Financial Dynamics Takes a Different Path

The news that Financial Dynamics was being acquired was hardly the world's biggest surprise. Indeed there'd been speculation in the trade media about a deal for some time. What was unusual was the buyer: management consulting firm, FTI and of course that $260m price tag. This news should be welcomed by those in our sector as it shows other industries value the PR world. It also shows that the PR world isn't necessarily destined to be owned by WPP et al. Indeed the deal shows that there is an alternative out there to the 'integrated marketing' message being touted by the large agency groups. That alternative would seem to be based more on integrating a company's ability to reach specific communities – where communications is just a part of the process. At the heart of this new approach would seem to lay the need for 'focus' or specialization. Few would argue that FD was a pretty focused business and it would seem their skill in helping companies manage their profiles in financial circles is to be married to FTI's skill in helping firms solve commercial problems and set strategy. Combined they should be able to offer businesses a way to strategically review their business, undergo the changes that review proposes and manage the communication of that change to the world. Put another way what FTI gets through this deal is the chance to squeeze every last consulting dollar out of some pretty large engagements. It certainly has logic on its side. If they pull this off it could herald a new wave of M&A activity for the PR sector – presuming of course that agencies remain sector focused AND remain connected at the highest levels within their client base.

Best UK PR Consultancy to Work For?

The Holmes Report in the UK has just published its 'Best consultancy to work for' list. I have to congratulate Rainier PR for winning for the second year running. However, it does raise an interesting question: does this list actually mean anything? I ask this not be rude to the winners or to Paul Holmes but because none of the top twenty are the top agencies in the UK. Now if this list was a predictor of which agencies would become the top agencies then again I can see its value but it doesn't seem to play that role either. Of course it could be that it shows that if you want to work for a good employer or if you are a client that wants to hire an agency that treats its staff well then this list will act as a good guide. However, again this either shows that not many clients care about how staff are treated (or these agencies would be growing like crazy) OR that staff don't care how they are treated (or these agencies would have a waiting list for jobs). The one common link in the list would seem to be that the agencies listed are all small or medium sized firms. Either this means these types of firms are better places to work (seems logical) or the bigger firms just didn't engage. Of course it could be that these winning agencies are good at getting staff to say what great employers they are. Given two of my agencies (August.One and Bite which are both wonderful places to work!!) are in the top 20 I hope you see that I raise these questions out of genuine interest and not because 'we didn't win.'

Online news consumption is all about sports...

I hadn't looked at this in a while but Akamai has been tracking how many people access online news for some time now. It paints an interesting picture of online news consumption. For example the vast majority of the news hits are US driven. So much so that other regions don't really impact the end results. Sadly the vast majority of news this nation consumes seems to be sports related. Indeed out of the top ten news days they've recorded seven were sports related (the world cup being a huge factor it seems). The other three? Two were related to terrorism and the other to Katrina.

If you look a little closer you'll see that of the roughly 3m news hits today, 2.6m were in the US, 300K were in Europe and the remaining 100K were spread around the rest of the world. That seems amazing to me and perhaps explains why concerns about the death of print media don't seem to be taken as seriously outside the US. At first glance I wondered if the consumption outside the US were abnormally low today but the Akamai system actually shows whether this a high, normal or low news day and while it is a moderately high day in the US it is at worst normal in all the other regions.

I guess the end could really be in sight for print media at this rate. As long, that is, as they make sure they offer good sports news!

Link: http://www.akamai.com/en/html/industry/nui/news/index.html

Economist discusses death in the family

I need to thank Drew B for pointing to the Economist article on the death of newspapers. As ever the Economist does a good job of educating its readers on the big issues. I'd like to see this piece followed up on though as it really only serves as an introduction to the topic. Nevertheless it's worth a quick read.

http://www.economist.com/opinion/displaystory.cfm?story_id=7830218

Client conflict

I hear on rumor mill that the Council of PR is about to come out with a new statement on the thorny issue of handling client conflict. Like me, it seems some at the Council feel PR agencies are judged by inconsistent standards at best. Now it seems some agencies do a better job on conflict than others. Take Edelman who works with both Adobe and Microsoft. Indeed Edelman seems able to manage this level of conflict for a number of big brands. I take my hat off to them for their nerve and their ability to convince clients that these conflicts are OK. Indeed I write this not to be critical of Edelman's approach. Instead I just wish there were some clear standards on what was deemed an acceptable way of managing conflicting clients. Perhaps this is what the Council needs to work on? I think a strong statement on conflict is an excellent start but I'd also encourage them to develop (if they have not already) some clear guidelines on the ways conflict should be handled. This should extend to the construction of teams; the way information is received and stored and so on.

Of course if you look at the professional advisors used by most large firms such as law firms, accountancy practices, management consultancies etc they nearly all have conflicts. These firms don't have the same issues it seems. Is this because they are hired by different people in the business? Is it because they have a history of doing it? Is it because they are considered a profession? Whatever the answer it's clear that these advisors are held to a different standard. While that may be a touch frustrating for PR people, it's a fact and one we need to accept. However, it is also something we can do something about. As I say I'm pleased the Council of PR has taken up this issue. I only hope that the topic gets significant attention in the PR media and in other circles so that clients can be better educated on how conflict can be managed successfully.

What does the Pew Study really show?

I just read Nick Carr's blog on the state of Online News following the Pew Study that came out this week. To cut a fine story short he effectively says that while people have moved to getting their news online they are not necessarily:

a) consuming more news - indeed he suggests that the decline in traditional media consumption is being matched to a degree in the online world
b) about to kill off traditional media - his view from the Pew study is that while this media is declining it is more often than not read by those that consume online news. In other words it will only really die off if everyone stops reading news altogether which seems unlikely.

His piece ends by saying that: "The report is not good news for newspapers, but it does show that the reports of their imminent death have been exaggerated. The real division is not between the audience for online news and the audience for traditional news - they are the same audience. The real division is between the people who are interested in the news and the people who couldn't care less. In fact, it looks very much like online news media are now merging with traditional news media, as the two come together in a symbiotic relationship to serve the same set of customers. They are not competing with each other so much as they are competing together against nonconsumption."

I would contend, as I pointed out yesterday in my piece about YouTube, that what the world wants is for the Internet to enable a whole new way to get content. What Online news outlets have done so far is simply 'automate' the delivery of content. Perhaps this is why after an initial surge in viewing of online news it too is starting to flatten off and potentially decline. My contention is that this is because there is a distinct lack of innovation taking place in online media (what a generalization I know). Maybe this is what the Pew study is really showing...

YouTubification - is this what the media needs?

I have to say I’m a big fan of YouTube. What is clever about this site from my point of view is not that there is great content on there (which there is) but the way it keeps you clicking and digging deeper. It makes me wonder if what they’ve created here is a better model for the media now that the Internet has become the common way to access news and information. If you go on the site to see a specific piece of content when you are done you will immediately be presented with other related content you may enjoy. In other words it redraws the content around your search. If you compare this to most news sites it seem light years ahead. Take Google News as an example; on the news site you can view a news story but then when you click the back button (which is your only way of being returned to Google News) you are presented with the same headlines despite the choice you made. This is pretty well the model of all news sites. In essence they have buckets of content that stay in the same place regardless of what you do as a user. Imagine however a news site that once you clicked on a news item, then reselected the content on its homepage based on the choice you just made. So for example you click on a news item about United Airlines returning to profit (which is a miracle in my opinion but that’s whole other story). Once you clicked on the news at the side would be other travel related news items, item by the same journalist from the last few days, previous articles on the topic etc etc. When you returned to the homepage the content would also be slightly different. The closet I’ve seen to this is on BBC's site where they have links called ‘related articles.’ These links tend to be pretty straightforward though. From where I sit a YouTubification of the media has to be the way forward if they want to keep our attention.

