MARKET FOCUS: SAN FRANCISCO - San Francisco’s moment of truth. San Francisco has a PR market to envy, not to mention skyrocketing costs, a revolving-door labor pool and hyperactive account churn. Aimee Grove reports

As the epicenter of Internet enterprise and home to many of the world’s corporate leaders, it’s not surprising San Francisco has emerged as one of the most fertile PR markets in the country. While the city’s total PR fee income may still lag that of New York and Washington, DC, San Francisco firms generally command higher retainers and pay heftier salaries than any other US city. Amazingly, PR fee income at Bay Area agencies grew an average of 62% last year (compared to a national average of 28%), in PRWeek’s annual agency rankings.

As the epicenter of Internet enterprise and home to many of the world’s corporate leaders, it’s not surprising San Francisco has emerged as one of the most fertile PR markets in the country. While the city’s total PR fee income may still lag that of New York and Washington, DC, San Francisco firms generally command higher retainers and pay heftier salaries than any other US city. Amazingly, PR fee income at Bay Area agencies grew an average of 62% last year (compared to a national average of 28%), in PRWeek’s annual agency rankings.

As the epicenter of Internet enterprise and home to many of the

world’s corporate leaders, it’s not surprising San Francisco has emerged

as one of the most fertile PR markets in the country. While the city’s

total PR fee income may still lag that of New York and Washington, DC,

San Francisco firms generally command higher retainers and pay heftier

salaries than any other US city. Amazingly, PR fee income at Bay Area

agencies grew an average of 62% last year (compared to a national

average of 28%), in PRWeek’s annual agency rankings.



There is, however, a dark side to these boom times. Account churn, a

shortage of talented execs and skyrocketing expenses are just a few of

the clouds gathering over the Golden Gate. Added to the recent rash of

PR-bashing press, the stock market’s volatility and Wall Street’s

increasing skepticism toward the consumer e-commerce sector, San

Francisco’s hi-tech-happy PR market could be on the eve of a major

shake-up.



Certainly, 1999 proved a banner year for San Francisco PR. While the

area has long been home to a number of Fortune 500 corporations and

world-famous brands - Levi Strauss, Visa, Chevron - many of these

companies either handle PR in-house or have used the same agencies for

years. All of the real action last year came from the start-ups. With

venture capitalists urging entrepreneurs to sink cash into marketing

efforts, Bay Area agencies with any hint of consumer or Internet

experience became hot commodities.





The rising cost of SF PR



But while Intel and Cisco still handle most of their PR in-house, plenty

of other hi-tech giants, including 3Com, Oracle, Sun Microsystems and

Hewlett-Packard employ scores of agencies for corporate and project

work. One-time marquee accounts now have to compete for PR talent and

agencies with cash-flush start-ups offering equity and sex appeal. These

factors have sent PR costs spiraling.



Top-tier San Francisco firms now rarely take clients for retainers less

than dollars 35,000 a month. And that number can reach dollars 50,000 or

more, simply because that’s what the market will bear. Salaries have

risen for the same reason. On the agency side, account managers with

only five years of experience command salaries from dollars 80,000 to

dollars 100,000; on the corporate side, PR managers with two to three

years of agency experience can win salaries close to dollars 90,000.



’It’s absolutely crazy right now. Recently, I had a candidate who had

five years’ experience with a mid-size company, and she landed a

position paying dollars 130,000 with a signing bonus of dollars 18,000,’

reports Rene Maler of High Tech Connect, a Bay Area executive placement

firm specializing in hi-tech PR and marketing professionals.



In addition to the astronomical salaries, PR firms also grapple with the

cost of doing business in San Francisco. With dot-com entrepreneurs

snapping up every available corner in the city, office space is at a

premium, and rents in the desirable SOMA area have more than doubled to

dollars 50 to dollars 70 per square foot, with vacancy hovering at

around 1%.



High prices did little to stem the SF gold rush, however. A slew of

national agencies (Ruder Finn, Middleberg + Associates, Cohn & Wolfe,

BSMG, Weber Group, PR21, Ink), as well as several California-based shops

(Deen & Black, Cunningham Communications, Sterling Communications),

opened outposts here in 1999.



Others simply bought their way into San Francisco. Most notably, Hill &

Knowlton, which brought in only dollars 2.7 million in fee income in

1998, jumped to second place in PRWeek’s rankings of SF agencies with

its February acquisition of Blanc & Otus, which accounted for more than

70% of H&K/SF’s whopping 526% increase.



