Toppling the Madison Avenue Giants : Smaller, more creative ad agencies, combined with a smart audience, threaten the big guys

More than two years ago, Rick Ender, an award-winning creative director with a small advertising agency in Atlanta, was hired by Madison Avenue’s largest ad agency, McCann-Erickson. His mission: To create commercials for what may be the world’s most famous brand, Coca-Cola. “It was a chance to do something really big,” says the soft-spoken Ender. Or so it seemed at the time.

In the months that followed, Ender realized he’d stepped into advertising hell. Coca-Cola had set up an agonizing internal competition that pitted McCann-Erickson, its faithful U.S. marketing partner of 40 years, against Michael Ovitz, head of the high-powered Hollywood talent firm Creative Artists Agency. To make matters worse, CAA was clearly winning the battle by the time Ender joined McCann. Worse still, Ender could see why McCann was losing but could do nothing about it. “It was like a maze at McCann-Erickson,” he says. “A lot of bureaucracy, a lot of infighting. The best ideas weren’t getting through.”

Those problems became apparent to the world in February, when Coca-Cola held a press conference in New York to unveil its slate of Coke Classic commercials for 1994. After it was over, McCann-Erickson executives must have felt like the kid in the schoolyard pickup game who is chosen dead-last. Coke executives played 30 commercials for the crowd; 27 were made by CAA, two by the small Minneapolis agency Fallon McElligott--and just one by McCann-Erickson.

By that time, Ender was already gone, having resigned a couple of months earlier. He is now running his own small ad agency back in Atlanta. “I wanted to return to the reason I went into this business, which was to make good advertising,” he says. Would he ever consider going to work for one of the big New York agencies again? “No,” Ender says emphatically. “Never again.”

These days, there are more than a few New York advertising people who might want to join Ender in heading for the hills. Turmoil has become a way of life on Madison Avenue. The ad business has lost more than 13,500 jobs in the past three years, clients such as Coke have been defecting from Madison Avenue, and anxiety has been running high at the large, top-name agencies--the companies that, for 40 years, helped fuel the economy and shape the popular culture. “The big agencies are becoming dinosaurs,” says Donny Deutsch, head of the lean-and-mean New York upstart agency Deutsch Inc., which has swiped accounts from the likes of Ogilvy & Mather and talent from McCann-Erickson.

The threats come from all sides, from clients demanding better results from their advertising; from imaginative, smaller competitors such as Deutsch, CAA and regional ad agencies, all hungry for a piece of the $138-billion U.S. advertising pie; from today’s television viewer, who appears to be more immune to conventional commercials than ever before, and from new technology, which promises to reinvent the very process of advertising.

Madison Avenue’s troubles began during the economic recession of the late 1980s, immediately following a wave of merger mania that had fattened up the business. Clients began to trim ad spending and many turned to cost-effective marketing alternatives, such as coupons and direct mail. By the early ‘90s, advertising had lost 25% of its market share to other forms of promotion. “The whole relationship between clients and agencies changed--marketers began to look for many different ways to promote, other than just commercials,” says Philip Guarascio, general manager of marketing and advertising at General Motors Corp.

A blizzard of pink slips began at the big ad houses in 1990, and the slump worsened in 1991, the first year in two decades that U.S. ad spending decreased from the previous year. The effects could be felt beyond New York, at ad agencies throughout the country; L.A. ad agencies have been “in a state of panic the last couple of years,” says Anita Santiago, on the board of directors of the Western States Advertising Agencies Association Inc. (though she notes that there’s “more optimism this year” among L.A. agencies, which may be attributable to a strong first quarter among the Japanese car makers that dominate the local ad business.) And it wasn’t just ad agencies that suffered: A ripple effect could be felt throughout the media world as magazines, newspapers and television networks all lost advertising (about 40 magazines went out of business during the first two years of the ad slump).

Though media revenues nationwide also have stabilized and even improved a little in the past year, the pressure on agencies has been unrelenting. Clients have trimmed commission fees to agencies from the longtime standard of 15% to, in some cases, 10% or less. And up and down Madison Avenue, those same penny-pinching clients have put their accounts up for review.