Oh and while I'm at it, anyone care to guess how long it is before someone like Google buys YouTube?

Only in England

Let me first say I'm British and proud of the fact. However, there are things only the British can do and today I discovered a truly wonderful Britishism. In the UK there is a government institution called Companies House. Well the web site says:

The main functions of Companies House are to:
1. Incorporate and dissolve limited companies
2. Examine and store company information delivered under the Companies Act and related legislation
3. make this information available to the public.

For anyone wanting to find out about a UK business it is wonderful resource. Through the Companies House web site you can buy copies of people's filings such as their latest set of accounts. Anyway, this is where the Britishism comes in. This wonderful example of ecommerce in action is only available from 7am to Midnight UK time. Presumably the security guard switches off the computer when he leaves.

The $10,000 PR problem

This seems like a crazy problem, but it seems Silicon Valley is again awash with money and wants to spend it on PR - sadly though it would seem there is a shortage of people who they can spend it with - this particularly the case for those companies that want to spend about $10,000 a month. Before all the relative newcomers to PR dash out to set up PRismybag.com and soak up all this demand they should understand the real problem. The real problem is that the people who want to spend all this money want 'experienced' PR pros. This is of course where the catch lies. So many good people left the industry when the bubble burst that there are not that many great people around who have more than 5 years of experience (which is in turn driving up salaries). In addition the problem with most of the start ups that want to spend this kind of money is that they want at least $15,000 worth of service. The last of the problems is these businesses want lots of media attention and sadly since the bubble burst the media they can reach has shrunk. In any other market than Silicon Valley this problem would seem ... as silly as it sounds. Perhaps this might encourage some of the start ups to launch in another market where their $10,000 a month will go a lot further such as China or good old fashioned Europe.

Toyota thinks outside the box

There is a computer game out now that requires you click on a veiled object to move to the next level. That object turns out to be a Toyota Yaris. This is all a part of Toyota's effort to reach the youth market. I learned this from a NPR story this morning. There are also a string of games out now that have billboards inserted at certain locations in the game. Nothing exciting about that except when you play online, these billboards check your IP address and where possible other sources and then load billboard ads that are more targeted. Imagine, it's 8pm and you're locked in battle with some alien on your computer. OK, I can't quite imagine as I'm not a gamer but if I was then it would make sense that an ad on the building I'm approaching which houses the alien I'm trying to kill would be for the local pizza place. I mention all this for the simple reason that as traditional advertising dies along with traditional media, the creative minds being applied to interactive ads are coming up with some great thinking. Is the PR industry applying similar thought? I've seen glimpses of it but I worry that at a time when PR could be taking a bigger slice of the marketing pie we are not being creative enough.

AOL - this call was monitored for quality assurance purposes

This is a great example of the power of blogs and one of those rare times when the call was monitored for QA purposes by... the customer. The story is simple: It seems a normal guy wants to do something normal - cancel his AOL account. When he tries, they do what all struggling businesses do, they try and stop him by asking him a million stupid questions. Only in this instance he recorded the conversation and put it on his blog. The story then ended up on CNBC. Seems the rep at AOL lost his job...

http://www.cepro.com/news/editorial/13792.html

NYT publishers get desperate

The New York Times plans to begin running ads on the front page of its business section starting in July, according to a spokeswoman today. The news is yet another sign that traditional media is struggling and yet another sign that they don't really know how to solve the problem. Fundamentally this is a sign that the NYT wants to generate more ad revenue from its print publication. This would make sense as a move if the circulations of media like the NYT were rising but it's not. Surely therefore slapping ads on the front of the business section is like putting a Band-Aid on the Titanic. At what point do publishers realize that consumers want a different product? Don't get me wrong - I believe they want the content; they just want it delivered in a different way.

WSJ shows the way (the wrong way)

PR people are meant to be nice to hugely important publications like the WSJ. Sadly I can't resist taking a pop at the WSJ today. Why? Well today it proudly published its D supplement (they even have special stickers on those newspaper vending machines announcing its presence). In the supplement are a host of interviews with top execs including Bill Gates. There are articles on such racy topics as E-Commerce (does anyone use that term anymore?) and Laptop security. Think about that for a second (or two). There is no content here that is truly going to get the world excited. Certainly no content that is going to get people talking. I just can't see people huddling round the cooler saying: "wow that piece in today's journal was a real eye opener." Let's assume that the readership of the Journal is the investment community for now. If I were a fund manager, I'd hope I already knew the stuff in the Gates interview or the E-commerce article. Take the following question posed to Billg: "When are you going to ship the new Vista Operating System?" I don't think I need to tell you that he said we're on track to ship it in January. I have to say that it's content like this that is getting traditional media into trouble.

Coblabberation

This is hopefully not one of those posts that is designed to say "I read the Wall Street Journal today." Instead it is designed to add to your vocabulary a great new word that Jared Sandberg introduced through his column 'Cubicle Corner' today. The word was actually used in a quote by Harvard Graduate School professor, David Perkins. He was endorsing the general view of the column which is that most brainstorming is ineffective and that if anything you need people to think alone and then bring their ideas to a group - otherwise you get 'coblaberation.' While he doesn't specifically explain the word, it's pretty clear that he means you get a lot of people talking and nothing much happening. Does that sound like a PR brainstorm you've been in lately? Anyway, read the piece, it has some good observations that may help your next visit to the collective white board.

Spin Bunny reborn?

A site with the same .... attitude as Spin Bunny has popped up. Called "the World's Leading' which is presumably a jab at the fact that just about every tech PR press release seems to open with company X being the world's leading...

We'll surely find out if this is Spin Bunny if it starts attacking Lewis Communications.

Tech stocks are hard to index

I just spent some time looking at the relative stock prices of major technology companies versus both the DJIA and the NASDAQ composite over the last six months. Result? I couldn't find a single stock that came close to tracking these indices. You have stocks like Google that have jumped around all over the place and have ended up 8% down compared to the DJIA. Then you have Intel which has steadily declined a staggering 33% over the same period. There are bunch of stocks such as Microsoft, Yahoo and Dell that have declined just less than 20% and others such as IBM and Apple that are down 10%. At the other extreme I can find a few stocks that have risen relative to the DJIA. These include Oracle and Cisco at around 12% and AMD up about 18%. What does this tell you? Well in part it tells you that roughly three in every four major tech stocks are falling at 10% versus only one in four rising at a similar rate. While this is not the most scientific study on the planet it does suggest that as a group the major tech stocks have some work to do to convince investors they have growth potential. If the sample had produced a more random pattern I'd suggest that the problem lay with the individual companies and their IR but I think the challenge is greater than that. As I've said before on this blog, I believe the challenge is sector related. Until the sector works together to solve this problem, generally poor stock performance is on the cards.

Daily?

I just read the New York Times piece on today's down day on Wall Street. One sentence stood out: "Shares of Wal-Mart dropped $1.35, or almost 3 percent, to $48.30, after the retailer said its May sales growth would be at the low end of its expectations." Think about this for a moment. This mammoth retailer is giving monthly guidance on its sales! I run a small public company and I know how hard it is to predict sales with any certainty. To be giving monthly guidance seems crazy to me and reflects the way stock trading has changed since the bubble. It seems we now expect companies to be able to report by the minute how their business is performing. Why? Because it can be done of course. Not because it actually means anything. I can all too easily see how with the use of technology companies will have their stocks traded 24 hours a day seven days a week. To feed this constant market, they will be expected to report with ever-greater frequency. This is simply not a good thing. It drives businesses to run on shorter and shorter cycles. This means they stop investing in the long term and start responding simply to the latest analyst forecast. I'll be honest the only solution I see to this problem is for all companies to adopt the stance taken by Google that has been so widely ridiculed by Wall Street - namely not go give guidance. If everyone stopped giving guidance and simply let the analysts try and figure it out, we'd have a few rough quarters while they learned how the businesses they watch really work and then my guess is we'd end up with a much less volatile market full of businesses far more focused on the really important issues - like their customers.

