The boom times are over - King Midas would struggle to turn a
profit right now. Layoffs of up to 30% have become ubiquitous throughout
the region's PR agencies. Corporate PR budgets are being slashed, and
competition for new business is ferocious.
"It's not quite as bad as some of the sensationalist headlines suggest,"
says Harry Pforzheimer, president of Edelman's Western region. "But
there are a lot of people walking around who have lost $100
million in net worth - there's uncertainty."
The changes in everyday life in the Valley also resonate. Empty
restaurants and noticeably lighter traffic on the commute from San
Francisco are the most visible reminders of the slump. But the Silicon
Valley story is still evolving. Agencies and companies are beginning to
understand the work of surviving the tough times and preparing for the
"The bottom line is we have not hit bottom," says Stephen Jones,
director of Ketchum's Silicon Valley office. "In Q2, people were saying
that there would be a recovery by Q4. Now they're saying by Q1 2002, or
the first half of 2002. The whole thing is being pushed back."
The deflating bubble
Some of the agencies listed in PRWeek rankings have had significant
up-heavals over the past year. Alexander Ogilvy, ranked sixth according
to income figures for 2000, closed its Valley office and rolled staff
into San Francisco last autumn. Weber Shandwick, now ranked number one
as a result of the 2000 merger, has now merged with BSMG Worldwide. At
the same time, The Weber Group has moved from its Palo Alto, CA office
to share space with WSW in San Mateo. However, Waggener Edstrom has
bucked the trend, opening its first Silicon Valley office earlier this
year. Incepta acquired Cunningham in 2000, which became Citigate
While acknowledging that incomes will be lower than they were in 2000,
agencies are extremely reluctant to speculate on their expected results
in 2001. Lee Caraher, EVP of the Western region for The Weber Group,
says, "We're not sure the top-line results are what we would have
projected a year ago." Barbara Hagin, EVP and GM at TSI, says that
income for 2001 will be "certainly less than last year. We're looking at
a very different scenario, and we'll be building from there."
Edelman's fiscal year started in July, and Pforzheimer says that while
huge growth is clearly not expected, "it's just a little mystifying to
forecast that well." One of the reasons for the caution in predicting
the future may be because one client win can change the story. For
example, Citigate Cunningham has endured a number of painful job cuts,
but its fortunes were recently boosted when it was retained last month
as agency of record for Sybase. The agency is even hiring again, as is
Text 100 following its successful IBM pitch.
The job market
While some agencies are beginning their turnarounds with new accounts,
the job market in Silicon Valley PR is bleak. "I've been telling
everyone that this year is like a Fellini movie," sighs Barry Shulman,
head of recruiting agency Shulman and Associates, which has handled job
searches for companies such as Sybase and Sun Microsystems. Last year,
Shulman retained seven recruiters; this year, he is down to four, with a
65% decrease in his workload.
One disturbing trend Shulman has observed is companies and recruiters
advertising for PR jobs they have no intention of filling in order to
boost their databases of potential hires for better times. But some
agencies maintain they are still hiring in Silicon Valley, including
Edelman and The Hoffman Agency. On the corporate side, Oracle has
announced it will be hiring more PR staff. But that news comes as a
result of the company's decision to jettison Applied Communications, its
agency of record for eight years, and go it alone. Such a decision can
have a chilling effect on the PR industry.
Even if clients are not dumping PR firms, many are in a state of flux
with their agency arrangements. Sun Micro-systems dropped
Burson-Marsteller earlier this year, and divided the account among
Citigate Cunningham, Ogilvy, Eastwick Communications, and KVO. A few
months later, KVO's portion was slashed, and Eastwick was dropped
altogether. Sybase went through several rounds of agency reviews after
dropping The Weber Group in July, and then settled on Citigate
Companies are generally taking much longer to make agency choices, and
have been employing a rigorous RFP process. "Nothing is a simple RFP
anymore," says Caraher. "They're big, involved, probing RFPs." Clients
also want assurances that the senior people involved in pitching the
account will be involved in its execution. Agencies are also being asked
more and more how they measure their effectiveness in order to make PR
Clients also want to keep costs down. Susan Baldwin, EVP of The Hoffman
Agency, reports that there is no standard approach - some clients are
freezing budgets, some are cutting budgets.
3Com is an example of a company that has not changed agencies, but has
been working to change its message. The company has retained Coltrin and
Associates for six years. "The scope of the work has become more
focused," says Brian Johnson, 3Com's corporate PR director. "Previously,
we were focusing on many different issues, including public policy. We
are still active in public policy, but not to the extent we once were."
Johnson says that the priority for 3Com is communicating a consistent,
specific corporate message throughout its varied businesses.
Like many companies in the Valley, 3Com has responded to the tougher
business environment by focusing its PR budget. "We are applying more
energy into communicating a single message about 3Com to our current
customers, shareholders, prospective customers, industry analysts, and
employees," says Johnson.
