H1B Visas and Tech Graduates

In recent weeks I've picked up a couple of news items that have troubled me about the long term prospects for tech in the US. The first there was an article by a New York Times columnist that shared concerns about the sudden decline of US Universities in their production of top technology talent. Whereas in the late 90s US Universities were producing most of the valuable tech resources on the planet, today it appears that honor goes to Universities in China. If this news doesn't worry those wishing to see the US retain leadership in tech, then news that applications for H1B visas are well below current limits should create some concern. Combined these news items suggest that not only are other countries now producing the best talent but that talent is not being drawn to work in the US. In the short term that shouldn't be a problem. How about ten years from now?

PR Week's Agency Excellence Survey

Let me start by saying that any piece with such a grand title sets a high bar for itself. You can guess by that first sentence that I don't feel the piece reached it. Far from it, this piece seems like a great way of handing out medals to the establishment and does little to see where the real excellence in our industry lies. The feature is a good idea in theory but the results should tell you that there's a flaw in the process. The tables show that the larger agencies (which have the most clients) win. It doesn't take a genius to figure out that this is the most likely statistical outcome; especially if you determine that you are only going to include those with a large enough sample size. Indeed the article even points out that the sample size is consistent with the agency size. Put another way, this research tells us that the big agencies have lots of clients and the small ones don't. It doesn't really tell us much more, other than they have reasonably happy clients. Indeed all it really says is which of the large agencies has the happiest clients. So if I dislike this article's approach what would I propose instead? I think the first thing I'd do is to work with an organization like the Council of PR and agree on what constitutes excellence. I'd then publish this and get debate going around that definition BEFORE attempts are made to measure people against it. Once there is a broadly agreed standard, I'd then conduct the survey BUT I'd do it in a way where samples were limited so that each agency was given say 20 clients that worked with them (this is where a real researcher will tell you what sample size is needed to draw meaningful conclusions). If you give the larger agencies as many clients as they have they will frankly always come out on top - the law of averages just says so.

I guess I applaud PR Week for taking on this topic but in the next twelve months (assuming they run the same feature next year) we need to come up with a better approach than was taken this year. That's a challenge for the industry not just PR Week.

Hourly rate, retainer or fixed fee? Could they be the key to innovation in PR?

The economics of the PR industry have undergone a great deal of scrutiny in the last few years. The downturn in the economy brought on price wars for key accounts and the reintroduction in some markets of the dreaded “Payment by Results” model. At the same time we’ve seen procurement specialists start to cast an eye on the PR market as a place to look for savings for their bosses.

Of course the problem most procurement departments face when looking at PR is that it’s not like buying paper clips where the products are all the same. Instead they are being asked to evaluate very different commodities that all share the same product name. This is of course part of the reason why they are looking at PR in the first place. Not only do people in procurement want a better price for the consulting fees, they also want service level agreements. Put another way they want value for money. This has long been a tough one for the PR industry to deliver on. For example, a client not being seen in print or on TV can be as valuable at times as the opposite. So how do you measure the value of nothing being said about a client?

Undeterred procurements departments have pressed on. Models such as reverse auctions have started to appear. These in effect are designed to drive down the hourly rates agencies charge their clients. Good clients, if they use such a system, don’t pick the lowest price, instead they pick the best value (some argue that good clients don’t use this system at all but that’s another debate). This means they chose the agency they liked the most in the presentation phase of their selection process provided they also have a competitive price structure. Of course some may argue that this process is increasing the pace of commoditization of PR. That may be true but all we are talking about there is the pace at which we arrive at a destination. It’s like saying make cheap jets accelerated the rate at which the rail industry died in the US. The rail industry, in its current form, was always going to get killed by air travel. I would argue that PR is of course going to get commoditized over time, so whining about the pace at which that happens is frankly… pointless.

So if people are not to whine what should they be do? In my view they should be embracing this change and looking instead at how to offer different services that are not going to get commoditized anytime soon and also at different pricing models. The PR industry has been stuck in a rut on services and pricing for too long. Innovation in this area will open some doors and offer PR a new lease of life in the marketing mix.

Potential areas for innovation include a new look at fixed fee engagements. In this area agencies can focus more on the value of the problem they are solving for their clients and less on the ingredients they have to bring together to generate a solution. Fixed fees are now standard in the advertising world. It seems only logical that the PR world will end up following a similar path in time. Other areas for innovation are in the use of technology to deliver aspects of the service. Here PR firms can and should, take a leaf out of the professional services industries’ book and find ways of automating huge chunks of the process. They should also look at ways in which technology can improve both the client experience but also the quality and effectiveness of the service offered. A good, albeit low level, example here would be the industry starting to work together to make better use of technologies such as wikis for such items as media and analyst databases.