While Coke was drifting toward Hollywood last year, IBM, Burger King, MasterCard and Volkswagen switched from large to small agencies. A number of other clients, including auto makers BMW and Isuzu and the computer company NEC, have abandoned New York advertising to work with regional ad agencies in Boston and San Francisco. “More defections from the big agencies will follow,” predicts industry consultant Richard Roth, who advised Burger King on its account switch. “Client companies are fighting harder than ever for market share, and they need big ideas.” And, with rare exceptions, the big ideas haven’t been coming from big agencies.

Instead, they’ve been coming from unexpected places. For the past few years the advertising culture has been shaped more by a small agency in Portland, Wieden & Kennedy, urging consumers to “Just Do It” than by any of the multinational, New York-based leviathans. And the top national ad award shows now are dominated by agencies from San Francisco, Minneapolis and Richmond, Va.

Companies “basically and fundamentally no longer accept on faith the value of conventional advertising placed in conventional media,” Allen Rosenshine, chairman and CEO of BBDO Worldwide, told the annual meeting of the American Association of Advertising Agencies last month. The Madison Avenue powerhouses have “finally begun to acknowledge that this isn’t a recession we’re in, and that we’re not going to go back to the good old days,” says Keith Reinhard, chairman and CEO of DDB Needham Worldwide, who has seen his agency’s spacious New York office become a ghost town as the staff dropped from 1,000 to less than 500. “What’s become clear,” he says, “is that the problems of big agencies are systemic, and must be dealt with.”

Last year, in what some saw as a sign of desperation, several major agencies began to “re-engineer” and restructure themselves, with an emphasis on downsizing. This year, the trend is for slumping agencies to replace top executives (in one frantic week in April, three powerhouses, Ogilvy & Mather, Ayer and Saatchi & Saatchi, all named new CEOs or presidents at their New York offices). But Deutsch and others in advertising believe that such thrashing about won’t remedy a fundamental problem: While the big guys were expanding into global giants, he says, they lost touch with their core audience here in America. The late ‘80s and early ‘90s TV viewer--armed with remote control, VCR, 50 channels and decades’ worth of media savvy--became too smart, too quick and too elusive for slow-moving, conventional advertisers.

The tumult of the past four years may be nothing compared to what’s coming. By the time advertising’s rollicking ‘90s are over, you may not recognize the commercials on your TV, which are likely to be more interactive, more diverse and more targeted. Lots of people--including small, creative agencies such as Deutsch, Hollywood agents and producers, infomercial specialists and video-game mavens--will be challenging the New York heavyweights such as McCann-Erickson, whose chief weapon, and weakness, is its own immensity.

THE HIGH-RISE, MID-MANHATTAN OFFICES OF MCCANN-ERICKSON, AN agency that creates more than $6.7 billion worth of commercials each year, is a place in which slogans abound. Posted on the walls are nearly 80-year-old inspirational writings by founder Harrison K. McCann about the higher purposes of advertising (“To create energy out of facts and words . . . to stir desire and impel action”). In the creative department, there are small, hand-held mirrors with the words “Creativity is my responsibility” printed on the glass at the bottom of each. And there’s the agency motto, plastered everywhere you look: “Truth Well Told,” it declares, serving as evidence that advertisers are capable of deceiving themselves, too.

John Dooner, the 45-year-old, fast-rising executive who has been president of McCann since 1992 and who will add the title of CEO this summer, also believes in the power of slogans. Sitting in his plush office, the pinstripe-suited Dooner is asked about his agenda for leading the world’s top agency into a period that promises to test McCann’s mettle. He pauses for a moment, then reaches for a small, pre-printed card upon which he has documented his guiding principles. He begins to read from the card, uttering corporate-speak phrases about “the power and passion to be the best.” If Dooner seems to lack spontaneity, he is, in that regard, not entirely out of place at McCann-Erickson, an agency that some advertising people call “the factory.”

Dooner is charming except in the face of criticism. Then, he tends toward bluntness with a touch of derision. “To talk about the big agencies being in trouble is sexy, it makes a good story, but it’s bull,” he says, noting that McCann has steadily added to its accounts, outperforming most of Madison Avenue in the 1990s. (Last year, it netted $450 million in new business, and in seven of the past eight years, it has been ranked among the top five ad agencies in the world in terms of new U.S. business.) Still, what of the layoffs at the big agencies and the constant client defections? “People think advertising is alone with these problems,” he snaps. “It’s happening everywhere. IBM is laying off thousands of people!” And what about Coca-Cola going to Hollywood for ads? Dooner begins to answer, then stops himself. No one at McCann-Erickson is supposed to talk about Coca-Cola and CAA, though in truth, some people in the industry have been talking about little else.