Similarly, last year’s fourth-ranked Fleishman-Hillard jumped to number

one with dollars 19.2 million, due in part to the business it gained

with last spring’s purchase of UpStart Communications. Along with

increased work for Nortel Networks and SBC/Pacific Bell, Fleishman grew

171% over 1998.



GCI Group was also a winner in the merger game, adding Kamer-Singer, a

well-regarded issues management/public affairs firm, to its stable last

February, which helped boost income by 129%.



Some of the fastest organic growth (not fueled by acquisitions) was

shown by agencies fairly new to San Francisco. For example, FitzGerald

Communications, a Cambridge, MA-based firm that opened here in late

1997, increased revenue 132% to dollars 2.9 million last year.

Positioning itself as ’Advocates of the New Economy,’ the hi-tech

independent managed to recruit Fleishman-Hillard’s John Berard and wrest

a handful of major accounts away from leading agencies.



Ruder Finn, which established an office here in late 1998, grew to

dollars 1.8 million and picked up clients like Seagate, Ricoh and

Women.com within its first 12 months. Manning, Selvage & Lee, which

relocated to the city from Silicon Valley in mid-1998, also grew by

114%, largely because of work with eBay, General Mills and Kaiser

Permanente.



The only PR firm in the rankings whose income actually shrunk last year

was one of the few to duck the dot-com wave. Torme & Co. EVP Deborah

Lauricella says her 12-person agency made a conscious decision to stay

true to its original focus on food, consumer packaged goods and

non-profit accounts.





Alternatives to tech



’We did not jump on the hi-tech bandwagon, because if you are not one of

the big agencies, you have to worry about when and if the bills are

going to be paid,’ she explains, noting that Torme also lost a number of

its junior-level staff to Internet start-ups last year, a factor in the

firm’s 14% decrease in revenue from 1998.



The dot-com talent drain hindered growth for even some of the hottest

hi-tech agencies. For example, The Horn Group and Alexander Ogilvy, both

of which have stellar reputations within the tech start-up market,

showed relatively modest gains over 1998 for this reason (26% and 17%,

respectively).



An even uglier truth that few like to discuss is account churn. In San

Francisco, it is not uncommon for a start-up to have worked with up to

three different PR firms before its first birthday. Oftentimes, accounts

are shifted because of a VC’s influence or when a new marketing director

arrives. On the other hand, with so much new business looming, agencies

are more likely to give clients the boot - especially those that become

difficult or balk at rising retainer rates.



’Budgets and retainers have increased, and this year we did have to part

ways with some of the companies on our client roster because the work we

were doing was not worth the retainers they could pay,’ admits Alison

Wertheim, GM of Edelman’s San Francisco office.



Perhaps burned by such account turnover, more and more agencies that

once thrived on launching start-ups are starting to consider ways of

growing these clients into major corporations - and long-term

relationships. That’s one way to explain the recent rush by SF tech

agencies to add IR expertise.



FitzGerald Communications, GCI and The Horn Group, for example, have all

recently hired senior-level IR directors.



Also, some of the major multinationals are actually looking beyond

hi-tech for the next hot spots. For example, since January,

Burson-Marsteller, Fleishman-Hillard and Porter Novelli have all made

significant hires to beef up their healthcare practices.



No matter what happens in the new millennium, San Francisco’s PR players

are prepared to keep the ball rolling. And nobody’s taking the windfall

for granted anymore. Alexander Ogilvy EVP Holland Carney sums up the new

attitude this way: ’Anyone who could tie their shoes could grow last

year. The question now is, can you grow smart?’





