Some of London’s top advertising agencies are turning down business. Not because they are too busy – many are desperate to reel in new accounts. But every week they receive more than a dozen calls from new Internet ventures keen to make use of their services. They do not always get back to them, knowing many are what they call “timewasters.com”.
It is a tough call. They have to judge whether the goateed, ear-ring-wearing e-entrepreneurs queuing at their door are clutching the next money spinning Net idea, or are half-baked nerds whose ventures will never get off the ground. “No one wants to be the man who turned down the Beatles,” says Martin Jones, managing director of the Advertising Agency Register, which matches ad agencies with clients. “But some agencies are wasting a lot of time.
“These Net companies often demand to see the agency immediately, and they want ideas just as fast. In some cases, they don’t understand what advertising is. They think PR is advertising.”
The Net business is a welcome new source of revenue for the ad industry, which is seeing marketers’ budgets being diverted into direct mail and other forms of communication. But there are hidden dangers to jumping on the Net bandwagon too quickly.
If not backed by a venture capitalist or well-known brand, many of these businesses, such as Bertelsmann’s bol.com, have little surplus money. This new breed of advertiser knows it must use ads to get noticed but, for the time-being, has no way of paying for them.
“Value on paper” is the expression used to describe their riches. Although the figures quoted can sound large, they are often based on spurious calculations.
Net companies evaluate their worth by putting a value on customers. For example, if a Web business has 100,000 registered users, it may value itself at &£100m by taking into account future sales and cross-sales. As many of these customers never buy anything, such valuations often do not materialise.
Many of these clients rely on an agency to provide them with a marketing plan, including an assessment of costs, before proper backing can be secured. “In many cases, the involvement of a well-known ad agency will help them to get their funding,” says Nick Hurrell, newly appointed chairman of eMCSaatchi – the M&C Saatchi spin-off offering e-commerce solutions.
Hurrell, whose agency this year won the lastminute.com account, has three criteria for sifting out unwanted clients: “We ask to see the business plan to check they have the strategy, and the money.
“Creativity is important. Have they got a good idea we can work with? And the people are perhaps the most important aspect – do we trust them?”
M&C has a safety net. When such companies receive first stage funding from a business consultancy or venture capitalist, the agency is prepared to waive standard fees in return for a share of equity.
Another problem is that these companies are still in the early stages of development. “We can’t treat their calls like normal new business calls,” says Juliette Soskice, new business director at St Luke’s. The agency is considering taking the same track as M&C – offering to supply cheap advertising in exchange for a stake in the company.
Fear of being “pipped at the post” means e-entrepreneurs keep ideas close to their chest. Potential clients who say, for example, that they have an idea which will revolutionise the teenage market, often only give the agency sketchy details, which does not inspire confidence. “We offer to sign a confidentiality agreement, but often they won’t give details because they are too secretive,” adds Soskice, who this time last year did not predict receiving two calls a day.
She says St Luke’s first question is: “Who is the backer?” The second: “What is the budget?”
In many cases, a figure is plucked from the air.
BMP DDP new business director David Kean, who has recently added brands such as boo.com and eToys to the agency’s client list, tries to deal with as many e-business enquiries as possible: “If nothing else, they are often interesting people.”
Some observers suggest agencies should look at where the gaps are in the market and who was talking about setting up a Net venture this time last year, and ask: where are they now; where did they go wrong?
Many agencies feel these new Net businesses are tiresome. But, so long as they continue to be launched every day, the calls are not going to go away. One of them might just be the Web’s answer to the Beatles.