As another door opens..

In recent months there have been some unusual announcements in the technology industry. Only on Friday we had the surprise departure of Tom Perkins from HP's board. What made it surprising was that nobody gave a reason, not that he actually left the board. The resounding but thoroughly unconvincing 'no comment' from HP made it clear that something ugly must have happened but the PR people were clearly told to stick to the classic rebuttal. Even though it's clear even a poorly trained PR person could have come up with something better. "He felt his job was complete now that Hurd has clearly got HP back on track," would probably have done it.

The other surprise news last week was that Intel finally lost its stranglehold on Dell. After years of trying, AMD finally secured a foothold in the PC giant's line-up. What interested me is that it's not that long ago that Intel secured its first place in Apple's lineup. Does Dell know something Apple doesn't? As the saying goes, ‘as another door opens...’

IPG - when not if

As Interpublic continues to struggle, the question becomes: "When will they get taken out?" rather than if. It's quite clear from IPG's most recent set of poor earnings (they've had a string of them), that the business is not about to turn the corner anytime soon. To try and correct matters the group has made significant changes to the management team and its corporate structure. None of which would appear to have worked. Revenues are sluggish compared to its peers and profits are, well.. they don't make a profit and haven't for some time. Reuters last week described the business as being in a 'tailspin." A mixture of accounting scandals and client defections is at the heart of the matter. The former has ratcheted up the accounting costs for the company putting it in to loss, while the latter has weakened the foundations of many of the Group's businesses.

All of this points to the prospect that WPP, Publicis or Omnicom will take out IPG. Of course you may argue that they don't need to. IPG would seem to be giving away their business right now. That said the business does still have sizeable revenues (around $5Bn a year) and would surely do better as a part of one of these Groups. I can only imagine then the pressures IPG shareholders are placing on the IPG board to find a suitor and get a deal done. So in my mind the question is definitely 'When?' not 'If?' and of course 'Who?'

IP and PR

Every so often the PR industry heads get rightly annoyed by clients that effectively steal their IP. It happened to me earlier this year when a pretty big company took some pretty extensive thinking done as part of a pitch and simply used it without paying for it. Now in this instance it was hard to actually go and charge the prospect for the work without looking cheap but a principle was being broken which was hard to sit back and watch. But like most agencies we sat back and we watched. Sadly you tend not to get paid for sitting back and watching.

This event has troubled me for some time, not because the client effectively stole the IP but because the client didn’t even think it was a problem. In truth I’m not sure many clients realize where the IP we as an industry create starts and ends. After all, it’s tough to describe most work as being truly unique, especially when most campaigns are in effect a rehash of an idea used for another client. That’s a pretty harsh but in some cases fair description. Indeed, if you spend any time judging awards in the PR industry you will notice the same ideas being used time and again for different types of companies, with different effects. Looking at this another way, what the industry is really doing is taking the same common ingredients and then cooking them in a different way to produce a different dish. Of course a chef will staunchly defend their ‘unique’ recipe for a certain soufflé, yet a PR pro will struggle to defend their unique approach to a product launch. Here-in lays the challenge to protecting IP in our industry.

Price it
A critical element to protecting IP is finding a way of charging for it. I recently met with a firm in the UK that charges clients for the value of an idea, not for the time it took to create. The argument here is that a client should take the best idea, not the one that took the least or most amount of time to dream up. On this basis the agency won’t discard the first ideas they generate for fear they’ll only be able to bill the client for 10 minutes of brainstorming. Instead, they can hold an exhaustive brainstorm and genuinely pick the ideas they truly believe in. I personally like this approach but in talking with some of my industry colleagues who’ve tried it they’ve often found clients baulk at the concept. It seems their procurement departments fear that by accepting there is IP being purchased they will open the door to ongoing charges for use of that idea. Now of course such practices are common in the advertising world. Perhaps this is what the procurement people are trying to prevent.

Document it
Another critical element in the IP struggle is the documentation of the ideas. Now in truth the law says that you don’t need to register copyright to own it. All you have to do is to be able to show that you documented your ideas first. That’s assuming of course your fear is that your ideas will get stolen. Of course this is easier said than done. I’m pretty sure that I could come up with a derivative of an idea that would sound pretty different to the original. While this is technically covered by the law, I’m guessing the originator would struggle to make a claim given the sheer costs of taking legal action in this country.

Educate
In truth I think the biggest issue in the IP battle is one of education. By this I don’t just mean the education of our clients, though I do believe this to be critical, I also mean the education of our staff. If they don’t appreciate the true value of the work they’re doing how can they expect the client to do the same?

The missing link (to business processes)
By truly understanding the value of our ideas and thinking we open the door to solving the IP problem. After all if we recognize that our IP is simply a good tag line or creative stunt, then we have to expect the client to pay accordingly. Great IP is more than this. Great IP is a set of thinking that links to business processes – it may even create them. If we educate our people to come up with thinking that links to the way clients run their businesses, or better still improves the way they run their businesses, then there is a far greater chance the client will appreciate the full value of the ideas being presented. This in turn will shift the needle away from PR being commoditized and towards being a tool that really builds businesses and brands.

So if PR wants to become a true form of consulting it needs to think long and hard about the ways it links to the client’s business and stop thinking just about how many hours were spent on a particular program. While the latter should get paid for, in the long run the real opportunity is to use our skills to significantly improve the fundamentals of clients’ businesses. Now that’s what I call real IP.

Ketchum is hiring

Don't ask why Ketchum thinks I'd be of help or interested but they emailed me (spammed me) twice today about the vacancy they have in San Francisco for someone to run their consumer tech business. If anyone knows anyone that wants the job do call Nabil Khatib at 415-984-6123.

When good news sparks a crisis

In the last week the major oil companies including Exxon, Chevron and ConocoPhillips have all been announcing record profits and revenues. Good news for those that invested in these businesses. But it's interesting to see how this relatively good financial news has worked against them. Earlier this week Senator Byron Morgan announced his desire to see a Windfall tax imposed on these oil giants. You can see why such a suggestion has been made but most economists seem to feel it would be counterproductive and only lead to them finding ways of reducing their profits to avoid taxes - such as even higher pay deals for their CEOs.

The other side effect of the news as been a raising of people's consciousness about how much it really costs to drive a typical car in this country. It's still a lot less than it costs in Europe but if things continue as they have the gap will be gone in less than 18 months. This is forcing people to rethink their lifestyles and choice of transport. This morning on NPR they ran a feature showing how many people are now looking at car pooling or public transport simply because of the increase in gas prices. In other words, the gas companies are in danger of having customers finding ways to avoid buying their product. That's not something most businesses want to see.

So if you couple the great earnings news with the CEO pay scandal that emerged around Exxon's CEO and then add the fact that consumers are starting to rebel you get a great PR and potentially real commercial crisis brewing. It's rather interesting at that level. Most crises are driven by bad news such as product defects, plunging sales and crime ridden management teams, not businesses that have managed to hike the price of the product and make super profits. Perhaps this is why the oil industry is struggling to deal with an issue even our Pro Oil President is starting to get angry about. Only today in a piece the Associated Press ran entitled "As Profits Soar, Oil Industry Unapologetic," Bush was said to be "outraged" by the profits the oil companies are making.

