REGIONAL FOCUS: San Francisco - Bay Area waits for the clouds tobreak. Competition is fierce among San Francisco PR firms in theaftermath of the tech wreck, with agencies vying to show higher-qualityservice and ROI

"It's incredibly important in this market,

"It's incredibly important in this market,

says Susan Butenhoff, president and CEO of Access Communications. "When agencies go into survival mode, they lower the risks. You need a certain sense of courage."

While it is vital for survival to secure new business, agencies work hard to avoid a losing investment. "Our goal is to make sure we are dealing with clients that have a solid business model, so we can stay with them as they grow,

says Mary Shank Rockman, president of MSR Communications. "We look for clients that have a sense of direction and vigor."

Diversity and flexibility

Agencies that have cultivated diverse practice areas in the tech-dominated landscape have often managed to ward off the worst of a downturn. Multinationals were quick to add on new practices to their local offices when the tech slide took hold.

"What we've tried to do is identify the sectors that are healthy, and go after them very aggressively,

explains Tim Johnson, MD of Golin/Harris in the Bay Area. He says that there has been a flurry of business among bio-IT companies, many of which have executives who were involved in the Human Genome Project. In general, biotechnology has been identified as a potential area for growth, not only by Golin, but by several other firms.

Burson-Marsteller's practice areas in the Bay Area include brand marketing, corporate and financial, technology, media, creative and public affairs; the firm has prioritized bringing experienced people from across the agency into the region. Dave Chapman, client managing partner for Burson in San Francisco, says diversity is a key to success. In fact, it might seem that companies with multiple practice areas will always have the edge over small firms. But Chapman says big firms deal with their own set of negative preconceptions.

"There's a constant fear of big agencies among clients that aren't monolithically large that they will get lost in the mix,

he says. "Nothing could be further from the realm of possibility, but it's a very difficult argument to make.

The firm actually rewards client leaders assigned in the agency based on client satisfaction.

Fleishman-Hillard, which is hiring again, is seeing its recently formed healthcare and public affairs practices start to take off, reinforcing the decision to increase the agency's local market potential. "My focus is on the quality of work we do, the people we hire, and not being dependent on one industry sector,

says Curt Kundred, SVP and GM of Fleishman.

Other specialized firms have also grown. Blattel Communications, which grew 14% in 2001 to $1.8 million, specializes in working with professional service firms like law firms and real estate. "When the dot-com tech boom was happening, we decided we were going to focus on what we were really good at,

says president Ellen Blattel.

Public affairs is proving a lucrative area for Singer Associates. So far this year, the firm has almost tripled its billings over the same period in 2001. "It's really satisfying to do well in a difficult economy," says Sam Singer, president. "When things are bad, it's easier to form long-term relationships with clients because you are helping companies that have difficult issues, and you're in the trenches with them."

Networking is still important

PR agencies are also seeking to create educational and networking opportunities for the industry in San Francisco. Heidi Bobzin, CEO of Ace Public Relations, together with contacts, created PRSA First Thursdays, a social gathering on the first Thursday of every month where corporate and agency people can meet and talk about industry issues.

FitzGerald created an opportunity for its client Forbes magazine to meet with industry leaders and offer an economic perspective. "Forbes is no different from any other publication. It's seen its ad pages decrease, so they asked us to help them put a fresh stake in the ground in the Bay Area to rekindle appreciation for what Forbes can deliver,

Berard says.

"It's more important than ever, because Forbes has the kind of subscriber list that enterprise software companies, in particular, want to get closer to."

Outcast Communications is holding a panel on globalization in late May, with possibly more to follow, including CEOs from clients and other companies.

"We were thinking there used to be more conferences for high-level CEOs to mingle with the press,

explains Caryn Marooney, cofounder of Outcast. "In the absence of that, there aren't as many good discussion grounds that aren't around a specific vendor. We are looking to dip our toes into creating this."

The future

In spite of everything, San Francisco is still an important market for PR firms to be in, and some new players have even entered the fray recently.

Bill Ryan, formerly a founder of the erstwhile dot-com giant Niehaus Ryan Wong, has set up Ryan Communications in the city.

McClenahan Bruer, a technology firm based in Portland, OR, has opened its first office in San Francisco this year. Greenough Communications has also opened its first office in the city, growing beyond its Boston and Denver bases.

Entering the market a little behind the dot-com curve actually helped some firms. PepperCom opened its San Francisco doors late in 2000, and dodged many of the problems of the local firms, with recent wins including ITT and Panasonic.

Cohn & Wolfe also launched its full-service offering locally in 2000.