To understand how much Coke’s romance with CAA hurts McCann, you have to consider history. During a period of five decades, McCann helped build Coke into one of the world’s premier brands, and conversely, Coke helped build McCann into the top agency. The collaboration occasionally produced advertising magic. Some Coke commercials live on in viewers’ memories 20 to 30 years later: the chorus on the hilltop, singing “I’d Like to Teach the World to Sing,” and the fearsome football player Mean Joe Greene, who hands over his game jersey to a child. The old slogans, including “Things Go Better With Coca-Cola” and “It’s the Real Thing,” were no less memorable.

The problem, from McCann and Coke’s standpoint, is that it is only the 20-year-old commercials that come to mind; try to recall a Coke commercial from the past five years--pre-Polar Bear, that is--and chances are you’ll draw a blank. It isn’t just that the ads have become bland; more to the point, the world around McCann has changed. For years, McCann and other big agencies turned out “mass-produced, mass-marketed, one-size-fits-all commercials,” says Don E. Schultz, professor of integrated marketing communications at Northwestern University. “But what we’ve recently discovered is that today’s consumer is turned off by that and is saying, ‘I’m not homogeneous, I’m not like the guy down the street.’ ” As viewer attitudes have changed, so, too, have the media, which became more fragmented by cable. “It became harder for commercials to have an impact through sheer repetition,” says Schultz. Or, as Peter Sealey, former global marketing chief at Coca-Cola, puts it: “The days of forcing people to sit through obnoxious ‘Ring-Around-the-Collar’ commercials are over.”

Sealey, who has since left Coca-Cola to become head of Interactive Network Inc., a new interactive cable TV broadcast network, was at the center of the soft-drink company’s decision to radically change its advertising two years ago. Coke had grown weary of “the blandness coming out of the advertising factories, year after year,” he says. “Every summer, the agency would present me with a commercial of somebody squirting someone else with a hose.” And, says Sealey, McCann-Erickson clung to the traditional practice of creating broad messages for 18-to-34-year-olds, “as if you could run the same ad on MTV as on CBS.”

Having previously worked as a president of marketing and distribution at Columbia Pictures, Sealey, along with former Coke president Donald Keough, believed that Hollywood was more in touch with changes in the popular culture than Madison Avenue, and that the Hollywood production system--which relied on independent artists rather than in-house talent--was more conducive to creativity. And so, in early fall of 1991, Coke signed up CAA as a global marketing consultant.

McCann-Erickson knew that war had been declared and began working feverishly on a new campaign for Coke, with ideas and suggestions being sent to New York from McCann offices around the world. But few ideas survived the agency’s hierarchical approval process, according to inside sources.

Meanwhile on the West Coast, there were only two people working on Coke full time at CAA--Len Fink, a former adman from Chiat/Day, and Shelly Hochron, a former senior vice president of production at Tri-Star Pictures. Hochron says ideas were being generated daily through “a lot of brainstorming with little or no formal research.”

In October of 1992, on a day that may well have changed advertising forever, the CAA team headed east and the McCann crew headed west for a showdown in a Coca-Cola conference room in Atlanta. McCann arrived with a handful of ideas that would serve as jumping-off points for multicommercial campaigns. Agency executives sat and watched as CAA, led by Ovitz, presented its ideas--more than 30 of them, for individualized commercials. Says one McCann executive who was there: “I was blown away by the diversity of CAA’s work. We were coming from the old school of advertising repetition, which is the way Coke had always done things. And here CAA was, breaking the mold. It was very daring of them. Of course, they had nothing to lose--unlike us.”

Surprisingly, the CAA ads did not resort to using movie stars from Ovitz’s stable; that would have been standard ad industry point-and-pitch fare. Instead, Hochron says, “our intent was to look completely different--to be more graphically arresting or unusual than anything else on TV.” To achieve that, CAA wanted to use stylistic film directors and state-of-the-art visual techniques, such as computer-generated animation. “As soon as we saw what CAA was presenting, we felt it was fresh and compelling,” Sealey says. As the CAA presentation was ending--before McCann had shown a single idea to Coke--one McCann executive at the table, John Bergin, slipped a note to another sitting next to him. It read: “We are dead.” But the other executive responded, “No, we’re not.”