SAN FRANCISCO GIANTS: TOP 30 PR AGENCIES


Rank      AGENCY NAME                   SF Fee Income (dollars)   Change

99   98                                      1999          1998        %

1    4    Fleishman-Hillard*           19,201,000     7,076,000      171

2    16   Hill & Knowlton**            16,743,000     2,675,000      526

3    2    Burson-Marsteller            16,528,000    11,663,000       42

4    1    Ketchum                      15,594,000    12,809,000       22

5    8    GCI Group***                 12,170,887     5,323,170      129

6    3    Niehaus Ryan Wong             9,527,544     7,731,041       23

7    6    Access Communications         9,069,000     5,897,000       54

8    7    Golin/Harris                  7,730,563     5,400,000       43

9    5    Alexander Ogilvy              7,420,300     6,341,800       17

10   11   Edelman                       6,640,108     4,191,136       58

11   13   Applied Communications        6,299,000     3,598,000       75

12   9    BSMG                          6,009,246     5,272,000       14

13   12   Phase Two Strategies          4,969,980     3,648,958       36

14   10   Morgen-Walke                  4,538,897     4,400,887        3

15   14   The Horn Group                4,485,000     3,566,000       26

16   15   Porter Novelli                3,892,000     2,868,790       36

17   22   Manning, Selvage & Lee        3,682,000     1,722,000      114

18   21   Interactive PR                3,600,000     2,100,000       71

19   17   Incepta (Citigate

          Dewe Rogerson)                3,445,547     2,603,000       32

20   N/A  GlobalComm Group              2,982,199           N/A      N/A

21   24   FitzGerald

          Communications                2,853,675     1,227,934      132

22   19   Publicis Dialog               2,800,000     2,164,000       29

23   20   Solem & Associates            2,453,697     2,103,062       17

24   34   Antenna Group                 2,357,966       230,824      922

25   18   Torme & Co.                   2,010,876     2,345,127      -14

26   37   Ruder Finn****                1,830,000        64,000     2759

27   26   Switzer Communications        1,775,000     1,011,000       76

28   28   Lois Paul & Partners          1,441,875       967,022       49

29   25   The Mackenzie Agency          1,300,000     1,100,000       18

30   27   Blattel Associates            1,300,000       980,000       33

          Totals                      179,311,195   110,848,927       62



Rank      AGENCY NAME           US Fee income   SF%   US Fee Income  SF%

                                    (dollars)             (dollars)

99   98                                  1999    99           1998    98

1    4    Fleishman-Hillard*      181,152,000    11    136,272,000     5

2    16   Hill & Knowlton**       138,140,000    12    113,000,000     2

3    2    Burson-Marsteller       164,850,000    10    142,815,000     8

4    1    Ketchum                 123,630,000    13    101,485,000    13

5    8    GCI Group***             65,511,850    19     44,539,245    12

6    3    Niehaus Ryan Wong         9,527,544   100      7,731,041   100

7    6    Access Communications    10,500,000    86      6,800,000    87

8    7    Golin/Harris             55,100,751    14     48,500,000    11

9    5    Alexander Ogilvy         92,220,200     8     54,457,700    12

10   11   Edelman                 128,174,735     5    101,868,218     4

11   13   Applied Communications    8,199,000    77      4,093,000    88

12   9    BSMG                    122,062,000     5    109,573,000     5

13   12   Phase Two Strategies      5,612,011    89      4,102,048    89

14   10   Morgen-Walke             25,895,289    18     23,143,604    19

15   14   The Horn Group            6,736,000    67      4,615,000    77

16   15   Porter Novelli          106,606,000     4     79,522,000     4

17   22   Manning, Selvage & Lee   62,628,000     6     50,173,300     3

18   21   Interactive PR            3,600,000   100      2,100,000   100

19   17   Incepta (Citigate

          Dewe Rogerson)           23,509,066    15     23,514,000    11

20   N/A  GlobalComm Group         20,775,481    14     15,907,100   N/A

21   24   FitzGerald

          Communications           13,400,000    21      8,900,000    14

22   19   Publicis Dialog          23,505,716    12     11,403,700    19

23   20   Solem & Associates        2,453,697   100      2,103,062   100

24   34   Antenna Group             2,357,966   100        230,824   100

25   18   Torme & Co.               2,010,876   100      2,345,127   100

26   37   Ruder Finn****           53,408,000     3     45,601,000   0.1

27   26   Switzer Communications    1,775,000   100      1,011,000   100

28   28   Lois Paul & Partners     16,243,872     9     13,521,975     7

29   25   The Mackenzie Agency      1,650,000    79      1,390,000    79

30   27   Blattel Associates        1,300,000   100        980,000   100

          Totals                1,449,401,607    12  1,145,560,020    10

*includes Emeryville office/Upstart Communications

**includes Blanc & Otus

***includes Kamer-Singer

*** opened late 1998 Weber and Text 100 SF offices were unable to

breakdown income figures Source:PRWeek Agency Rankings 2000.



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