Of course the fact that the profit margins being made by the oil giants is actually pretty modest is getting little coverage or sympathy. Why? Because even though they are only generating around $9 of profit for every $100 in sales, compared with the roughly $20 of profit eBay and Microsoft make on similar revenues, the scary part is not the margin but the sheer amount of profit, coupled with the fact that every consumer is starting to feel it impact them directly. Not everyone buys and sells something on eBay every day but most of us get in a car that regularly.

Time for a good old fashioned crisis plan to be brought out by the oil barons I feel. But it needs to start from a very different place of course.

PR is back

If anyone was wondering, it should now be pretty clear from this week's UK and US PR Week league tables that our industry is experiencing its best time since the dot com boom. Indeed if you look at the US top 40 companies the average growth was 13%, with only four companies either going backwards or standing still. The highest growth came from our own Bite Communications at 63%, but equally there were 18 of the top 40 (that's almost half for the none mathematicians) that produced growth of over 20%. Of course these league tables don't include the numbers from the real top 10 agencies such as Weber Shandwick, Fleishman Hillard et al due to their parent companies refusing to take part on SOX grounds a reason/excuse I still feel is rather feeble. Looking at the top 10 in the PR Week US table, the growth rates were less impressive. Only APCO and Schwartz beat the 20% growth rate and half the firms either standing still or growing less than 5%. This would suggest that the sweet spot for agencies right now is for agencies with around 60 people and revenues of around $10m.

The other piece of data that caught my eye in the US table was the revenue per employee. For the top 40 this averaged an impressive $188,000. There were several firms that blew past this such as Sloane & Company who averaged $309K, Levick Strategic Communications at $276K and Integrated Corporate Relations at $293K. I wonder how many of their clients are now checking their hourly rates. At the other end of the scale were firms such Schwartz that averaged a mere $126k. Interestingly again there is a big difference between the average for the top 10 and the top 40. For the top 40 as I've said it was $188K, whereas the top 10 was a less impressive $170k. To confuse matters more, out of the firms that grew 20% or more the average revenue per employee was just below the average for the top 40 at $184k, suggesting that growth has been achieved thanks to offering a slightly more competitive rate. However, if you look at the firms that grew 30% or more their average revenue per employee is slightly above the average at $191K. In other words, all this figure really tells you is which agencies charge the most to their clients and which agencies potentially pay the most or least to their staff.

I guess all of this goes to show that even if the really large agencies don't take part there is still something to be gained by having these tables.

Innovation doesn't equal stock market success

In its last two issues Business Week has produced cover stories on two great topics. The first was the poor stock performance by America's largest companies despite some impressive performance over the last five years. The second is the current issue's coverage of the "World's most Innovative Companies." The thing that caught my attention was that there were actually a number of companies that feature in both stories. Of course the second story makes no reference to the first because if it did it would have to point out that sadly investors don't give a hoot about innovation (assuming the research is true). There are of course some notable exceptions. Among Business Week's top 10 most innovative companies are Apple, Google and Toyota. In all cases their stock has done well in recent years. Also in the list however are GE ( stock is down 30% over the last five years), Microsoft ( stock has declined 20% in the last five years) and 3M (stock is unchanged for the last two years). In Business Week's current issue they applaud GE's move to challenge its reliance on six sigma, in the previous issue they lament the fact that despite the company's great performance its stock is, to put it crudely, in the toilet. Of course what is clear from these two articles is that many of the companies that have embraced innovation are performing very well as businesses and perhaps that is something that sooner or later Wall Street will accept and give them credit for.

PR should take a leaf out of the advertising book

I read an interesting article this morning on how advertising is using technology. The piece focused on how billboards are getting smarter and gave examples such as how in the future they be able to beam coupons to your car as you drive along for stores close by. What struck me after reading the piece was that I don't hear much about how people are embracing technology to the same degree in the PR world. Of course technologies such as Vocus and Biz360 are gradually becoming more common but forgive me for saying that these are really just tools to automate existing ways of doing things. They don't enable you to do something you couldn't have done before. This in turn made me question how technology could disrupt the PR world. My first thought was to look at the sales process customers follow. Right now traditional PR influences certain parts of the sales cycle through news, product reviews, case studies etc. Through Blogs PR has picked up the opportunity to talk more directly to customers if it so wishes. But what if we took a leaf out of the advertising world's book and used the very same technology they are thinking about to get PR generated content into the hands of customers instead of advertisers? So instead of a billboard sending a car a coupon, how about as you arrive at Best Buy you get sent (to either your phone or blackberry) an abstract or a podcast of a product review comparing your client's products with that of its competitors? How about when you register your new product instead of receiving annoying offers online, you get news or feature articles relating to the product you bought? Put another way I think there's a real opportunity for the PR world to engage in a dialog with the advertising industry to embrace the great thinking that's taking place on the use of technology and broaden its use to encompass PR. In fact the only problem I can see with this is that the ad industry may not want to talk for fear they will loose out on valuable marketing dollars in the future.

PR doesn't rank as academic

It might not come as a complete shock but PR isn't considered terribly academic, at least not when it comes to search results from both Google and Microsoft's new academic search tools. Google's scholar tool produces hundreds of thousands of search results (as it does for almost any topic) but sadly nothing of any value appeared in the first ten pages I waded through. Microsoft's Academic Search produced a few but only a few interesting articles. That said I didn't expect any given the search tool is really aimed at the computer science, physics, electrical engineering, and related subject areas.

A new bubble?

In the last few months I’ve heard a number of people suggest we may be experiencing dot com bubble 2.0. Certainly in the PR space, we’ve seen a rush of new start up clients all keen to make their mark before they need to raise their next round of funding. We’ve also witnessed the VC firms raising money with relative ease. Put another way, money is not in short supply which is perhaps why so many have said it feels ‘bubble-ish’. While I too am slightly concerned I see some signs that this time around things will be different. Firstly, last time around many of the so called startups were little more than a set of PowerPoint slides, albeit slides about a really cool idea. This time around they have real technology and they have real customers. Second, last time rents were skyrocketing along with stock option grants. This time around, the economics seem to be in control. For example, all the startups I’ve seen this time actually feel like startups – there are very few Aeron chairs these days. Third, last time around you simply had to get some customers to get on track for an IPO. This time things are different. Indeed the data from 2005 shows Initial U.S. public offerings fell by 39 percent, to 41 during the year from 67 in 2004, according to VentureOne. And of the companies that went public, they collected $2.2 billion from their offerings, down a massive 56 percent from the $4.98 billion raised in 2004. And let’s remember 2004 was hardly a good year. So IPOs are few and far between which is good and bad news. The good news here is that this means people are much more focused on building real businesses. The bad news is that if these real businesses need serious capital injections to take them to the next stage, then they don’t have the public markets to go to. So while I may be guilty of not wanting to believe there’s another bubble on the way any time soon, from where I sit I don’t see the same pressures building, which may of course simply mean the bubble will be a different shape...

Google has clearly upset Chirac

Google must wonder what the French have against them. First they openly challenge its library book project then they fine them in a trademark case and now they fund the development of a new European search engine. They originally had the backing of Germany for this rather significant technological undertaking but that appears to have been withdrawn. Nevertheless the French are pushing ahead with Quero, a search engine that one of its developers described on the BBC today as being different from Google by offering ‘serendipity’ through its searches. I bet that’s not the word Google is using.