"We were really lucky,

says Robin Kim, the office's CEO. "If we were in the market five years earlier, it would have been a great temptation to follow the money."

And Brodeur, thanks to its acquisition of FitzGerald, has now set up a base in San Francisco, phasing out the former Silicon Valley presence.

The PRSA will hold its 2002 international conference in San Francisco this November. Many hope the city's PR players will have a brighter story to tell by then.

The consensus at the start of 2002 was "It's getting better,

a mantra repeated in agencies and companies across the Bay Area.

Turning the page on the calendar to a new year seemed to offer a psychological lift, but clients have remained wary about launching new campaigns or starting new agency relationships.

Even firms that are seeing new business are only cautiously optimistic.

This year, Blanc & Otus (part of Hill & Knowlton) won solid accounts like OpenWave, but CEO Greg Spector says that there are still fewer clients to go around. "There continue to be great opportunities and companies calling looking for PR support, but as everybody knows, the competition is fierce across the board,

he says. "Traditionally, we would compete with agencies like us. Today, we compete with companies as tiny as Spark PR, all the way up to Porter Novelli and Fleishman-Hillard. Agencies are hungry."

Clients are under internal pressure to glean the same return on their PR investment, but with a reduced budget. No firm takes its clients for granted, knowing that competition is fierce, and billings are sometimes negotiable. Wilson McHenry was forced to close its doors, and other firms may follow.

Hard times have also created a new spirit among San Francisco's entrepreneurs and the heads of regional offices alike. Running a PR agency means focusing on the business objectives of clients, while attending to the firm's own strategies for staying ahead.

Breakdown of the rankings

Fleishman-Hillard tops the rankings, despite a drop of 21% to $22.8 million.

Hill & Knowlton is next with $20 million (a 19% downturn).

Ketchum is likely to be in the next clutch of agencies, although it remains unknown how much of its revenue was attributed to Silicon Valley, which was rolled up into San Francisco earlier this year.

Weber Shandwick Worldwide billed $13.6 million, but is a very different office than it was in PRWeek's 2000 rankings, when WSW had yet to join with BSMG, and was reporting revenues of $6.5 million. WSW has ironed out most of the regional issues, with the two Benjamin Group/BSMG offices now called Benjamin/Weber Shandwick - a moniker that will be phased out by year's end.

"The purpose is to make sure from the client's perspective that the Bay Area is a single geography,

explains Ellen Roeckl, EVP and GM of Benjamin/Weber Shandwick in the Bay Area. "It dawned on me that a bad economy is a really good time to merge organizations, because people are forced out of their silos."

The only agency in the top 10 to show an increase in revenues is Applied Communications, whose $10.4 million in billings represents a 7% increase over 2000. Applied is also one of only two independents in the top 10, the other being The Horn Group, which posted a relatively moderate decline of 7.6%.

Independent PR firms did comparatively better overall, with Schwartz Communications holding steady at $6.2 million, Switzer Communications with a 2.4% increase to $2.6 million, and AtomicPR posting a 39% boost to $1.8 million. Gallagher PR, another independent agency located across the Bay in Alameda, posted revenues of $5.9 million, a massive 49% increase from 2000.

Not that all large agency offices and non-independents showed declines.

Cohn & Wolfe's revenues rose 47% to $1.9 million, and Text 100 also showed an increase of more than 15% (although, its figures were aggregated with earnings from Silicon Valley).

Bite Communications, which is part of the One Monday Group, was one of the top-performing agencies across the country, with revenues increasing almost 53% from 2000. "In tough times, the thing you need to do is know what you stand for and what makes you different,

says Judy Wilks, Bite's US president. "You can trade on reputation and pedigree, but not on the name anymore."

Real estate and staffing

Reducing overhead has been critical to the survival of PR agencies in the region. The two biggest expenses - real estate and personnel - were most directly inflated in the tech bubble. As new accounts poured in during 1999 and 2000, agencies had to staff up to accommodate the new business. New bodies needed space, and offices grew in response.

When it all came crashing down, what was left was a lot of empty desks and floor space. Ogilvy closed an entire floor at its San Francisco base, while Porter Novelli has moved into the office of one of its subsidiaries, Interactive PR. Magnet Communications has combined its Emeryville and San Francisco offices in the city.

But while some firms have consolidated, others are taking advantage of the soft market to upgrade. LaunchSquad is expanding to new quarters south of Market Street, in an area with a high concentration of PR firms, including Access, The Horn Group, and Singer Associates.

The move is a sign that LaunchSquad has continued to do well in spite of the downturn - with revenues up 9% over 2000 - by focusing on client service. LaunchSquad is happy not growing, as long as it retains its core goals. "No matter what happens to us, we want to maintain a customer-service approach,

says Jesse Odell, cofounder. "Every client we work for is a reference for us."

