Signs that the technology sector may be on the slow road to
recovery have raised fresh hope among some tech PROs. But caution
remains the watchword, reports Andy Allen
Firefly's announcement last week of 11 job losses is just the latest
sign of the squeeze the IT recession has been putting on tech PR
agencies.
There has been similar news from agencies including Grant Butler
Coomber, which shed five staff in August - a loss it attributed to a
downturn in the tech sector - and Ogilvy PR Worldwide, which made ten
redundancies as early as January. Just this week, Edelman London's new
CEO John Mahony confirmed 15 staff were to go, with the tech practice
hardest hit 'In the current climate, the cost base was just too wide,'
he says.
Now, in the wake of 11 September, the outlook is darker than ever for
technology PROs. Or is it? Tech agencies are quick to stress their
health - prompting suspicions of bravado. After 15 months of gloom in
the sector, cynics may doubt PROs have much of their own good news to
communicate.
But markets rallied last week, even as Sun Microsystems made 4,000
redundant. And anecdotal evidence from within the industry suggests the
worst is over. Firefly MD Claire Walker says: 'There are CVs coming in,
but it looks like things are bottoming out.'
The factors that caused Firefly to shed staff make familiar reading for
others in Walker's position. There are fewer pitches taking place and
retainers are falling. Fee income at Firefly dropped 25 per cent during
a four or five month period and 16 clients cut back or ceased spending
altogether with the agency. Walker adds, however, that it has been
possible to pick up business even as existing clients chip away at
revenue.
WestLB Panmure analyst Simon Wallis backs this. He says the sector is
bottoming out and most managers have taken the measures needed. In his
view the industry was quicker to react than when recession last struck
in the early 1990s - namely in the form of shedding jobs and cutting
back on office space.
'Where an agency had three offices, they might now only have one. I've
heard of cases where management have had bonuses slashed or taken pay
cuts to save job losses.'
As a result, leaner agencies can look forward to sitting out that
downturn with confidence. But the industry's response hasn't just been
limited to cuts.
As Praxis PR account manager Mike Gonzalez says, with a number of tech
publications closing and national newspapers such as The Times scaling
down or dispensing with technology supplements, e-business has become
just another part of business and agencies have to tailor their
approaches accordingly.
Lewis PR CEO Chris Lewis believes larger agencies have adopted a harder
approach, cutting budgets at the hint of a recession. And the learning
curve continues. Lewis says current conditions have forced agencies to
realise the need for effective new business engines.
Within tech as a whole, not everyone has been affected equally. The
slide of dot.coms has been well documented - as has the demise of many.
High-profile survivors such as lastminute.com look even more remarkable
in the current climate. While there are hopes the wider recession has
bottomed out, most dot.coms have nowhere left to fall. As one tech PRO
puts it: 'There are hardly any left and those that are surviving aren't
expecting to turn in a profit for several years.'
Midnight Communications sold itself as a dotcom specific PR firm five
years ago but has felt the need to move to a more general business
model.
The agency still works with recruiter newmonday.com and has handled PR
for ISP UK Online, but now spends much of its time on techy non dot. com
clients, such as Adobe. Director Vicki Hughes admits the fee take in
dot.coms has slumped but says business has changed rather than declined:
'There are fewer dot.coms around now but the survivors are PR and
marketing savvy.'
Lewis says some are paying the price for a cynical attitude to buyers
that approached them with fresh faces and VC cash: 'The dot.coms weren't
very discriminating buyers,' he says. 'A lot were charged more than they
should have been. Those chickens are coming home to roost.'
More naive, at least with the benefit of hindsight, were the agencies
that became so entranced by the dot.com bubble that they accepted shares
in lieu of fees.
Firefly director Mark Mellor says he is aware of agencies taking share
options and finding themselves members of the 99 per cent club - the
ones that lost 99 per cent of the value of shares during the past 15
months.
Apart from that, telecoms, suffering from over-provision, and hardware
manufacturers dealing with a saturated market, have borne the brunt of
losses.
Among some of the tech giants, the slowdown has led to them
consolidating PR business with a single agency. Firefly has been the
victim of this process, with Liberate Technologies and Entrust deciding
to switch to a global agency.
But this creates beneficiaries as well. Text 100 International MD Glen
Goldsmith has won IBM, worth roughly £36m over the next two years
(PRWeek, 17 August). The brief was picked up when the firm consolidated
from more than 50 agencies to just three - the same move that forced
Ogilvy to cut staff.
One might expect Goldsmith to be the optimistic, but he insists: 'I
really can't see it getting better until next spring as we get the same
hammering the US took.'
While some in the industry can see the light at the end of the tunnel,
the market is far from bouncing back to the highs of last year and
caution will remain the watchword among agencies determined to ride out
the storm.