Other clients warn agencies not to lose their critical edge in an effort
to win accounts. Futuredex, a start-up venture-relationship network set
to launch this month, hired Spiralgroup when the agency advised it to
rethink its PR strategy entirely. "That was a critical moment," says
Cheryl Hammer, managing editor of Futuredex. "The agency didn't just
come in and say, 'Hey, what a wonderful idea.' They assessed every
element, and made a recommendation that was a different path for
Tom Galvin, corporate communications director for VeriSign, which just
selected Applied as its new agency, agrees. "One of the things that we
asked agencies to do was tell us what the environment is out there -
what is the health of the patient. You have to let me know when I am
full of shit," he says. "The biggest missed opportunity that agencies
can make pitching for an account is not offering great ideas on how to
position a company at every opportunity."
A skeptical VC community
While established companies are reducing budgets, some in the VC
community are shutting PR out altogether in order to focus finances on
technological advancement. Barry Hutchison, director of media relations
at VC firm Draper Fisher Jurvetson (DFJ), helps companies kick off their
PR programs and, depending on the company's stage of life, might hand
off the PR work to one of DFJ's preferred agencies.
But now the companies DFJ works with are in the embryonic technological
stage, too early in the game for serious PR council. "Our VCs are not
encouraging any of the companies to spend that type of money right now,"
says Hutchison. "If at all, they are suggesting that on a project basis
they hire a PR agency to work on collateral material. The expenditure of
$15,000 a month to a PR agency is a waste of money that should be
going into the development of the technology."
Hutchison also says that PR agencies suffered some reputation damage
during the boom. "It's hard for me right now to even introduce an agency
to one of the partners," he says. "I think PR agencies did themselves a
horrible disservice during that time." Hutchison says that inflated
retainers and the prevalence of untrained PR people working on
high-profile accounts hurt the image of the PR industry.
But all isn't lost for PR agencies in the Valley. Hutchison says the
smart agencies will already be spending the time to build relationships
with "seed stage" companies. "If they can get to know a company as it
matures, they will have an inside track on fulfilling all its needs down
While agencies wait for a new technology market to mature, they are
looking for business outside the industry, as well as trying to help
clients who are coping with the transition. PRx is an agency that never
focused exclusively on tech, but it has watched the economic problems
impact other industries in the Valley. One of the agency's clients is a
detective agency that flourished in the boom by helping companies with
employee background checks. As its business dwindled, PRx helped the
company reposition itself as an expert on workplace violence.
Other firms have created products to fit tighter budgets. The Hoffman
Agency launched High Impact PR Programs, intended to help clients
increase CEO visibility and the overall profile of the company.
The Benjamin Group/BSMG has received new business from nVidia to handle
its launch in Asia. EVP Ellen Roeckl sees great opportunities in the
semiconductor space, particularly for an agency that has global reach.
"Global PR is like weight loss," she says. "Everyone talks about it, but
not many people do it very well. The agency needs to work with the
client to help them understand their own organization and how it can
support synchronized PR internationally."
Biotech is potentially an area where tech agencies and staff could move,
particularly as Silicon Valley is home to Genentech and many other
biotechs. But working in the sector demands a rigorous understanding of
the healthcare industry and regulators.
Telling the story
Although some PR firms will deny that the dot-com bust left them
vulnerable, it is clear that no agency is unscathed. Agency news is
probably not much different from the stories David Satterfield, business
editor of the San Jose Mercury News, hears pitched daily. "We are
getting a lot of pitches here for the counter-trend story - some company
that is doing well in spite of the downturn," he says. Satterfield
praises the strategy, but there is one story he says he'd like to hear
about more often: "It would be nice to show how a company that is caught
in the downtrend is trying to survive it, trying to get through it," he
says. "That would be more interesting."
SILICON VALLEY PR AGENCIES
Ranking Agency Name Revenue (dlrs) Increase Staff
2000 1999 2000 (%)
1 N/A Weber Shandwick Worldwide* 16,196,702 5 76
2 1 Citigate Cunningham** 11,218,542 6 86
3 7 Ketchum 11,072,000 63 53
4 6 Edelman 10,300,000 32 78
5 12 BSMG 9,235,000 10 62
6 15 Alexander Ogilvy 9,002,200 50 90
7 NEW TSI 7,744,000 3 39
8 NEW Mindstorm 6,795,891 -10 39
9 NEW Text 100 5,889,087 -13 31
10 NEW Murphy O'Brien 5,565,691 13 61
11 NEW Phelps Group 4,932,925 30 35
12 13 Walt & Company
Communications 4,300,000 95 26
13 17 McGrath/Power PR 4,022,279 62 20
14 NEW Waggener Edstrom 3,800,173 -28 14
15 NEW Gibbs & Soell 3,376,041 -23 25
16 11 A & R Partners 3,370,000 37 62
17 24 ShapeTechnology 2,663,900 -7 19
18 4 The Hoffman Agency 2,600,000 18 12
19 3 Porter Novelli 2,500,869 18 18
20 18 Sterling Communications 2,237,690 -2 20
21 19 Brodeur Worldwide 1,520,000 38 10
22 20 PRx Strategic
Mktg. Communications 1,265,063 81 8
23 8 Eastwick Communications 1,222,756 N/A 16
24 9 Neale-May & Partners 172,500 N/A 2
Note: *Weber and Shandwick merged in September 2000
**Cunningham Communications was renamed Citigate Cunningham in 2000