It turned out that Bergin was right. Not only did CAA win the shootout (24 CAA ads were approved, compared to two of McCann’s), but its work also seemed to score a hit with the public--particularly one commercial featuring an animated, herky-jerky polar bear, which simply looked like nothing else on TV. Though Sealey was ousted last fall after Coke’s president retired, any hopes that McCann may have had for reinstatement were dashed when Sergio Zyman, Sealey’s replacement, selected another full slate of CAA ads earlier this year, some featuring the polar bear. He announced that the first batch helped increase Coke’s market share for the first time in years and tapped several regional agencies, including Portland’s Wieden & Kennedy, Venice’s Chiat/Day and Minneapolis’ Fallon McElligott to work on Coke ads. The unspoken message from Coke: If we want fresh ideas, we’ll have to look beyond Madison Avenue.

While it might seem odd that a tiny group of outsiders could sucker punch a global marketing heavyweight like McCann, it demonstrates that good ideas can come from anywhere. An agency’s success is ultimately dependent on tiny creative sparks, on the ability of an art director and a copywriter, sitting in a room together, to find an original, striking way to convey an otherwise banal message. But at McCann and many other big agencies, the ideas that emerge from that room must pass through a half-dozen or more layers of approval within the agency’s hierarchy. “Ideas don’t rise to the top in an environment that massive,” says Ender, who notes that his best schemes for Coke at McCann never saw the light of day. Those ideas that do manage to pass from one layer to the next “get altered and watered down at each stop; what you end up with lacks the freshness of the original idea,” says Bill Oberlander, an award-winning art director at McCann who is now at the smaller kirshenbaum & bond in New York.

McCann’s top creative director, Marcio Moreira, is keenly aware of the plague of bureaucracy and says he is attempting to reduce the number of “operating levels” at McCann. Its chief, meanwhile, seems less sympathetic. Dooner notes that creative people are paid great sums of money--as much as $300,000 a year--to join McCann-Erickson and to perform in the big leagues. “This is a business we’re in, and our whole purpose is to be big,” Dooner says. “If you want to be an artist, move to SoHo.”

Though Dooner acknowledges that the agency needs more creativity and says he plans to “acquire” more talent to that end, he also contends that there may be too much creative flash in the kind of advertising that wins awards and strives hard to entertain. “Advertising’s fundamental purpose is to sell,” he says, adding that “we tend to lose sight of that as viewers and critics of it. Advertising has to provide reasons to purchase.”

McCann’s own commercials put forth those selling propositions in a workmanlike fashion. For L’Oreal hair coloring, actress Cybill Shepherd gazes into the camera and talks earnestly about the advantages of having beautiful hair; for Alka-Seltzer, there’s a bouncy jingle about getting through a tough day (“Get Yourself Some Alka-Seltzer/ And You’ll Feel Better Fast!”). The production values are flawless, the jingles are even a little catchy. Ten years ago, McCann’s brand of functional advertising--supported by a big media budget and a lot of repetition--was more than adequate. But that was before channel-surfing and remote-control mute buttons came along and put advertisers under the thumb of the average couch potato. Today, says Northwestern’s Schultz, advertisers must find ways to attract a viewer “who is no longer captive,” and that necessitates taking creative risks--an uncommon practice at agencies such as McCann, but a way of life at Deutsch.

A FEW MONTHS AGO, DONNY DEUTSCH WAS SITTING IN HIS DOWNTOWN New York office, with its indoor basketball hoops and miniature pinball machine, when members of his creative team brought him an idea for Ikea furniture stores, a client. The plan was to show a live-in couple shopping for furniture. Nothing unusual there--except that this couple would be composed of two men. Deutsch thought about it for a moment; no one, to his knowledge, had done a gay-lifestyle network TV commercial for a mainstream company. That made it all the more appealing. “It just felt right in my gut,” he says.

Subsequently, there were no review meetings, no research sessions; Deutsch took the idea straight to the client, who approved it. As the commercial, which showed the two men joking with one another about the act of buying furniture and its implications for long-term personal relationships, began airing in April, it generated a large splash of publicity. Ikea’s investment in the ad was multiplied many times over by free exposure in the media. Clients are usually surprised when this happens, but not Ikea--it’s used to the way Donny Deutsch works.

