The re-mapping of the digital media landscape

A third of start-ups will survive, a third will go under and the remaining third will be bought. Mike Exon suggests this is happening in the digital media sector

Changes are afoot in digital consultancy land. Things may have been outwardly quiet since the big bust, but there has been much tactical planning going on behind closed doors. It looks like some shrewd deal-making might permanently alter the lay of things.

At the height of the digital boom, City analysts speculating on the future of the digital landscape, predicted that digital businesses would follow the same route as other new-born sectors. In the past, waves of innovation spawned explosions of business start-ups in the same way.

Analysts predicted that approximately one third of start-ups would go to the wall, while another third would be bought and consolidated. Only the remaining third would survive in the long term, beefed up by consolidation and less competition. Apply this pattern to digital media consultancies and we could be seeing the latter stages approaching.

Failure in the sector has already been prolific. The likes of MarchFirst and Xpedior have already filed for bankruptcy and there are similar rumours surrounding the future of Razorfish and Red Sky Interactive. No one has been unaffected. A few are still hanging on by the seat of their pants for sheer survival, but the bigger battle is going on at the top. Who will be consumed and who will be doing the consuming?

A couple of weeks ago two pared-down consultancies, iXL and Scient, announced their merger. It was billed as a deal of equals, but how telling is it that the Scient name survived? Now Omnicom is re-organising its digital media capacity, fuelling speculation that it will play the consolidation game as well.

The Omnicom network (owner of Wolff Olins, Interbrand and Pauffley) has always held minority stakes in digital media consultancies, including Agency.com, Razorfish, Organic, Oyster Partners and Red Sky Interactive. All have been exposed to the digital downturn and have suffered from the slump in digital share prices. Rivals such as Rubus and Wheel, which never went public, were spared some of this added pressure.

Omnicom recently transferred its holdings in the first three groups to its newly created US subsidiary Seneca Investments, which is run by Michael Tierney. This included a deal to buy all of Agency.com’s shares – which should secure the company’s future.

Speculation has been rife about whether Seneca is prepared to assist other groups, inside and outside of Omnicom, to the same extent. If Seneca does consolidate its digital media groups, the question will be whether the Agency.com brand is one, if not the one, that survives.

Omnicom’s proposition is fairly unique. Rival networks like Interpublic Group and WPP Group have not gone down the path of buying pure digital consultancies.

Though much smaller, Cordiant Communications Group has just one digital brand CCG.XM, with offices in 11 countries, rather than a bunch of affiliated businesses. Inside Cordiant’s design and branding division, digital media becomes an integrated discipline.

‘Within Fitch UK/ US, as within the majority of the extended “new Fitch” offices, we have a fully integrated digital media offering,’ says CCG chief executive officer branding and design Paul Stead. ‘This means we have multidisciplinary client-focused teams for which the digital element is part of the total solution. In total worldwide, we have approximately 75 staff who are dedicated to digital media,’ says Stead.

WPP has minority stakes in digital consultancies, rather like the old Omnicom set-up. WPP, for example, owns 23 per cent of Syzygy.

According to Syzygy creative director Matthew Bagwell, ‘The digital strategy for WPP sits with Eric Salama, chairman of WPP.com. Right now, Syzygy is deploying its own [strategy] and I’d expect we would be viewed as a guide for the future by the rest of the group.’

WPP’s Sam Sampson, chairman of The Brand Union, is not surprised by the consolidation: ‘It was always inevitable that we we would move from the ‘new media-only shops’ to agencies that advise clients, and implement both onand off-screen.’

Staff changes at UK digital consultancies

Staff – June 2000 Staff – June 2001 % change
Rubus 190 170 -9
Wheel 230 80 -65
AKQA 109 127 +17
Agency.com 165 130 -21
Razorfish 225 55 -76
Oyster Partners 120 180 +50
Scient & iXL 360 210 -42

Source: The Daily Telegraph

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