AT A GLANCE
Founded: 1995
* Principals: Chan Suh, CEO; Kyle Shannon, CPO
* Headquarters: New York
* Clients: Compaq, Bank of America
* Employees: 1,600
COPYRIGHT 2001 BPI Communications, Inc.
COPYRIGHT 2001 Gale Group