IXCO still stuck at 1000

Back in January I wrote about the NASDAQ ticker for tech stocks, IXCO, and my hopes that the tech sector would have a break out year. Two months later..the breakout has yet to happen. The IXCO has retreated to 900s having broken above 1000 for a while. This is despite an economy that's doing well, despite the major companies all reporting solid numbers and even despite RIM settling its lawsuit, thus keeping the Blackberry addicts online.

Now I spent the weekend with a VC whose optimism is addictive and whose ideas for new devices and services seems to filter into every conversation. Indeed, I woke up this morning convinced that the problem the technology industry faces is not a lack of opportunity. If only a fraction of the ideas I heard this weekend come to life the tech industry will be twice the size it is today. No, the problem is that Wall Street has not been convinced that the market really is going to get that much bigger. I firmly believe Wall Street views all the new ideas not as new markets but simply more competition for the existing one. It's no shock therefore that the stock prices of Microsoft, IBM, Oracle, Intel, Cisco and Dell have either stayed flat or have even retreated. Indeed only Apple, Google and HP have showed any signs of life. Google's stock has been very volatile of late, Apple seems to have stalled and HP is really only getting back to where it should have been. Not a great report card.

I don't believe the reason for this is poor performance by the tech vendors. Indeed, out of the companies I've mentioned all have reported revenue and earnings growth in the last twelve months. No, the problem it would seem is, as I've already said, Wall Street doesn't view the tech market as one that is going to grow, or at least not one that is going to grow fast enough. This is of course counter intuitive. We all know that there are still large parts of the world yet to be brought online. We also know that our personal consumption of technology has far from reached its limit.

Solving this will require the tech titans to promote messages of market expansion far more aggressively. It will also require Wall Street to listen which may prove to be the hard part. After all, they heard this message a few years ago only to see it turn out to be an 'overstatement'.

Spin Bunny - gone again?

Is it me or has Spin Bunny gone again? If it has it has nothing to do with the post on my blog. Maybe it was Mr Lewis who took offense?

Tom Foremski stirs the pot

Tom Foremski, formerly of Financial Times fame and now champion of Silicon Valley Watcher has been letting people know for some time that he feels the PR industry is about to go through a real shake up as traditional media outlets die and blogs and podcasts fill the void. On January 12th he wrote a piece entitled" "Disruption in mainstream media but where is the disruption in the mainstream PR industry?. . .it's coming." Word has it PR Week followed up on that piece and has interviewed him with a view to producing a profile on the man. I'm encouraged to hear this as it shows PR Week is thinking about the very real challenge our industry faces with the rapid decline in traditional media.

http://www.siliconvalleywatcher.com/mt/archives/2006/01/disruption_in_m.php

Spin Bunny is back

I'm pleased to see the return of Spin Bunny even if it is poking fun at my inability to make an entry for the month of December. Any bets on how long it is before it's taken down again by the lawyers?

Steve Jobs - President of Silicon Valley?

I saw a couple of pieces in the last few days suggesting Steve Jobs really is the biggest celebrity in Silicon Valley these days. The piece I link to in the Merc talks about him making a bigger splash than Ellison and McNeally did at events held the same day. I also noticed a piece in, the ever so well written, Palo Alto Daily that suggested Disney is considering buying Pixar and making Jobs its Chairman. It's a wild idea you have to admit. What is clear is that Steve Jobs is the hottest property in Silicon Valley these days. The fame is clearly not without good reason. Since returning to Apple he has given them a great product strategy, got them back on terms with Microsoft and now he's managed to make the switch to Intel - a move that in his first tenure as CEO would have been unthinkable (remember the Apple ad with a snail on an intel chip?). All this will likely take Apple's stock to $100 by the summer. Given the competitive nature of the tech market I can only imagine the conversations taking place in the boardrooms of other tech giants right now.

http://www.mercurynews.com/mld/mercurynews/business/13598836.htm

Tech Flaks are Back?

I just noticed this piece on Drew B's blog so thanks for highlighting the article. Some of the facts in the piece are wrong but the market is definitely much better than it was a few years ago. So much so that some firms I thought would crash and burn seem to be surviving thanks to the up-tick. What's clear to me is that the market in the Bay Area is not really being driven by the larger tech firms. On the whole they appear to be holding their spend firm. What's increased is the number of startups who are out spending. Those of us who went through the dot com bust are watching this trend with some caution. Hiring, yes but only for clients we really believe will be around in year's time.

Have you been Abramoffed?

I gather DC's K Street community is keeping a low profile right now, hoping that the Abramoff scandal will soon blow over and allow them to get back to work. I'm curious to learn whether any PR work has been affected by this affair. There is an argument that PR agencies will benefit as funds are redirected and an argument that they'll suffer simply because of PR's association with PA. I've seen no evidence yet within my business of either but I'm nevertheless curious. Has anyone yet had their budgets 'Abramoffed?'

A New Year for Tech or another year of ups and downs?

If like me you keep an eye on NASDAQ's symbol for its computer sector stocks (NASDAQ:IXCO) you will have noticed that in the last year this index has moved around a great deal. Currently it's sitting at 1050 (ish). Back in April of last year it was sitting around 850. That may look like a good trajectory until you realize that at the start of '05 it was at almost 1000. The reality is that in the last couple of years this index has risen and fallen with the peak always being at the end of the year. Only back in 2003 did the index show a steady rise from the then low of around 500. Put another way the index (and one assumes the industry) is looking to break out of the cycle. In my humble opinion this will only happen once the sector gets firmly on a new course.

If you look back to the 80s the tech industry grew at an alarming pace as the PC took off and the revolution started. In the 90s the Internet gave the sector an even bigger horizon which of course the market has since dialed back. However, since the Internet backed boom we've not seen a solid new 'big opportunity' for tech. We've seen several firms try and create the next wave but in general the market is rightly skeptical. What the market wants is something solid to latch on to. This means a new technology, not a new marketing slogan. We appear to be some way from a radical shift in technology such as would be created by say a move to nano technology. Yet there are two important trends that I'd point to. First is Google. It may seem obvious but Google is the new Microsoft in the eyes of the street. In the same way that Microsoft cornered the PC market, Google is deemed to have cornered the Internet. The difference between their model and Microsoft's is simply that you don't have to use Google, you just tend to. This makes them far less prone to the legal problems Microsoft has faced in the last ten years.

The other equally obvious, but no less important, trend is wireless. Every single device on the planet is going wireless. Right now people are making things that are wired wireless, phones, PDAs etc. In the next generation we'll have a raft of devices that are going to be born wireless. The interesting part to me about this market is that nobody has cornered it...Yet. RIM aka Blackberry, has made a good attempt but Palm has fought back thanks to the ever so unreliable but quite functional Treo. At the same time, rumors abound that Apple will enter the space. If they do we can expect them to do well, given the success of the iPod. To my mind there is a technical barrier that needs to be overcome which is bandwidth. The really hot wireless technology will emerge once the pipe is big enough for interesting applications. In Europe 3G has already been launched with mixed success it seems. I'll confess to feeling that this is because people are applying the bandwidth to the wrong application - namely the phone. If we all wanted a video phone why don't we have one on all our land lines?

My summary is therefore that Google will undoubtedly have another blow out year. I saw one stock analyst has already said there shares could hit $2000 (that's each btw). Such a valuation may seem crazy but think back to what happened to Microsoft's stock. Therefore I think the smart brands in '06 will be the ones that can figure out how to ride the Google wave. My other prediction centers around the gaping wireless opportunity - right now I believe RIM has a great chance of owning this space, assuming it can come up with a) an exciting vision b) some slightly more innovative devices (i heard from one source that RIMs CEO refuses to incorporate an MP3 player in the Blackberry - to that I say to him go sit on an airplane and look at what people have with them) and c) a settlement on its troubling lawsuit. If they can't execute well here someone like Apple may well step in and eat their lunch and grasp one of the most interesting markets for the next five years.

