Part 2 of a 2-part series on how the economy is affecting new and traditional
PR business models.
With no end to the economic slump in sight, many agencies serving small- and mid-size clients are retooling their service models to attract new business and keep client rosters
from shrinking. New species of firms are getting in the race to gobble up available work in all its forms.
The evolution is especially pronounced in the tech sector, where agency growth projections are down 20% compared to last year's unsustainable pace of 47% growth, according to
the Council of PR Firms.
Two weeks ago, Silicon Valley-based Evans Partners introduced "Evans A La Carte," a suite of services offered on a project basis, mainly for start-ups and clients suffering
budget cuts. The menu includes pick-and-choose items such as press releases, media training, product fact sheets and press/analyst tour bookings - plus PR plans clients can
implement themselves. The model is a tasty proposition for clients like John Landwehr, VP of marketing and business development at Reactive Network Solutions, a start-up
specializing in network security.
"We're taking product to market and we don't have a large budget," says Landwehr. "But with all of the activity in the press right now about the Code Red worm, we want to make
sure people are aware that [we have] a solution to the problem." Evans' one-shot media services are helping Reactive maximize a window of opportunity in the media, striking while
the iron is hot, he says.
The Virtual Solution
Also gaining popularity in the wake of budget cutbacks are "virtual agencies," the term for networked consultants who don't share office space [PRN, April 16]. The allure of
this model is its direct access to senior talent minus the overhead charged by brick-and-mortar shops. It's also an alternative for small clients who might otherwise end up as
guinea pig accounts for junior staffers at larger firms.
Claire Collins, PR manager with Woburn, Mass.-based nCipher (another Internet security company), shifted her business last spring from a large agency to the virtual consultancy
PerkettPR, which links seasoned staffers in Boston, Denver and Michigan. "Most of the people I'm dealing with at Perkett have 5+ years experience in high-tech communications, and
it's a pretty flat organization," she says. "I have just as much access to the CEO/owner as I do to someone who is classified as an AE in their book."
Virtual consulting groups, freed from the organizational hierarchies that govern larger agencies, have greater flexibility to mold themselves to their clients' needs. "We
wanted our agency to be an extension of our internal PR department - almost as if they were employees of our company - and that's happened," Collins adds.
Key Drivers
The most innovative agency hybrids are cropping up in the most volatile markets. Like technology, the automotive industry is undergoing major change in the wake of
consolidation. "Most agencies representing suppliers in the auto industry have been hit with scaled back or total loss of budget," notes Victor Pytko, a veteran with more than 20
years' experience in the automotive space.
Layoffs in Detroit have put fresh crops of seasoned communicators on the street as consultants, he notes. And yet, as new breeds of automotive suppliers enter the marketplace
- for example, wireless players hoping to break into the "telematics" business - there's renewed demand for PR as a means of driving visibility and credibility.
Pytko is hoping to capitalize on this post-apocalyptic climate with the introduction of RAMP Public Communications Specialists, a virtual outfit set to launch later this month
in Birmingham, Mich. The firm will offer traditional PR services but also will broker talent on behalf of automotive clients. In some cases, RAMP may even lease human capital
from brick-and-mortar agencies that are seeking to "maximize the billability of staff [through] short-term assignments from the outside," Pytko says.
Hunkering Down
Granted, not all corporate PR execs are clamoring to change agencies at a time when they're feeling fiscally vulnerable. The agency turnover rate in the U.S. has remained
constant, at about 18%, in spite of the economic decline.
"In a tighter economy, you do find that companies start evaluating everything," says Chris Boehlke, co-president of the tech shop Phase Two Strategies in San Francisco. But
greater scrutiny doesn't necessarily mean agency firing. "Many clients are saying to their agencies, 'we have choices to make. Help us be more prudent and understand where our
money will do the most good. . . what our priority objectives should be.'"
Where the Hatchet Falls
Agency revenues are an all-too-telling reflection of clients' financial health these days. The Council of Public Relations Firms reports that agency growth estimates have
dropped from 22% (end of 2000) to 11% (close of first quarter 2001). While revenue estimates for Q2 are still being finalized, Council President Jack Bergen expects further
reductions, with agency growth projections falling into the mid-single digits.
How are client budgets faring by category? Consumer marketing dollars are suffering the heaviest losses, while crisis management, employee communications and technology
budgets remain relatively unscathed. "A lot of [corporate PR teams] have already started taking over their corporate Web sites" and are retaining the budgets to do so, Bergen
observes.
(Contacts: Claire Collins, nCipher, 781/638-3102; John Landwehr, Reactive Network Solutions, [email protected]; Victor
Pytko, RAMP, 248/433-3514, http://www.ramppr.com; Chris Boehlke, Phase Two Strategies, 415/772-8417)