Of course such change will need to be careful introduced if it is to have the right effect. But if PR people can’t message this innovation then we have nobody to blame but ourselves. But I would caution the PR industry not to get defensive because procurement departments have started to get involved. Instead I’d welcome their involvement and get to work on some real innovation that the procurement people won’t be able to touch for many a year to come.

Consolidation?

In London last week the Editor in Chief of PR Week spoke at the PRCA conference and predicted a rash of acquisitions and mergers in the coming year. At the same time AdMedia Partners has produced its latest survey on prospects for mergers and acquisitions in the marketing agency space. This too points to a significant increase in the number of deals being done. The survey also suggests that more people are interested in entering the PR market.

There is also some news on the performance of the sector. The Council of PR today issued a release that talks about 2004 being “A ‘Bounce Back’ year that saw strong growth in many key indicators of health for the PR profession.” Sadly the release gives no further detail than that but it helps explain the growing interest in mergers and acquisitions.

Essentially the market ought to be wide open to consolidation. Deal terms for private firms are around six times profits. Given most of the major holding companies (Omnicom, WPP etc) are rated far above that by their respective shareholders and the cost of capital remains low then the opportunity for deals has to be significant.

So I guess the next question is who will be bought and who will be buying? We recently saw Incepta and Huntsworth merge. It’s widely expected that with the deal completed, the new company will sell off its non PR businesses to reduce its debt and improve margins. Given it doesn’t ‘need’ to reduce its debt that much this will open the door to them becoming buyers. It may also make them a cleaner target for others to acquire. Another firm that looks ripe for action is Chime. Incepta tried and failed to buy that business before merging with Huntsworth. The commercial logic of such a deal remains and it will be interesting if Martin Sorrell is prepared to let someone do a deal in the coming year (WPP holds a stake in Chime and it’s believed they blocked the deal with Incepta).

The usual suspects will of course be buying. By that I mean WPP and Omnicom. IPG would appear to need a little more time before it starts buying again. The same could be said of Havas. We should also see firms like Waggener Edstrom and Cossette out buying as they look to establish larger international businesses.

As for targets I suspect the market for specialists will continue to be strong. In particular healthcare and financial services agencies will likely get the most offers given it is expected these industry sectors are set to continue to show good growth. I also expect some larger deals to get done. As I mentioned I think the new Huntsworth, if it can rationalize itself, should be an interesting target for someone. I also wonder if someone like Waggener Edstrom may get bought. The founders of that firm don’t need to sell but at some point, their major client Microsoft may encourage them to take the plunge so they can start to integrate more of their comms activities.

It should be an interesting year in the PR world…

Can Kodak Survive?

It’s interesting to see that Kodak has just hired a former HP exec as CEO. Antonio Perez, takes over from Kodak veteran Daniel Carp. He has perhaps the most fascinating management challenge going. Kodak has been a major part of billions of people’s lives for decades. It is of course in danger of being a piece of pure history unless it can make the successful switch from the old fashioned analog world to the new fangled digital era. The switch is course non-trivial. At a basic level Perez has to get people convinced that instead of buying a small yellow box of film to go inside some expensive piece of camera equipment, they should instead just buy the expensive piece of equipment from Kodak. That would be like Shell stopping selling gas and starting to sell cars. Sure, I trust Shell to produce gasoline that will make my car run but I’m not convinced they can produce a great car. After all it’s a totally different skill set. The challenge is of course even greater than just that. Whereas in the past they sold photographic paper to developers, now they have to convince the public to buy the paper to put in their home printer. What a nightmare. In the good old days they could target the guy at the local camera store and he’d use Kodak paper for his customer’s prints. After all, most customers just want nice prints. If the paper is made by Kodak or Agfa they don’t care. Kodak now needs them to care and keep on caring. This a tough challenge. Of course many customers may buy the Kodak paper because they know the name. But they may also buy paper from a brand like HP or Fuji that they know just as well, especially if its less expensive. As you can see I think Mr. Perez has a very tough challenge ahead. Sadly I’m not that optimistic about his chances given the level of competition he faces. But Kodak is a brand well worth saving, so I truly wish him the best of luck.

Following the money

It's good to know that the tech criminals out there have not been targeting Microsoft simply because they have a grudge against the Redmond power house and that instead they were simply targetting the biggest opportunity to get at people's credit card data etc. This was confirmed today by news that Apple's iTunes is increasingly the target of such crime. Given iTunes and its hardware buddy the iPod have been the hottest pieces of technology in the consumer market in the last year it is no surprise that hackers, phishers and plain old bad guys would turn their attention to this market. Nevertheless I'm sure it will reassure the folk at Microsoft and perhaps even give them a valuable ally in the fight to protect us all from these crimes. After all, while Microsoft's product may have been the target for criminals activities at one level, the real target is of course us the consumer and more importantly our money.