MARKET FOCUS SILICON VALLEY: The tally in the Valley - Silicon Valley is the epicenter of the hi-tech explosion, but surprisingly, agency growth lagged behind San Francisco in 1999. Aimee Grove reports

As has been well-chronicled, 1999 was an unprecedented boom-time for hi-tech companies, particularly those involved with the Internet.

As has been well-chronicled, 1999 was an unprecedented boom-time for hi-tech companies, particularly those involved with the Internet.

As has been well-chronicled, 1999 was an unprecedented boom-time for hi-tech companies, particularly those involved with the Internet.

And as world headquarters for this so-called new economy (and the nation's most flush VC firms), Silicon Valley obviously bathed in this prosperity.

Revenue numbers provided to PRWeek reveal, however, that Silicon Valley PR firms didn't enjoy as much of the spoils as might have been predicted.

In fact, compared to their bayside neighbors to the north, Silicon Valley agencies on average reported lower growth rates. For example, in 1999, San Francisco's top-ranking PR firms reported an average of 62% growth over 1998 income, while Silicon Valley's best shops only averaged 20% growth over 1998.

It seems that - despite all that press about rising retainers and turning away business - Silicon Valley saw its biggest growth spurt in 1998, not last year. The average growth rate for Valley PR firms in 1998 was 39%, 19 points higher than the 1999 average. While last year's top-performing agencies such as Strategy Associates, Edelman/Mountain View and McGrath Power more than doubled their income from 1997 to 1998, they saw more modest gains from 1998 to 1999 - 45%, 43% and 22%, respectively.

Explanations for this apparent slowdown in Silicon Valley PR momentum are numerous, not the least of which could be discrepancies in how agencies reported numbers from year to year. For example, Hill & Knowlton, which posted an astounding 526% growth last year, appears only in the San Francisco chart, despite its acquisition of Blanc & Otus, which has a robust, dollars 4.8 million, 45-person Silicon Valley branch. Similarly, other multinationals with triple-digit 1999 growth rates, like Fleishman-Hillard (which now owns two Valley tech firms) and Burson-Marsteller (which consolidated operations in the city last year), appear only on the San Francisco chart.



Growing pains

Even those Silicon Valley agencies and branches (e.g., Blanc & Otus/Mountain View, Alexander Ogilvy/Mountain View) that raked in the dot-com business, experienced the double-edged sword of working with that sector: quick bucks but volatility.

'Some agencies couldn't help but be hurt by volatility, either indirectly - these clients can be just plain distracting - or directly, with clients not paying their bills,' explains Lou Hoffman, CEO of The Hoffman Agency, a hi-tech independent.

Last year also marked the beginning of a new practice: agencies taking stock in start-up clients in lieu of part of cash fees. This puts a hit on short-term revenue with a potentially greater long-term upside - if the share price ever resurfaces, that is.

There's also the most obvious explanation for decreased growth rate: lack of bandwidth at most Silicon Valley firms. After such explosive expansion in 1998 and early 1999, many firms couldn't take on any more new business.

For example, according to EVP and GM Harry Pforzheimer, Edelman's Mountain View office turned away more than 300 clients last year. And with the labor market so tight, Valley firms had to fight tooth and nail to recruit talented staff - skyrocketing housing costs and horrendous traffic problems made it all the more difficult to lure people from outside the area.

'We have a saying here: 'build, and then you grow, and then build again.' For us, 1999 was a building year,' explains Cynthia Harris, president of Strategy Associates, a Foster City-based, dollars 2.6 million independent that slowed from 154% growth in 1998 to 45% last year.



Notable performers

That's not to say Silicon Valley lacked any standout agency performances in 1999. For example, Alexander Ogilvy, which has about 22 people in its two-year-old Mountain View office handling clients like iPIX and RealNames, increased its fee income 170% over 1998. Also, homegrown independent, Eastwick Communications, soared by 57% last year with both increased activity from longtime clients such as Adobe and Hewlett-Packard and the addition of several hot upstarts such as DoDots and Keynote Systems. And Foster City-based Strategy Associates, also a mid-sized independent with about 30 employees and a dollars 2.6 million annual income, boosted revenues by 45%, mainly by increasing services it could offer clients such as Vtech Information Systems and Perpetual Inc.

Other solid performers: Edelman's Mountain View office, which brought in about dollars 7.5 million last year from such clients as Apple, EDS, Verisign and PeopleSoft; and A&R Partners, adding 40% in fee income from new business such as Juniper Networks and increased activity from existing clients like Palm Computing.

