Web Shop Guiding Corporations Online
It doesn’t matter that Agency.com’s average employee age is 28, and that its staff traipses around its Manhattan digs in horn-rimmed glasses, baseball caps and clunky black shoes.
Fortune 500 companies are forking over millions of dollars to these tech-savvy youngsters, who build Web sites, devise advertising and e-commerce strategies and help clients determine how to market themselves online.
By steering many large, well-heeled corporations onto the elusive yet promising territory of the Net, 4-year-old Agency.com has become a leader in a niche poised to become a multibillion-dollar industry.
“Consumers and investors are demanding and rewarding companies who shift their thinking to the Internet,” said Chan Suh, the 37-year-old chief executive of Agency.com. “But a lot of companies don’t know what to do about it. It’s as if they landed in a foreign country. They don’t speak the language, and they don’t know the customs. So we try to teach them.”
Agency.com tries to foster a relaxed yet professional culture--a blend of new-age inspiration and bottom-line business. The company sponsors in-office classes on topics from fly-fishing to aromatherapy. Chips and beer are served every Friday.
Yet, the company presents itself to clients as a serious, global leader of interactive services, a firm that meets deadlines, makes formal presentations and sticks to budgets.
After starting the company in 1995 with his partner, Kyle Shannon, Suh’s initial $80 investment resulted in $80 million in sales last year. This year, revenue could hit $100 million. Unlike most Internet companies, Agency.com said it is profitable, however the private company wouldn’t disclose its earnings.
Suh describes himself as an early “Internet fanatic.” Upon his graduation from the creative writing program at Sarah Lawrence College, he worked at various jobs before becoming marketing director of Vibe magazine, which he brought online.
He met Shannon, an aspiring actor with Internet knowledge, in a chat room for Web enthusiasts, and they started the company with the assumption that businesses would sorely need help as the Internet grew in prominence.
“We threw caution to the wind and started the company up,” said Suh, who was born in Korea and lived in Europe and Southeast Asia before moving to the United States as a teenager.
Sports Illustrated was their first client. Then, American Express, GTE and Metropolitan Life Insurance came on board. Now, with 800 employees and a dozen offices around the globe, the company’s client list includes British Airways, Texaco, Compaq, Colgate-Palmolive, Sprint and Kmart.
And, analysts say, money into this sector has only begun to flow.
By 2005, businesses worldwide will spend nearly $50 billion a year for strategic Internet services, up from $1.2 billion in 1998, according to Hambrecht & Quist analyst Danny Rimer.
“A couple years ago, the average Internet project was a couple hundred thousand dollars. Now, the average project is over a million,” said Jerry Newman, chief financial officer of Communicade, a subsidiary of Omnicom, which owns more than 40% of Agency.com. “There’s not a CEO in America who isn’t thinking of how to incorporate the Internet into their business.”
However, Agency.com’s primary challenge is to continue its growth in light of increasing competition. Along with other Web shops such as USWeb/CKS, Viant, Scient, iXL and Razorfish, Agency.com competes with top ad agencies and management consulting firms.
Because traditional ad agencies and consulting firms generally have been slow to the game, interactive companies still have an advantage, analysts said.
“Not a lot of folks at traditional companies have demonstrated an understanding of the Internet,” said Barry Parr, program director at International Data Corp., a Framington, Mass.-based technology research firm. “There’s also a severe shortage of people whose core competency is the Internet. And those who are skilled are choosing to go to start-ups.”
Nevertheless, Agency.com, which some believe is destined to go public, is experiencing its own growing pains as it continues to acquire many smaller shops across the world.
Nick Doran, vice president of interactive marketing at British Airways, believes Agency.com has grown so fast that it can’t offer the same personalized attention it once did.
“In general, it’s been a good relationship,” Doran said. “They’ve done some excellent work for us, but like any relationship, things aren’t always perfect.”
In 1996, Agency.com helped British Airways makes its first foray online by designing its Web site. The company continues to update the airline’s Web site with new designs and navigational elements. For instance, it just updated the airline’s online ticket buying process to make it more efficient.
But Doran said the airline’s needs have grown more sophisticated. Instead of just creating Web pages, it now wants to know how it can use the Internet to build its brand.
“Agency.com’s strength has always been having excellent creative people,” Doran said. “But now, they’re trying to stretch themselves into territory originally occupied by management consultants, and I’m not sure they have the expertise.”
Suh said his company is equipped to handle his clients’ intricate needs.
“What clients get from us is speed of execution,” he said. “We already know when we suggest something that it’s technologically feasible.”
Because Internet companies still are jockeying for leadership positions, Agency.com is likely to continue making acquisitions. So far, the company has acquired interactive shops Eagle River, Interactive Solutions, Ketchum Interactive, Online Magic, Spiral Media and Twinspark. Although analysts say young Internet companies such as Agency.com could face challenges integrating acquisitions, Suh downplayed such notions.
No one knows for sure whether the company’s strategy will pay off. But analysts said Agency.com is well-positioned in an area that is defining the next generation of business.
“What it’s going to come down to is whether it has the organizational and management skills to integrate its acquisitions in a very short period,” Parr said. “It’s not easy to do, but they have a once-in-a-lifetime opportunity to establish their leadership in a sector with tremendous potential.”