If there’s any ad agency in New York that could be said to have been designed for the early 1990s--a time when consumers are tuning out sales pitches and responding only to that which seems startling and authentic--it may be Deutsch, run by the irrepressible, 36-year-old Donny Deutsch. While much of New York advertising has been starving for attention and clients, Deutsch has had no shortage of either.

In the past two years, Prudential Securities, Lenscrafters opticians, Tanqueray gin, Hardee’s fast-food chains and a half-dozen other clients--totaling $200 million in new business and bringing the overall billings of Deutsch’s agency to $300 million--have joined Deutsch. They did so primarily because the agency’s commercials “break through and reach people on a gut level,” says Deborah Callahan, Tanqueray’s vice president, product group director.

That’s not to say the gut feeling you get from a Deutsch ad will necessarily be pleasant. In fact, some of the agency’s commercials border on the offensive. One, for Pontiac cars, took a swipe at growing Japanese ownership in America with a snide reference to New York’s Rockefeller Center as “Mitsubishi Center.” Other Deutsch ads have poked fun at American icons such as Disney World and Nike sneakers (“Your mother wears Nike,” cried one Deutsch ad for a competing shoe, British Knights, in an attempt to plant the kiss of sneaker death--uncoolness--on the top brand).

Stylistically, Deutsch’s advertising is practically the antithesis of that produced by McCann-Erickson. Where McCann’s ads are smooth and polished, Deutsch’s are rough around the edges--usually shot on a low budget, starring quirky “real people” instead of professional actors. In place of jingles and sales pitches, there is seemingly spontaneous dialogue and action, so that some ads resemble a documentary more than a commercial. Sly humor is usually a central element, and the commercials’ subjects are often the recipients of Deutsch’s darts. The company helped introduce the concept of Ikea, a self-serve furniture store with few salespeople or deliverers, by filming clips of other stores’ salespeople, who spouted inane pitches, and their deliverymen, who took seemingly endless breaks. “Who needs these guys?” the commercials asked viewers.

Deutsch’s “reality-style” advertising is seen by some in the business as a gimmick, but Deutsch contends that most consumers today grew up bombarded by TV commercials and “can’t be fooled by the old 30-second song-and-dance.” They want their TV “raw and real,” he says, as evidenced by the success of “Roseanne,” “Seinfeld” and “Court TV.” Like those programs, his advertising strives to “hold up a mirror,” he says.

Yet the mirror Deutsch holds up reflects what he wants you to see. In fact, it could be argued that Deutsch’s advertising, which simulates reality better than conventional commercials, is, in fact, a more subtle form of dishonesty. The agency scours malls and playgrounds for quirky “real people,” then coaches them for maximum authenticity. People are sometimes recorded speaking off-the-cuff for extended periods of time, then their comments are edited down to make a commercial that only seems spontaneous. It’s cynical advertising for a cynical generation of TV viewers. And Deutsch isn’t the only one doing it.

Nike’s agency, Wieden & Kennedy, mastered the art of faux honesty several years ago; it trashed the sales pitch and began speaking “candidly” to viewers, acknowledging with a wink that Nike shoes don’t really enable you to jump like endorser Michael Jordan. More recently, New York’s kirshenbaum & bond has also taken a “realistic” approach in its tongue-in-cheek, documentary-style ads for Snapple soft drinks, featuring offbeat Snapple customers. “These ads are an admission to viewers that most advertising has no credibility,” says Anthony Vagnoni, editor of Creativity, a spinoff by Advertising Age. “They’re attempting to stand apart, to ring true amid all those commercials that seem so false.” (According to a recent survey in Adweek magazine, consumers are more jaded about ads than ever, with only 34% of respondents saying they trust ads; among the 18-24 set, only 23% trust ads).

Moreover, Vagnoni says, such commercials are attempting to engage in a new “smart dialogue” with cynical viewers. What sets apart the advertising of Deutsch and other rising-star agencies (including kirshenbaum & bond, Wieden & Kennedy and San Francisco’s Goodby Silverstein & Partners) is not so much a particular style as an approach--one that soft-sells and relies on wit and ingenuity.