Actually, most of the Valley's PR pioneers stayed on top of their games in 1999. For example, Miller-Shandwick, while nicked by the loss of Compaq last fall, still generated dollars 6.5 million in fees and grew by 19%. This was due in part to getting Hewlett-Packard's PCs division as a new account and getting work from Agilent, USWest and Extricity.

Similarly, the San Jose office of Copithorne & Bellows (which became Porter Novelli Convergence Group in January 2000) jumped 29%, largely due to increased activity by Hewlett-Packard's consumer business - a multimillion-dollar account - and by the addition of Qualcomm to its roster. Though the agency ended its relationship with some pieces of the HP pie - E-Services and business PCs - these losses occurred late in Q4.

HP also played a key role in the 24% growth of The Hoffman Agency, which took in dollars 7.8 million in fee income for 1999, partly due to its shared win with Cunningham Communication of the 'E-Services' division. In addition, Hoffman took on start-ups like Novalux and GlobalSight and pieces of business from 3Com and Quantum.

Even with such a robust economy and the wealth of new business opportunities, a handful of Valley agencies showed declines in 1999. Most notably, the fee income for number-one-ranked Cunningham Communication fell by 6% from 1998. The longtime Valley powerhouse (recently acquired by European Incepta) suffered several setbacks last year, including: client Infoseek's acquisition by Disney, Cisco's decision to pull its corporate account in-house and the loss of Novell, General Magic and Alphablox to other agencies.

Perhaps surprisingly, the Silicon Valley branch of Boston-based Brodeur Worldwide, PR Week's 1999 'Agency of the Year,' underperformed 1998's fee income by 10%. Obviously, the San Jose outpost was stung by Tyco's acquisition of client Raychem, as well as by the loss of Virat, Infineon and MIPS Technology, despite notable additions such as Novell, Hyperion, LSI Logic and 800.com. The decline can be traced to Brodeur's decision to move dollars 1 million of its work on the Phillips Electronics account to its Boston office.

Finally, KVO Public Relations, the Portland, OR-based hi-tech firm recently acquired by Fleishman-Hillard, also dropped a steep 28% from 1998. According to Silicon Valley GM Len Fillpu, the decline can be attributed to the agency's transition last year from an integrated marcom firm with direct mail and advertising services to one focused strictly on PR.

No matter what the 1999 numbers show, this year's agency picture will probably look completely different. First, with April's Nasdaq 'correction' and the subsequent cooling of the consumer dot-com sector, at least a few agencies have already taken a hit in 2000, and next summer's rankings are sure to reflect that. Agencies that loaded up on b-to-c plays, such as Alexander Ogilvy, Wilson McHenry and Neale-May & Partners, no longer represent many of the high-profile clients they landed in 1999.

Not that the VCs have closed shop; they're just redirecting funds toward the b-to-b sectors du jour: wireless, Internet infrastructure and broadband.

The traditional deep tech specialists, such as Miller-Shandwick, Cunningham and Brodeur will benefit from this trend, and other newcomers are sure to appear. For example, Voce Communications, a Palo Alto agency started this year by ex-Compaq account staff from Miller-Shandwick, acquired nearly dollars 2 million in business by June. Other emerging players include Trainer PR, Future Works and SparkPR.

Silicon Valley's PR scene likely won't dry up soon. A recent Industry Standard survey found 68% of venture-funded start-ups hire PR agencies.

'If just 200 new companies launch in Silicon Valley next year, at least 136 will hire PR firms,' Hoffman says. 'With the average annual client budgets here hovering around dollars 400,000, that's an additional outsourced PR opportunity of dollars 54,000.'

Looks like the beginning of another wild ride.

RANKINGS: SILICON VALLEY PR AGENCIES

Ranking   Agency Name              Audit        SV income ($)     Growth

99    98                                        1999        1998     (%)

