Analysis: Applied buyout represents the end of an era in tech PR

The sale of Applied's PR operation to Next Fifteen turned heads, many viewing it as another blow to tech PR. But to others, it was the right move for all.

The sale of Applied's PR operation to Next Fifteen turned heads, many viewing it as another blow to tech PR. But to others, it was the right move for all.

When Alan Kelly announced that he was selling his PR operation, not too many people were terribly shocked. Rumors had been swirling throughout the Bay Area and technology PR circles the week before, so when Kelly confirmed that he would be selling Applied Communications' PR business to Next Fifteen, there was little left to say. Some seemed disappointed that one of tech PR's strongest advocates for the independent agency was stepping back to focus on research and analytics. Others were a bit taken aback by the maximum price tag of $2 million, although Kelly insists that other components of the deal - such as debt relief and retaining accounts receivable - make the deal worth more than that $2 million indicates. But after the demise of Wilson McHenry and Niehaus Ryan Wong, and the sale of firms such as The Benjamin Group and Cunningham Communications, Kelly's peers are wondering what this latest turn of events means for the future of technology PR specialists. "I'd say that you can now make the case that with the demise of Sterling Hager and sale of Applied, we've witnessed the cannibalization or self-immolation of every technology PR firm from the big 1980s," says Phil Greenough, president of Greenough Communications. "It's an end of an era, and I wish congratulations to Alan for finding an exit this late in the game. As for the implications, it seems that [Next Fifteen] has a game plan not unlike the other conglomerates that are trying to capture the tech market. Putting dots on the map clearly has advantages, but with that improved reach, there are costs being passed on to clients somewhere along the line. Clients simply need to decide what is more valuable and at what price." Kelly's decision is merely a sign of the times, explains Horn Group president Sabrina Horn. What was a seller's market just three years ago is now a buyer's market. Horn says she wouldn't begrudge Kelly his decision, saying he had a good run, and now he wants to do something different. "He's the king of research, and that's his passion," says Horn. "One should always follow one's passion." Kelly is not alone in the issues he faced, says Sterling Communications president Marianne O'Connor. An end to the quick growth in the late '90s and the stubbornly high cost of real estate in San Francisco has put the squeeze on many firms, particularly when that growth and expensive office space is followed by losing key clients. Burghardt Tenderich, a former partner and SVP at Applied who left in April to become VP of PR at Siebel Systems, agrees that the sale of Applied reflects current market conditions. As mergers and acquisitions increase in the technology sector, don't be surprised to see more of the same. "Many professional-services companies were locked into expensive real-estate leases, and that did not give them the freedom to shrink and expand with the market," says Tenderich. "As the technology industry consolidates, the service industries that support it will consolidate as well," adds Horn. "It's a natural evolution. Markets contract and expand all the time. We're in a contraction mode. And some companies adapt better than others." Building up Bite While many questioned why Next Fifteen would acquire Applied, others see how it makes perfect sense. Many of the global holding companies bought tech firms in the late '90s simply because tech was hot and they wanted their piece of the pie. Now, as Tenderich points out, those acquisitions haven't paid off as the industry has cooled. While Next Fifteen talks about how its agencies - Bite and Text 100 - are focused on growing organically, the acquisition moves Bite from a boutique shop to a much larger player, if the clients and staff stay put. "This is a really good move for both companies," says Tenderich. "The individuals from both agencies will like each other." Anthony Sprauve, a former VP at Applied who left in June to join Starbucks as VP of worldwide public affairs, agrees. While he admits he felt sad upon hearing the news, he says the acquisition is rife with potential. "It was such a unique organization," he says. "But things change. The economy has changed, and this is a sign of how dramatically times have changed. "Bite is an outstanding organization, and the core of what Alan built will continue on," adds Sprauve. "It's a testament to Alan and the leadership he built that when people were having layoffs and shops were closing, Applied didn't do that. We had one small layoff. We continued to do well because the clients really understood what we brought to the table." The tech world lost more than another agency, explains Hoffman Agency president Lou Hoffman. What may be lost is the fervor Kelly brought to fighting for the independents. "I have incredible respect for Alan," says Hoffman. "He is one of the smartest and most capable people in the industry. He put his heart and soul into Applied. He built an incredibly successful organization. It's a sad day for the profession, particularly because of the advocacy and leadership he brought to the profession. And that's something that needs to come from the independent shops that aren't beholden to advertising holding companies that dabble in PR. Alan was the strongest and most interesting voice advocating the independent agency, and it's tough to see him go." If anything, perhaps Applied's fate heralds a new dawn for tech PR. Caryn Marooney, partner and cofounder of OutCast Communications, says the days of the Omnicoms and WPPs buying out tech specialists just to acquire an expertise are over. While holding companies will still be interested in buying tech agencies, the deals will be structured differently. And it will be more about building a business, not just acquiring an expertise, she argues. Nevertheless, faith in tech PR seems stronger than ever among those who practice it. Bob Angus, president and managing partner of A&R Partners, says he has always been bullish about the need for tech PR, and that people like tech marketer Regis McKenna are wrong. "I remember Regis McKenna saying PR is dead," says Angus. "It was just dead for him. I think PR is still very much alive and well, and the companies that are focused on that are doing well." But for tech PR to remain relevant, it must incorporate other aspects of marketing, like sales lead generation, argues Horn. Applied moved in that direction with its research and analytics division that attracted clients including Sun Microsystems, Cisco Systems, and Genentech. "If you look at the channels we typically work through, the media channel has shrunk tremendously," says Horn. "So we have to look to other forms of communications." Nothing went wrong There will certainly be plenty of armchair quarterbacking on why Applied's PR business went out the way it did. For those who wonder what went wrong with the agency, that's the wrong question to ask, says former Applied VP Steven Astle, who left the agency in May to become an SVP with FitzGerald Communications, running the agency's Silicon Valley office. "There were problems, of course," admits Astle. "Some will wonder how such a battered company could survive as long as it did. Over the last two years, Applied lost Oracle, Hewlett-Packard, and Veritas. All of those losses were unrelated to the economy. Any one of the losses would be a death knell for any other midsize agency. And Applied still ran profitably in the worst IT downturn. To me, the answer as to what Alan did right was the talent. Alan has a gift for identifying and retaining exceptionally talented people. In this era, it's so easy to take talent for granted. We shouldn't lose sight of the fact that we should never take talent for granted."

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