How long before PR people have no daily print media to pitch?

Personally I think we are decades away from the complete death of the daily newspaper in the paper format. Not least because of the large number of commuters that quite like having something to swat their fellow travelers with. However, today's news that the LA Times has followed the New York Times and the Wall Street Journal in making significant layoffs does to me at least signal how close we are getting to the end of the daily paper as we know it.

http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2005-11-17T011655Z_01_N16638889_RTRIDST_0_MEDIA-LATIMES.XML

The new PR economy

Not long ago PR Week carried a news piece on the growth of the PR industry. This was based on a survey by the private equity firm Veronis Suhler Stevenson (VSS). VSS's survey says that US PR industry produced revenues of $3.41Bn in 2004, a 12% growth over the $3.05Bn in 2003. The survey went on to say that Technology remained the largest sector, with 27.4% share. Tech PR posting its first growth of any year since 2000, with a 5.8% rise over 2003. Meanwhile the consumer sector posted a hefty 20.7% increase over 2003 now accounting for 25.5% of the PR market. The last, and perhaps most interesting point in the survey, was the view that the PR industry has a relatively bright future, forecasting a 10.1% growth rate in 2005 and an 8.9% growth rate for the next five years, on average.

At first glance this is great to read. It certainly matches what I think most agency heads are experiencing when it comes to market opportunity. In our case we far exceeded these growth levels in our last year, with our US business posting a 23% gain in revenues. These kinds of growth numbers are of course reminiscent of the dot com boom years and we all know what happened after that. While I'm still seeing a great climate for PR in the US I wonder if the growth curve is even. I suspect it is not. I suspect that what we are seeing is some agencies growing rapidly while others are in decline. The net effect being solid industry growth. I also suspect that within sectors we are seeing some very uneven growth.

The good news overall is that our industry is growing though. That growth is sparking new firms to appear, for example I noticed a new Tech firm being launched in Boston last week. The emergence of new firms is also a sign that people are seeing an opportunity to capitalize on a weakness in the market for a certain type of service. The current 'weakness' that seems to be on the lips of the founders of these new firms is 'senior counsel.' I'll be blunt here, I think the real weakness is not senior counsel but value for money. Of course it doesn't sound as appealing to say you are launching a new firm based around value for money but that is where the market is. The growth of the PR market post the dot com boom is different. In the boom it was a simple supply and demand problem. Now we have the same problem BUT we have both an experienced client base and the procurement factor. By procurement factor I mean that for most large clients that agencies not only have to convince marketing communications professionals of their credentials but they also have to persuade procurement departments of their value.

Welcome to the new PR economy.

Bait and Switch - What should be done?

One of my businesses recently lost out in a pitch to one of the ‘large’ agencies. The pitch had been a drawn out affair with lots of agencies in the fray. In the end it came down to a final two and we lost. I should say now that I hate losing so that needs to be factored in to the equation here. What annoyed me was that we lost out to a blatant bait and switch. It transpires that the winning agency brought a ton of people in to the pitch, of which only two junior people were ever going to work on the business.

I know that there are reasons why agencies do this. The best one is that the people who are good at pitching are not always the best at the work and vice versa. Other reasons are that the demands made in the pitch are rarely what a client wants once the work really starts. PLus there's the fact that the right people are either away or busy with existing client work. That said I do believe we need higher ethical standards on this issue. The client I mentioned is already annoyed to find that their new team is totally different to the one that pitched. Much as I’m skeptical about the ability of our industry to enforce codes of conduct and ethical standards I feel something needs to be done.

One way to solve this is to make resource planning a key part of all pitches so that the client can see in black and white what resources will be applied for the budget. The content here could then be an integral part of the initial contract. Another way to solve this would be for an organization like the Council of PR here in the US or the PRCA in the UK to promote a code of conduct on this issue and for them to set out rules their members agree to abide by.

Am I alone in finding the bait and switch issue frustrating? Personally I feel it does our industry no credit and only serves to re-enforce the image that PR is a less than ethical business.

Huntsworth and Media Square stick to their knitting

So Huntsworth is selling its non-PR businesses to Media Square in a move that makes both firms more interesting. Huntsworth inherited a collection of non-PR businesses when it merged with Incepta, not to mention a pile of debt. In selling to Media Square it becomes a more streamlined business with little or no debt, which has to music to the ears of the investors. For Media Square they get a business that reaches around the world and has good scale. What's striking is that this move goes counter to the way the larger comms Groups have tackled things. If WPP had been Huntsworth they would likely have merged with Media Square just to build a larger group that offered a full spectrum of marcomms services. These businesses have chosen a different path which I have to applaud. I'm delighted to see the management of these businesses stick with what they believe they know and do best.

Of course this does all mean that Huntsworth now really has to show that its non-PR businesses were holding it back and equally Media Square has to show that its competence in the marketing services area can be applied to the businesses that have of late struggled under the Incepta/Huntsworth umbrella. Time will tell I guess.

Measurement - Does anyone really care?

One thing is clear to me right now; measurement has failed to get on the PR agenda. Just read the main stories in the PR trades. Not one of them talks about measurement. Sure it shows up on RFPs, sure clients want to talk about how well things are going and they even want charts showing what a great job is being done for the money. But the sad truth is that PR measurement still doesn't command a meaningful part of most company's budgets. Some simple, albeit unscientific, research reveals that out of the five clients I asked not one does measurement in the same way (actually not all bother to measure). Furthermore none of those that do measure have a well defined budget for measurement when planning programs.

A broader look at measurement shows that many people do use firms like Biz360 or Carma but even then from what I can tell the PR staff tend to pay little or no attention to the results these services provide unless of course they think it will help with some internal presentation to justify the funding of the department. We shouldn't blame our clients for the sorry state of affairs here. After all, how much effort do most agencies put in to being measured? We are the ones who make moey from doing PR so we are the ones who should make sure our clients use tools to make sure that what we do is actually worth the money.

My own view on this is that we need an industry standard form of measurement in the way the ad industry has. This means we need to know what we are to measure, how often we measure it etc. We also need to start to establish an agreed way to invest in measurement. This could be either a certain percentage of fees applied, or a minimum expenditure. I for one would love to see such measurement be carried out in such a way that work done in PR could measured alongside work done in other areas of marketing so that we can finally start to see just how PR stacks up against other forms of marketing.

The current thinking on measurement seems to be to let everyone just do their own thing. Let’s face it this isn’t working. Now I know some PR people don’t want measurement because: a) they’ll have to do some work for the fees they charge otherwise they’ll be found out; b) funds applied to measurement will likely be taken out of the money they would otherwise have been given to run programs, host lunches etc.; and c) they argue that PR is to hard to measure accurately anyway, so why bother? My response to these people is if we don’t adopt measurement then we can expect PR to lag disciplines like advertising for many years to come.

I’d love to see publications like PR Week, O’Dwyer’s as well as organizations like the Council of PR Firms take these issues on and really move the needle. Anyone else want to see this happen?

Profit share or risk avoidance?

Today's Wall Street Journal carries a piece on how small advertising agencies are taking a share of their client's revenues for product and services they create the ads for. This will sound familiar to those in the tech agency world who were surrounded by startups in the late 90s all waving stock certificates in return for services. There were of course some significant winners such as Niehaus Ryan Wong that got founder stock in Yahoo!. Sadly it turned out that even that couldn't save the firm and it went under in early 2002 as the full effect of the downturn in the tech sector hit.