The tactic is clearly working for Deutsch Inc., which has more than tripled in size since Donny, who began his career as a disillusioned account executive at Ogilvy & Mather, took the reins at his father’s small, 20-year-old agency. The outspoken Deutsch is not well-loved by his peers, who have dubbed him “Madonny.” With his touches of artifice (born and bred on the streets of Queens, he is never seen without his cowboy boots), his tendency to boast (“we’re the only agency in the business that truly balances creativity and sound strategy,” he claims), and his insatiable appetite for attention (when told he’d be in this story, Deutsch immediately asked: “Is it a cover story?”), Deutsch’s personality sometimes combines the worst elements of advertising.

Beneath the bluster, he has what one former employee describes as “a terrific, natural instinct for picking ideas” that resonate with the public. And having never had the luxury of Madison Avenue’s big-budget campaigns, Deutsch has learned how to make the most of minimal access to consumers. His enticing commercials, for now at least, represent the better mousetrap that Madison Avenue seems to need.

For all of those cutting-edge tendencies, however, the agency of the moment may not necessarily be the agency of the future. Deutsch must contend not only with its own growth pains (internal pressures led Deutsch’s business partner, Steve Dworin, to resign earlier this year), but also with changes in advertising for which even his agency seems ill-prepared. For instance, when the loquacious Donny is asked about interactive advertising, a miracle occurs: He is at a loss for words.

“THINK OF A MAN ON A FLYING TRAPEZE,” SAYS DDB NEEDHAM’S REINHARD. “Right now, the ad business is between trapezes. It’s scary, because we don’t even know what the world of advertising is going to look like in a few years.”

We have a few clues, however. This year, Time Warner will begin an interactive television test in Orlando, Fla., while a similar interactive TV test program is being launched by AT&T; and Viacom in Castro Valley, Calif. Viewers in these test markets will be equipped with an interactive TV channel through which they can order entertainment, information, services--and advertising.

Why would anyone request advertising? For a payoff. Companies on these channels will offer incentives to entice you to watch their long-form commercials. They may provide you with discounted or free merchandise, or they may offer a different kind of swap: If you watch our ad, we’ll let you watch a TV program that we own.

Once you agree to watch an interactive ad from, say a car company, here’s what you might see: The ad opens with a showroom full of cars. Using a point-and-click device, you point to one of the cars; a short video clip comes on, showing the car in action. Then the ad begins to ask you questions. Do you want to know more about the car’s gas mileage? Would you like to hear from a few satisfied customers? Just push a button and the appropriate clip pops up. At the end of the process, a brochure or a rebate coupon spews out of the printer beside your TV (with lower-priced products, you’ll be able to place an order if you like).

Time Warner expects to roll out its network nationwide in about five years. That may be optimistic, considering that there have been some start-up delays, but there’s little doubt that interactive TV is, as Chrysler marketing director Jim Julow says, “on its way, and coming in a hurry.” Already, the first generation of interactive ads can be seen on some home computer screens, with on-line networks such as Prodigy running ads that enable users to click on their computer screen for detailed information from advertisers. As computers and TVs converge in the new media world, this simple interaction will become more visually stimulating and more sophisticated. It also will, says Bruce Judson, Time Inc.’s general manager of multimedia products and services, “irrevocably change the relationship between marketers and consumers.”

The reason is simple. For perhaps the first time in ad history, the viewer will be in control, deciding which ads they want to see, then navigating through them. Advertisers, in turn, will have to create ads differently. “Instead of trying to bombard you with a slogan, we’ll have to figure out what kind of information you really want and how to present that information in stages, to lead you through the process,” says Peter Farago of New York’s Farago Advertising, which will be making ads for a client in the Time Warner interactive test.

Ideally, if old commercials were like bad salesmen screaming a canned pitch at you, pushing the same product on everybody, new ads may be more like good salesmen who listen and respond to individual needs. Marketers are excited about the prospect of interactive ads because they promise to bring more accountability to advertising. They will be better able to see--from your responses and your orders--which pitches and promotions succeed. In some cases, they may even quiz you to see if you remember a particular slogan, rewarding you with prizes.

It seems the only people who aren’t eager for interactive advertising are the large ad agencies, to whom it represents “yet another threat to the established way of doing things,” says Farago, formerly of J. Walter Thompson. To its credit, McCann-Erickson has begun taking the lead, along with Ogilvy & Mather, in bringing interactive technology to Madison Avenue. About six months ago, McCann formed an interactive division, and in April named a top creative director, Marshall Karp, to help develop interactive ads. (McCann has also sponsored a number of interactive TV field tests.) But other major agencies have yet to take these first steps.

