Nothing Ventured, Nothing Gained

The Internet Gold Rush has begun in earnest.

While savvy agencies have been developing Internet-based capabilities for several years, the promotion industry hasn’t yet seen a flurry of activity like the one taking place this spring. But the road to Internet glory is being paved in different ways, as agencies explore various strategies to advance technologically while not digressing financially.

“I’ll tell you one thing, it is a very expensive pastime,” says Bud Frankel, chairman of Frankel & Co., Chicago, which launched an in-store digital P-O-P system called Siren in 1997 and more recently unveiled BrandGuard, an Internet-based tool for developing and distributing marketing communication materials.

That expense, which in many cases won’t provide any immediate return on investment (tools designed to save clients time and money don’t reap internal rewards until new business is gained) has agencies scrambling to identify the best way to advance technologically without jeopardizing the core business’s bottom line. Here are a few of the options taken recently:

Do It Yourself – Although the costs of launching Siren and BrandGuard “were considerable, we saw a need, and we decided to make the investment,” says Frankel, whose company became an investment itself in January when it was acquired by Paris-based Publicis SA for a reported $150 million (February promo).

Buy It – Cyrk, Inc., Gloucester, MA, has made equity investments in a half-dozen Internet operations since December. But even the $989 million-dollar (and public) Cyrk first secured $25 million in financial support from investment firm The Yucaipa Companies before starting its shopping spree.

Spin It Out – PremiereGroup, Redondo Beach, CA, provided seed money but is creating a fully independent operation for CABO Marketing, an Internet business that, like BrandGuard, allows online creation and dissemination of marketing materials. The company will work in conjunction with PremiereGroup but will also seek its own customers. Initial clients include Toshiba, DirecTV, and Seasons Select.

Setting up a separate company helps in the developmental stages because “the primary business generally tends to steer the whole destiny,” says CABO president Don Reddin, who joined PremiereGroup last spring from Alcone Marketing Group, Irvine, CA (June 1999 promo).

CABO is actively seeking outside funding to fuel growth, and isn’t ruling out a public offering in the future. The fledgling business is also “in the fortunate position of having paying clients” at the outset, Reddin says.

Mars Advertising, Southfield, MI, undertook a similar tack with PlanetPromote.com, an Internet-based account-specific marketing application connecting brands with retail partners. The effort was launched in conjunction with Web developer Media Genesis, Detroit. Mars principals have a stake but not a majority interest.

Mars has been down this road before: The agency took the same step about two-and-a-half years ago in launching Madison Heights, MI-based Mercury Fulfillment.

New competencies are better treated as separate entities “so they aren’t easily lumped into the core business,” says Mars ceo Ken Barnett. The strategy also provides a way to offer an incentive to employees or investors “without diluting the core business,” and can make it easier to gain clients. “There may be agencies that would be uncomfortable using [PlanetPromote.com] if it were part of Mars,” Barnett says.

Create an Alliance – New York City-based Promotion Development Group, which recently changed its name to Vertical Mix Marketing (see page 69), has employed perhaps the most unique strategy by creating an alliance with San Francisco-based Alphadog Productions, a six-month-old Internet promotions developer. Alphadog principal Tiffany Phelps becomes president of PDG’s new Alpha Marketing Interactive division, but retains her own company as a separate entity that will partner with PDG on accounts.

“It’s a lot easier said than done to start up [an Internet operation] and find talented people who have a background in interactive marketing,” says PDG ceo John Zamoiski. (Phelps is a six-year veteran of interactive promotions.) “To lasso Tiffany’s brain, it was important that she keep the production end of it [as her own].”

Stand Pat – The other option for agencies is to do nothing, although that strategy isn’t endorsed by many. Hesitant agencies risk losing talented people in the short-term and business over the long haul.

“Technology has received a disproportionate level of attention at Frankel in the past few years. But it’s going to be a major factor for the next 10 years,” says Frankel. “Technology isn’t the future. It’s here now, and we’ve got to be ready for it.”