1      1  Cunningham Communication        10,612,075  11,326,000      -6

2      2  Weber 1                          9,000,000   8,709,139       3

3      4  Porter Novelli

           Convergence Group               8,359,000   6,470,000      29

4      3  The Hoffman Agency 2             7,800,000   6,300,000      24

5      5  Wilson McHenry Company           7,800,000   6,426,000      21

6      7  Edelman PR                       7,551,191   5,290,482      43

7      6  Ketchum                          7,525,000   5,967,000      26

8     10  Eastwick Communications          7,400,000   4,700,000      57

9      9  Neale-May & Partners             6,400,000   4,900,000      31

10     8  Shandwick                        6,199,000   5,213,000      19

11    11  A & R Partners, Inc.             6,001,000   4,300,000      40

12   N/A  BSMG                             4,934,508         N/A     N/A

13    12  Walt & Company                   3,786,038   3,456,761      10

14    13  MCA-Moving Companies

           Ahead                           3,100,000   2,600,000      19

15    21  Alexander Ogilvy                 2,857,800   1,058,600     170

16    20  Strategy Associates              2,564,944   1,770,831      45

17    18  McGrath/Power Public

           Relations                       2,482,017   2,026,529      22

18    17  Sterling Communications          2,379,000   2,084,520      14

19    14  Brodeur Worldwide                2,197,000   2,445,000     -10

20    16  PRX Inc.                         2,080,629   2,130,153      -2

21    19  Tsantes & Associates             2,030,000   2,010,000       1

22    15  KVO                              1,720,000   2,400,000     -28

23    23  e21corp                          1,277,074     842,436      52

24    22  ShapeTechnology                  1,139,011     869,797      31

25    24  Dovetail Public

           Relations                         531,000     527,000       1

          TOTALS                         112,791,779  93,823,248      20

Ranking   Agency Name               Total income  SV%  Total income  SV%

                                             ($)                ($)

99    98                                    1999   99          1998   98

1      1  Cunningham Communication    23,379,560   45    20,437,000   55

2      2  Weber 1                     76,760,938   12    57,866,543   15

3      4  Porter Novelli

           Convergence Group         106,606,000    8    79,522,000    8

4      3  The Hoffman Agency 2         7,800,000  100     6,328,000  100

5      5  Wilson McHenry Company       7,800,000  100     6,426,000  100

6      7  Edelman PR                 213,445,000    4   160,692,000    3

7      6  Ketchum                    123,630,000    6   101,485,000    6

8     10  Eastwick Communications      7,400,000  100     4,700,000  100

9      9  Neale-May & Partners         8,500,000   75     5,100,000   96

10     8  Shandwick                  153,429,000    4    81,887,000    6

11    11  A & R Partners, Inc.         6,001,000  100     4,300,000  100

12   N/A  BSMG                       122,062,000    4   109,573,000  N/A

13    12  Walt & Company               3,786,038  100     3,456,761  100

14    13  MCA-Moving Companies

           Ahead                       3,100,000  100     2,600,000  100

15    21  Alexander Ogilvy             9,220,200   31    54,457,700    2

16    20  Strategy Associates          2,564,944  100     1,770,831  100

17    18  McGrath/Power Public

           Relations                   2,482,017  100     2,026,524  100

18    17  Sterling Communications      3,342,000   71     2,351,000   89

19    14  Brodeur Worldwide           42,349,000    5    33,580,000    7

20    16  PRX Inc.                     2,080,629  100     2,130,153  100

21    19  Tsantes & Associates         2,030,000  100     2,010,000  100

22    15  KVO                          7,623,300   23     8,800,000   27

23    23  e21corp                      1,418,972   90       842,436  100

24    22  ShapeTechnology              1,139,011  100       869,797  100

25    24  Dovetail Public

           Relations                     531,000  100       527,000  100

          TOTALS                     816,418,609   14   644,165,745   15

Ranking   Agency Name                   Location

99    98

1      1  Cunningham Communication      Palo Alto

2      2  Weber 1                       Palo Alto

3      4  Porter Novelli

           Convergence Group            San Jose

4      3  The Hoffman Agency 2          San Jose

5      5  Wilson McHenry Company        Foster City

6      7  Edelman PR                    Emeryville

7      6  Ketchum                       Redwood City

8     10  Eastwick Communications       Redwood City

9      9  Neale-May & Partners          Palo Alto

10     8  Shandwick                     Redwood Shores

11    11  A & R Partners, Inc.          San Mateo

12   N/A  BSMG                          Campbell

13    12  Walt & Company                Santa Clara

14    13  MCA-Moving Companies

           Ahead                        Mountain View

15    21  Alexander Ogilvy              Menlo Park

16    20  Strategy Associates           Foster City

17    18  McGrath/Power Public

           Relations                    Santa Clara

18    17  Sterling Communications       San Jose

19    14  Brodeur Worldwide             San Jose

20    16  PRX Inc.                      San Jose

21    19  Tsantes & Associates          Campbell

22    15  KVO                           Mountain View

23    23  e21corp                       Fremont

24    22  ShapeTechnology               San Mateo

25    24  Dovetail Public

           Relations                    Los Gatos

          TOTALS

SOURCE: PRWeek 2000 Agency Rankings Auditing: denotes a full audit or

review; compilation audit; unaudited statements approved by either the

CFO or CEO/partner. A random audit process will be used for agencies

providing unaudited figures 1 Weber subtracted from San

Francisco/Silicon Valley combined income of dollars 11,928,836 in 1999.

This means Weber in San Francisco billed dollars 2,928,836 in 1999 2

Hoffman 8 Figures restated upward to 6,900,000 on 2000 survey





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