If the advertising industry wants to take this path then I wish them luck. I for one hope the PR industry stays well clear of this murky business. While at one level it sounds great we need to remember we are PR people not VCs. These programs are divisive and rarely profitable. They are a cheap way for a client to get marketing support while the agencies shoulder the risk.

I do wonder whether this news piece came from it being a slow news day or because Chris Lawton, that wrote it, has been inundated by firms all saying they are doing this. I truly hope it was a slow news day.

Fingers crossed for Interpublic

Michael Roth, CEO of Interpublic, has 14 days left to file accounts or risk the delisting of the business by the NYSE. This follows a string of accounting scandals and a government probe. Only a few days ago Interpublic had to announce it was firing staff that had presumably been fixing the numbers. The delisting of Interpublic would of course be terrible news for the business and would likely result in the scenario Business Week probed this week - namely a break up of the Group. That could mean brands such as Weber Shandwick, MWW and Golin Harris going on the block. Presumably WPP or Omnicom would snap them up at relatively low prices.

I for one wish this wasn't the case. As a competitor I hardly want these businesses to do well. However, I have to say that no industry wants accounting scandals and government probes into one of its major players. Such things tend to scare away investors that help fund our businesses not to mention people that may be thinking of working in the PR industry. So while having my fingers crossed is unlikely to do much I do rather hope Michael meets his deadline for all our sakes.

BRIC and Brands

A lot has been written about the incredible rate of development of the Chinese and Indian economies. Less has put down on paper concerning Brazil and Russia. In large part this seems sensible as the fundamentals of these two economies are less impressive…at least at this stage. What is clear is that these four countries, which account for over 40% of the world's population, are the economies to watch. What is less clear is what that means for world brands.

Every year Business Week in conjunction with Interbrand produces a list of the top 100 brands in the world by value. Every year, for what seems an age, this list has been topped by Coca Cola, Microsoft, IBM and GE. Indeed the top ten has hardly changed in recent years. Aside from the leaders I already mentioned the likes of Intel, Disney and McDonalds are also permanent fixtures it seems. What some analysis of the top 10 and even the top 100 shows is that America dominates. In the top 10, for example, eight are American. In the top 100 around 60 are from the US of A. These statistics seem pretty constant from the data Interbrand shares. This raises an interesting question: "Is China the next super power or simply the place where Coca Cola et al will employ the most people?"

That's a tough question to answer in part because as the world's top brands expand, they inevitably have to look at ways to reduce cost and complexity AND at how to tap new markets. This naturally draws them to places like China and India where educated work forces at relatively low cost are abundant and where potential new customers exist... by the million. So I guess in short the answer is: forget the “or,” how about “yes and “yes.”

What is very clear is that as the BRIC markets open up and as their educated work forces become middle class these countries will have huge economic power. Does that mean we will see a sudden shift, with a raft of new Chinese, Brazilian, Indian and Russian brands taking the world by storm? I very much doubt it. Toyota and Nokia are the only non-American firms to gain a regular place in the top ten in the last decade and this didn't happen overnight. Instead it seems more likely that Coca Cola, IBM and GE will remain among the world’s top brands.

That may seem a little dull but I believe it will be important legacy for the US. America has become used to being the world economic and military super power. All the statistics say that position is set to change in the next thirty years with China and India overtaking the US thanks in part to the sheer size of their populations. But when the super power torch is handed to one of these countries as it inevitably will be, it will likely be done so with American brands still dominating the world economy. That’s a conundrum the new super powers will have fun figuring out.

What a difference a year makes

Last summer PR companies were still scratching their heads trying to figure out how to deal with the emergence of blogs and wikis as forms of communication. Debates raged on whether separate groups should be formed within agencies or if we should even be forming new types of agencies. A year later may of those debates still continue. Some small firms do exist solely to serve this market but they are mostly one or two person outfits. As yet there are few real consultancies in the space, though I did note earlier this week that Magnet has set itself up to focus on comms like this (they have a broader remit than blogs and wikis it should be said). I am keen to see how this venture does in the next six months. If they do well perhaps we'll see a rush to emulate this approach.

One observation I will make is that a year ago when agencies pitched for new clients blogs were mentioned but only in passing and then not in every case. Today 99% of pitches have a section devoted to blogs and how the prospective clients should deal with them. This is something of a silent revolution. I wonder how far this revolution will have taken us in another twelve months? Will we have blog budgets? Will we have blog tours be as common as press tours?

Agency rankings

I have been trying to do some research on other PR firms so I can better understand the market we all operate in. Currently such research is a thankless task. It used to be quite easy. Until a few years ago you could look at league tables produced by people like the Council of PR firms and PR Week and it was easy to tell which firms were growing, which geographies were doing well and also what different sectors of the industry were fairing best. Not anymore. Thanks to the moves of the larger PR holding groups such as WPP and Omnicom to consolidate their PR revenues under one line in their annual reports (they use Sarbanes Oxley as the reason) we no longer have any meaningful tables.

Am I the only one that thinks this is bad for our industry? I believe it would benefit the industry to make public the performance of all the significant PR businesses that operate in the industry. Clients and potential staff would benefit by seeing which firms really were growing. Agencies would benefit by being able to see how well they were performing relative to their competitors.

I'll be honest I don't really understand the reasons why WPP et al are withholding their numbers. They say it is because of Sarbanes Oxley but I'm not sure I follow that logic trail. Having trawled through the various key sections of the act such as sections 302, 404 and 409, I can't see any good reason why an agency's revenues should not be reported. Indeed the only real requirement I can see under SOX that is perhaps an issue is that agencies would need to have good internal controls to ensure revenues were accurately being applied to the various subsidiaries. In truth given all agencies I know of, base their bonus programs to some extent on the revenue each agency generates, then unless they have bogus bonus programs, the revenue recognition is very likely recorded with great accuracy.

I'm willing to have someone tell my why SOX really does require WPP et al to report agency fees as one big number instead of breaking them out by agency but until someone does, I'll continue to hold the view that SOX has provided a fig leaf for holding companies to hide behind.

I'm I the only one who'd like to see that fig leaf be removed?

Should we hide the CEO?

Earlier this year I attended a small VC event at which Jim Collins was giving his fantastic presentation on how to build great and enduring businesses. He did a marvelous job of both reminding the CEOs present of the management disciplines they need to adopt if they are to turn their businesses in to truly great companies. Several months have passed since I heard him speak but I was reminded of this speech when I noticed his 'Level 5 Leadership' article is being reprinted in the current HBR. What struck me is that if you look at the current leaders of the major tech players there is some correlation with his central thesis, that great companies have Level 5 leaders but not a complete correlation. Of course this could be a warning bell for the future of those that don't appear to have Level 5 leaders, or it could be that Jim's analysis doesn't really apply to them.

Jim's research suggests that Level 5 leaders have a common set of traits, namely their ability to build enduring greatness through a paradoxical combination of personal humility plus professional will. Now I can't profess to know the CEOs of the all the major tech firms to the extent where my judgment is 100% accurate but from what I've learned over the years and from the insight others have given, I'd say that using media exposure as a guide the following people meet the Level 5 standard:

Sam Palmisano - IBM. Sam does work with the media but it's clear that he'd rather talk about his company than himself.
Mark Hurd - HP. Has any business publication managed to profile him with his involvement?
Hector Ruiz - AMD. AMD has been slowly but surely gaining ground on Intel while Hector has stayed firmly below the radar
Bill Gates - Microsoft (I know he's not CEO anymore!). Bill has never loved media attention but accepts its role. As the world's richest man he can't escape being on the cover of magazines from time to time
Steve Ballmer - Microsoft. Steve may be gregarious but he's also not someone to blow his own trumpet.
Paul Otellini - Intel. Since taking over as CEO he has hardly sought out personal publicity

Some may take issue with these choices and I should add that not that all of these are clients. I should add that I've not included CEOs such as Steve Jobs, John Chambers, Larry Ellison and Scott McNealy. I don't know these people but the perception is that these people enjoy the media spotlight which goes against them being so called Level 5 leaders. If my perception is wrong then these guys all definitely count. It is interesting to note that Jim's Level 5 criteria if used when hiring CEOs would have ruled out hiring someone like Carly Fiorina for the HP role.