Larry Kamer has set up Kamer Consulting in a space bigger than his new five-person team actually needs, thanks to a soft market. But good real estate alone is not the key to success. "It's a high-wire act,

says Kamer, who was previously with GCI Group following its merger with his former firm, Kamer/Singer. "When you go out on your own, you remember that the last client that comes through the door may very well be the last client to come through the door."

Layoffs were ubiquitous last year, with some firms letting staff go for the first time in their history. And while some agencies, like Hill & Knowlton, have been forced to lay off more staff in 2002, others are actually hiring. Access has hired four people this year. Text 100, Ketchum, and Fleishman have also been adding to their staff rosters.

Kate Messenger, MD of Ogilvy in San Francisco and Los Angeles, has been granting informational interviews to job hunters, for while she has no vacancies in her office, she wants to keep tabs on the market for future hires. Based on the caliber of job hunters she has seen, Messenger says senior people on both the agency and corporate sides are starting to look for new opportunities, even while they hang on to their current positions.

The trend in-house could be a problem for agencies, as their corporate partnerships are often supported by personal experience and relationships.

"There is no question that clients of all sizes are seeing executive turnover in the past few months,

she says. "I know for certain that a lot of our clients are seeing turmoil at the top, which makes everything a lot more unstable."

If senior leadership is moving on from the agency side, the problems can also be formidable for maintaining client relationships. "A low turnover is good for us,

says Bill Orr, MD of MS&L in San Francisco. "Clients value an agency relationship as long as the people around the table don't change."

Finding staff with real PR expertise may also be a challenge for tech agencies. During the boom, firms hired staff regardless of whether they had deep technology experience. "Right now, we are seeing a lot of talent out there who are not truly passionate about technology,

says Ryan Donovan, MD of Text 100. "A lot of them know how to get an article in USA Today, but not how to get a product review in Computer World."

What clients want: risk averse

What clients want, particularly those in the Bay Area's beleaguered tech sector, is simple: top-of-the-line account service with demonstrable ROI.

Some companies are hunting for a bargain, while others know the old adage that "you get what you pay for

is often borne out in service relationships.

The overarching theme among clients right now is caution. Reviews take longer, and it seems they are more frequently handled by third-party consultants.

"ROI is king,

says Tim Marklein, SVP and partner at Applied Communications.

"Measurement is critical, and there are a lot of questions about what value am I getting for my spending.

Marklein says that in some ways, client expectations have moderated. The goal for many companies is increasing sales, and productive media hits are more likely those appearing in relevant trade journals than in the general business press. "There is a lot less focus on buzz and brand, and more focus on sales and bottom line,

he says.

Budget constraints impact just about every client, regardless of industry, and show little sign of letting up any time soon. "The budgets are at the level they were in the early 1990s,

says Sabrina Horn, CEO of The Horn Group. "There is a lot of pressure to offer preferred rates."

Horn says the good news is that the VC firms her agency works with are starting to hire PR firms again. "It's an interesting trend, because it shows they anticipate having good news.

But even with good news in the pipeline, there is still a tendency for some firms to slash fees. "We see it in every competitive situation we are in,

Horn says. "The clients are torn because if they can get a good deal, they'll get a good deal."

Expectations remain high on the corporate side. "We pitch business with case studies to show what was being done with companies spending $30,000-$40,000 a month, compared to $15,000,

explains Gary Thompson, EVP and GM of Schwartz Communications in San Francisco. "You are not always sure that they are really hearing that. They think they can force you to work harder."

John Berard, EVP and GM at FitzGerald, says it takes proof of ROI in order to loosen the corporate purse strings. "Many of the smaller agencies that have survived probably have, as we do, a strong measurement component that allows clients to see the results of the work,

he maintains. "It is a huge success to get an additional $2,000 a month added to the budget. We need to show the ROI up front, before we can ask for additional funding."

FitzGerald's measurement tools, while not branded, are offered to all clients as a free service. "We feel it's worth our time investing in it to establish a long-standing relationship,

Berard adds.

Porter Novelli has implemented performance-based programs with such clients as Network Associates, in order to more closely link communications objectives to the client's business goals. The agency remuneration is tied to how well the firm meets its objectives. "It's back to basics, but much more focused,

says Rhonda Shantz, GM of Porter Novelli's local office.

There are other potential consequences to a slow economic vibe than those purely financial. Some PR firms have recognized that they run the risk of losing creative momentum if they stop offering clients riskier alternatives.

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