Ken Montgomery was working in Africa when the technology and dot-com market hit the wall. When he recently returned to head up corporate communications for Legal Knowledge Company (LKC), taking over the company's agency search in the process, he was shocked at how much had changed.
The company had come close to choosing a large agency, one that Montgomery had worked with in the past. "The one thing that was most interesting was how much they wanted the business, he says.
Wanted it so much, Montgomery says, that the agency offered to discount its services by about 50%, certain that when the company saw how well its account was executed, it would increase its remuneration. "One of the things that worried me was how they would be able to maintain it," Montgomery says. "They said they were sure we'd be happy with their service."
The agency did not win the business, which shows that price is not the bargaining tool. But Montgomery's experience offers a glimpse at how far agencies will go to win worthwhile new technology accounts.
Dramatic power shift
There is no telling if the new business landscape is more competitive in the technology space than other practices. But no other sector that has experienced such a dramatic shift in power. Tech companies no longer have to hope agencies will return their calls; they are overwhelmed by firms scouring for business.
Now tech PR firms are investing a whole new level of time, money, and other resources into prospecting, pitching and signing new clients. When an agency has cut back its staff, as so many have, it can be difficult juggling the needs of existing business with building a bigger roster.
Tech agencies are still evolving under the pressure, learning how to differentiate themselves in a hungry, crowded market. "An agency's ability to sell itself is not necessarily the same skills that produce great PR work, says Lou Hoffman, president of The Hoffman Agency. "I feel our strength lies in our ability to execute and drive results, and our sales skills are still evolving."
Hoffman says agencies are competing with a "vengeance, making significant investments in research, including primary research, and coming up with a huge range of creative approaches to the account.
The bottom line is agencies are spending more money to win smaller accounts, and it is taking a longer time to do it. "We went from the phone ringing off the hook with companies asking us to present in 48 hours to a process that takes weeks and even months, says Michael Busselin, technology chairman for Fleishman-Hillard.
Busselin estimates agencies now devote 10%-20% of their resources to new business, and that the cost of the average pitch has gone up between a third and 50% more to win an equivalent piece of business of a few years ago. (Although he adds that the cost of pitching a global account has not really changed.) "Even tiny pieces of business can include three to five steps from RFQ to RFP, followed by presentation and reference checking. We are spending way more time pitching way less business than two years ago."
At every step of the process, each agency has something to prove, including the depth and relevance of its tech knowledge, creativity, demonstrable ROI, and the viability of the PR firm itself. "There is more pressure on agencies to really understand not just the technology, but the business, says Steve O'Keeffe, partner with O'Keeffe & Company.
Stephen Jones, associate director of Ketchum's global tech practice, says the level of information agencies are expected to provide prior to being asked to present has dramatically increased. "The RFI has returned to the lexicon of PR, where 19-20 months ago it was non-existent, he says.
He recently participated in an RFI that got so specific that it was asking for staff compensation levels - proprietary information Jones would not provide. "It says just how exacting clients are, and how willing agencies are just to get in the door, he says.
Clients also want to know where they fit into the agency roster. This is helpful for firms to get an idea of the client's budget, but can occasionally cause conflicts when company's ask for specifics on other clients' budgets. PR agencies have been forced to learn how to respond to these requests without alienating the prospects or betraying their clients' trust.
Companies also want proof that the firm can do what it says it can, which sometimes means it expects a fully fleshed-out presentation as part of the pitch, or even before a presentation is invited. This is risky for PR firms, which can find they are giving away intellectual capital with no guarantees of a relationship.
"The advertising world has always grappled with the conundrum of delivering 'free creative' during an agency review, explains Hoffman. "Now we're seeing most PR agencies in the tech sector more than willing to share 'free creative' to win the deal."
LKC's agency search highlights one of the most contested issues in new tech business prospecting - that of competitive pricing. Among PR practitioners, there is no consensus about what constitutes unethical practices in aggressive pricing that undercuts competitors. There are also rumors circulating about prospects playing agencies off against each other to push prices down. Everyone talks about it, but no one admits to doing it.
"It is still a relatively new issue, explains Sabrina Horn, president of The Horn Group. "I think there are two camps. One is that we need to survive and will do anything we can, including discounting. The other view-point says that's all well and good, but by doing so we ultimately hurt and undermine ourselves, and then the whole industry's value goes down."