If you think about this you arrive at something of a paradox. At one level PR people want their CEOs to do their part to raise awareness of the company and its goals. This often means them sharing some of their personal life with the public to add some human interest to an otherwise dull business story. If they do this too much then they become celebrity CEOs and by Jim's definition, this would suggest they are falling short of being Level 5 leaders. So the logical conclusion you arrive at is that we can do all our clients a favor and make sure our CEOs stay out of the media.

Or should we? I'd love to see what other PR people think on this subject?

Second wave

Call it an after shock from the 2000 crash of the tech market if you like but I think we are starting to see another wave of challenges facing the tech PR market. Don't read in to this that my businesses are having problems, thankfully they are not. However, events of the last few months have pushed a few agencies perilously close to the edge and I fully expect to see one or maybe two firms crash out in the next few months. The firms won't be small fry, they'll be businesses that have been around a while and have taken steps to build up internationally. Their demise will be a result of two equal and opposite forces: a drive in one direction to go global while at the same time being driven in the other direction to be more local. These are tough pressures for medium sized businesses to take on at the best of times. The agencies I see being at risk are ones that became too dependent on one or two clients and equally a handful of their staff. If this mix changes even slightly in such businesses, the results are not pretty. Take a look at the big pieces of business in the tech PR market to move and then also at what staff moves have taken place and you might see what I mean. I won't name names right now as I'd actually prefer it if these businesses stay alive but let's put it this way, if they're still alive in six months I'll be shocked.

Good to be back....

Think Different? Think Again

Ask an Apple fan what they think of Intel and they’ll immediately start thinking of phrases that I wouldn’t want my kids to hear. Intel after all has been a part of the establishment in the PC World for decades now. Intel’s Inside program has been the marketing antithesis of Apple’s Think Different. So today’s news that Apple is to dump IBM in favor of Intel is something of a shock. I say ‘something’ rather than, ‘a massive,’ simply because the news was leaked well in advance in a bid to soften the blow to all concerned. That’s said, Apple fans are getting used to these moves after Jobs swallowed his pride an made friends with Microsoft.

A couple of things I do think that are worth noting about this news are firstly that Paul Otellini, Intel’s CEO was quoted by AP as saying “We are thrilled to have the world's most innovative personal computer company as a customer.” This quote will clearly annoy Dell and HP and I suspect his PR team are busily trying to reposition this statement. Second, the news seems to have taken the stock prices of Apple, Intel and IBM all lower on a day when stocks are essentially flat. Clearly the markets feel that at this stage the benefits of the switch are hard to see.

I guess the interesting question now is, what should Apple’s new tag line be when it has Intel Inside? “Think a little bit differently to the guy that bought a Dell?”

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.

Gates and Visas

Bill Gates recently went on a lobbying visit to Washington and when asked what he'd do if he were in charge, one answer that seems to have surprised some in the media is that he'd advocate removing the limit on H1B visas. Gates views this limit as crazy and in essence said we are capping the number of smart people allowed to work in the US. A few politicians took issue with his view saying that tech jobs are not being created in US right now and thus the cap made sense. Of course what these politicians failed to say was what type of jobs were not being created. While many engineering jobs have found there way to places like India, the largest shift in recent years has been in areas such as customer support and customer service. The people who do these jobs are not the ones Gates is talking about. He wants programmers and software engineers so that the US can maintain its position as world leader in the tech arena. If we keep the cap places like India and China is where these engineers will wind up being employed - and there's a good chance they won't be employed by US companies. As you may tell by my tone, I tend to side with Bill on this one. I think it's crazy that the US limits how many scientists and engineers come in to the US to work. The future of the US will not be determined by call centers, it will be determined by people developing great new products that people want or need to buy. So please, let's focus on the destination not the current economic situation.

Business Week and Blogs

The May 2nd issue has, as I'm sure you've noticed, a cover story on Blogs and how they're going to change business, specifically your business. The article makes some excellent observations as well as some more obvious ones. That said as a piece aimed at the average business person that has yet to really discover the world of blogging it does a good job of getting you at least up to speed with this phenomena. The piece points out how blogs are changing various businesses and gives some examples of how blogs can be applied to a range of comms activities. Not surprisingly perhaps, the blog devotes a lot of space to talking about how blogs will change the media and of course to promoting a new Business Week blog - blogspotting.net. I would have loved to see this piece look more at how it's really shaping business communication and thus business structures but perhaps that will come as they delve into things deeper. Anyway, if you have not read the piece I would, if only so you can comment on it when your clients ask about the piece.

Recession or Growth Market?

Mixed results from technology companies in recent weeks have people speculating that the tech market is still in or perhaps heading for another recession. A closer examination of the data does of course tell a different story. Indeed close examination can tell you almost any story you want it to. In recent weeks we saw Intel raise guidance on profits and Apple again exceed expectations. We then saw IBM miss its numbers due to weakness in some of its markets in Europe followed by Lexmark that missing its profit forecasts. These contradictory results have been attributed to economic cycles, business management and simple poor forecasting. What’s clear however, in almost all cases is that sales have actually been rising. Even IBM, which has sales that rival the GDP of some countries, saw an increase that would satisfy Alan Greenspan. Wall Street, however, doesn’t care about sales that much. Wall Street cares about margins and of course earnings - and most importantly future earnings. It’s this last point that still seems to be where the tech industry is struggling. The bumpy state of world markets is making it hard for most businesses to project with certainty. The good news is that almost all the trends in tech sales are up. Of course there are sectors that are struggling but the encouraging news is that in general sales are trending in the right direction. The real challenge for the tech industry would however appear to be how to break out of low GDP-like growth and get back to the high growth rates achieved in the late 90s. Companies like Oracle are saying that growth will only come by acquiring market share. That seems rather a defeatist approach but who am I to argue with Larry Ellison. Actually I will argue with him on this point. The tech industry has a great chance to break out of GDP level growth but only if it wants to. I think the drivers of potential change exist. For example the growth in wireless technologies that make infrastructure way simpler for businesses and individuals to deal with. This growth is fuelling the opportunity for millions of people to access technology and technologies previously available only to the likes of the Fortune 500. At the same time the success of On Demand software such as Salesforce.com is showing that if you make it easier for people to access the technology they’ll buy it. At this point both of these areas of technology are relatively small when compared to the large traditional enterprise software and hardware markets. But I’d argue that if the industry really does focus on reducing barriers to technology in the same ways these markets have then growth could once again be quite explosive. Look hard at all the small businesses you know and ask if they use all the technology they could. The answer is no in almost all cases. Of course most businesses now own a computer but an alarming percentage of companies still don’t have a meaningful online presence. Add to that the unsophisticated approaches to distribution and purchasing that most small companies use and you see how big the potential opportunity is for just a few areas of the small business market. Getting to this market is of course easier said than done. Barriers such as affordability, accessibility and reliability still need to be adequately addressed but again examples such as the OnDemand software solutions from Siebel and Salesforce show that when you tackle these issues markets open up. So in closing I guess the message I want to leave is one of optimism about the long term opportunities facing the tech industry. This optimism, however, rests on the tech industry’s ability to create new markets by tackling the barriers that exist rather than simply fighting over existing market share.