“With their profit margins so slim, I don’t think agencies believe they can afford to take the lead on interactivity,” says advertising consultant Fred Lemont, of New York’s Grammercy Marketing Corp. “But it’s also partly denial: In the past, agencies underestimated the impact of VCRs and cable, too. They want to stay in the simple world of three networks.” Martin Nisenholtz, who runs Ogilvy & Mather’s decade-old interactive marketing group on Madison Avenue, says most agencies “are taking an ostrich-like, hands-off position about new media technology. They’re not even coming to the table. Meanwhile, a lot of small, entrepreneurial companies outside the agency community are looking for ways to get a piece of this business.”

Indeed, the new world of advertising may be open to all kinds of ambitious outsiders. Aubrey Balkind, of the New York ad agency Frankfurt Balkind Partners, points out that the design of interactive ads could offer opportunities for video-game creators, who are used to working in a quick-response medium. Meanwhile, creators of entertainment programming may have an edge, too, because “the distinctions between advertising and programming will continue to blur,” Balkind says. Is that a Chrysler-sponsored show you’re watching, or is it an infomercial, or just a long-form commercial? It’ll get harder and harder to tell the difference, experts say.

In an interactive, hundred-channel world, it will also be increasingly critical to target ads to narrow demographic groups. “Where a client once needed three commercials, they’ll now need 30,” says Balkind. And they’ll want to backstop those commercials with specific sophisticated promotions such as “peer-group-influencer programs,” wherein a company pays people to go to a trendy place and talk up a particular product. “Marketing is going to become more and more complex, more specialized,” says GM’s Guarascio.

In such a complex, specialized world, what is the role of the ad agency? That’s the hundred-billion-dollar question being asked on Madison Avenue. Dooner thinks he has the best chance of succeeding in this changing world, because his company’s vast resources and far-flung empire (McCann-Erickson has offices in 99 countries) can provide a global Wal-Mart for marketers in the midst of the chaos. Dooner repeats the word global like a mantra. “The future of advertising is all headed toward multinational and global,” he says, leaning over at one point to confide, “The U.S. is just the tick on the dog’s ass.” And it is true that so far, at least, most of the multinational brands have stuck with big agencies, if only because “it’s a place to park all of their global business and not worry about it,” says consultant Roth. “It’s too much of a headache to have to deal with different agencies in different countries.” Big agencies provide other benefits, too. Since they buy advertising space in great bulk, they can negotiate for lower rates from the media.

But those advantages notwithstanding, creativity in advertising--the Achilles’ heel for many of the big agencies--could become increasingly important to the multinational clients, particularly if big-brand awareness continues to erode here at home. In the past few years, more consumers have opted for discounted, private-label brands. To reverse that trend, “companies like General Foods will have to come around to creative agencies eventually,” Deutsch says. A number of big agencies seem to share that view. In the past year, DDB Needham, Lintas and other big agencies have broken off pieces of themselves to form small, creative spinoff agencies--initiating a kind of merger mania in reverse.

It’s possible Dooner and Deutsch may both be wrong. GM’s Guarascio foresees a future in which agencies of all sizes--and maybe even interlopers such as CAA or interactive technology specialists--might simultaneously serve the same client. “The big agencies have an opportunity to become the general contractor,” he says. “As we turn to various specialists, who’s going to manage all of that? The big agency--if it can change its mind set about ownership.” Guarascio says the large ad houses must stop trying to do what they don’t do well. “They can’t out-special the specialist,” he says.

Ironically, Guarascio’s theory seems to suggest that Dooner operate more like a Mike Ovitz, finding the best outside talent for each particular task at hand. That might necessitate McCann and other big agencies parceling out various parts of the advertising process. For example, the few big agencies that do manage to consistently produce highly creative advertising, such as New York’s BBDO Advertising, might relinquish research or other services.

Such a metamorphosis, if it ever does come to advertising, would doubtless bring more layoffs and general Angst to Madison Avenue. But on the bright side, it might mean that an agency such as McCann-Erickson could someday return to a Rick Ender, in his small, creative shop in Atlanta, and ask him to do what he does best, just to make a good ad. Says Ender, echoing a Coke jingle from bygone days, “That’s the way it should be.”