Between those two extremes is where many tech firms live, finding ways to work with limited budgets and high expectations. "Our firm will not lower rates because we are worth the same today as we were back then," Horn says. "But we can compete on outstanding price performance. We want to make sure our clients are happy."
Jonathan Bloom, McGrath/Power CEO, says being flexible on the bid is an option his firm will take in the right circumstances. "We will do this if it is a referral, or if we are passionate about the opportunity, he says. The problem with undercutting competitors, from his perspective, is if the agency does not meet its stated goals. "It is grossly unethical to arrive at a budget and not service it, Bloom says.
Flexibility is something clients will ask for, and agencies have found creative ways to help companies with their bottom line, particularly with venture-funded companies. "In the venture world, it's all about reducing burn rate, explains Darleen DeRosa, principal with InterActive PR. She says the more creative an agency can be about where in the fiscal year a client's spend will appear, the better it is for the client who has the budget restraints of a CFO or board to answer to.
Connect PR has found success with its fixed pricing structure. "If we don't do what we say we will do, we don't get paid, explains Neil Myers, president. For example, the agency may handle a press tour, charging $300 for each appointment the firm sets up for the client. If Connect secures only one appointment, the company pays $300 for the whole press tour.
If they get 10 appointments, the client pays $3,000, and so on.
Kerry McClenahan, agency principal of McClenahan Bruer Communications, says her firm still gets asked if it will work in exchange for stock.
"Our answer from day one has been, and always will be, no, she says.
Clients seek guarantees
The closings of Niehaus Ryan Wong and Wilson McHenry not only shocked tech PR agencies, it also caught the corporate side by surprise. Many potential clients want to know that the agencies they choose to work with will still be around to handle their business, even if the market does not rebound significantly.
That is why more companies are asking to see the financials of agencies, even those that are not publicly held. PR firms respond to this request in different ways. Text 100 is publicly traded, so some of its information is already available. But the agency does not break out revenue by region or market - and it will not make an exception on that for a prospect.
Bloom says that companies are reluctant to enter into long-term relationships with agencies because of bad past experiences. "We were in a new business pitch this week, where the company is having what they see as their most important product launch in their two-year history, and they have gone without a PR agency for four months, says Bloom. "They are actually considering doing it with a part-time in-house person, not yet hired, and an agency on a project basis."
Even when an agency wins business, contract negotiations can be protracted and difficult. "I started to see this getting more complex last May, Bloom says. "I had a new client in the telecom space, and the contract negotiation was worse than going to the proctologist. We were poked and prodded. Some tech companies want every contingency covered by the contract, including performance benchmarks, metrics, dates of deliverables, and sometimes even penalties for failure to deliver.
Bloom says the client's caution is understandable, but it does not always facilitate a good start to the relationship. "In the wrong setting, it can establish a contentious relationship. It's more of a shotgun marriage, he says. "With that one telecom company, the negotiation took two weeks.
It started things out with such a bad flavor, it really took a while to work through that."
Tech PR firms better get used to it, because clients won't be taking off their rubber gloves any time soon.
THE RISE OF THE CONSULTANT
Hiring a consultant to handle an agency review is nothing new. But more tech accounts than ever are being managed by third parties. PricewaterhouseCoopers has been running Nortel's agency review, suggesting that different types of consultants - those with a more financial bent - are getting in on the act.
"It's kind of a reality these days, says Sandra Moreland, MD of Ogilvy's global tech practice. Moreland says that in an industry that depends so much on chemistry between client and agency, having that intermediary can be difficult.
"I have mixed feelings about it, says Bob Angus, partner with A&R Partners.
His agency recently won another chunk of E*Trade's business, brokered by Mercer Island Group. "It removes the agency from having the interaction with clients up front, which can make it difficult to address specifics. Angus says that while a broker like Mercer Island offers a level playing field to all participating agencies, it can create other worries. "I have some concerns that clients are now finding agencies that are the best at business development, and at some price in PR capability."
Steve Boehler, founder of Mercer Island, has handled such companies as Microsoft and Adobe. He believes a lot of tech agencies have forgotten how to pitch new business effectively. "The better new business programs are run by people who had some experience finding new business before the great boom."
He adds that many firms still make rookie mistakes, like not following directions. For example, he often asks each firm to bring to the pitch staff from all levels of the account management. "As many times as I spell that out, someone in the final pitch will only bring the senior folks."