-By Noreen O'Leary

NEW YORK At its US Verge digital summit earlier this spring, Ogilvy & Mather announced the creation of a network of digital innovation labs committed to R&D for interactive applications like mobile, "video persuasion," gaming, location-based media, retail and out-of-home. With hubs in New York, Beijing, Singapore, Los Angeles, London and one planned for São Paulo, that global commitment is indicative of the increasing importance of technological development at advertising agencies.

"The focus is to develop solution applications that should impact the marketplace in the next 6-18 months," explained Jean-Philippe Maheu, chief digital officer, Ogilvy, North America. "They could come from addressing client needs but there are other opportunities where we may not have a client need. It may be for a customer need where we invest and develop a prototype and feasibility study and product demos to engage with clients."

The labs also offer a way to pursue new revenue streams, although Maheu emphasizes the real driving force behind their creation is the pursuit of innovation. The Ogilvy lab in Singapore has been operating for more than a year and has patents pending for applications developed there.

Among holding company chiefs, it was Martin Sorrell, CEO of Ogilvy parent WPP Group, who was most vocal about the huge shift under way after technology giants Google and Microsoft bought into the industry through the purchase of digital ad-serving networks a year ago. Even before then, marketing communications holding companies had set up R&D units to strike alliances with, advise and invest in emerging technology companies. WPP Group has WPP Digital; Publicis Groupe, Denuo; Interpublic, Futures Marketing Group with its IPG Emerging Media Lab; Omnicom, OMG Digital (NEXT Emerging Media Team); and Havas, its recently formed Havas Media Lab. There is no standard alliance model, with some companies, like WPP, making strategic investments in emerging technology companies and Publicis acting as a consultant in exchange for equity positions.

Among the agencies, there are varying degrees of immersion in technological R&D and collaboration. One of the more high-level efforts went public last month, when digital agency Organic introduced a new mobile application -- developed in conjunction with New York mobile networking start-up Socialight -- which allows users to share lists of favorite places to visit. Combining the functionality of local review sites with mobile social networking, Urban Mixtape has huge potential for marketers but, for Organic, its development didn't start with a marketer's brief.

Chad Stoller, executive director of emerging platforms at Organic, believes the next wave of social applications will integrate location-awareness services like Socialight's and he wanted hands-on experience in order to advise clients. Urban Mixtape was developed in just a couple of weeks with the Omnicom-owned agency and Socialight working together on the concept, design, coding and building of the application. The two share ownership of intellectual property.

"Every agency says they know this stuff, but you can't speak with conviction unless you're developing it. With geo-located services, Socialight gives us firsthand knowledge and expertise," he said, suggesting the project may provide a future working model for agencies. "As the value of advertising continues to be questioned, functionality will be a differentiator. A great ad gets attention. A great product gets users."

Rishad Tobaccowala, CEO of Publicis' Denuo unit, said agencies' involvement in developing new technological applications is a response to marketers seeking better digital reach and efficiencies.

"This is in recognition that clients are hungry for new ways to engage with consumers," Tobaccowala said. "They're asking: 'What are the other interesting engagement models that are scalable and have CPMs higher than $4-5?'" He added that social media and ad networks have CPMs of less than $1 while applications have high CPMs but don't scale.

In other words, the Internet currently offers lots of cheap, low-involvement inventory, like banner ads. On the other hand, applications like customized brand widgets are great with lots of engagement but little reach.

In Organic's case, Urban MixTape provides valuable insight into how users want to interact and use location-based applications. For three-year-old Socialight and its nascent business model, the effort provided marketing assistance and entrée to Omnicom marketers.

Going forward, some industry observers believe digital agencies may find themselves playing a strategic kind of venture capitalist role.

"It would be silly to say this will be the whole new business model, but what we've been doing the last 18 months is aggressively spending time with VC people," said Liz Ross, president, Tribal DDB West. "There's the obvious connection between entrepreneurs looking to monetize and marketers. The most exciting things being developed out there are not for the consumer but with the consumer."

Vincent Thome, a strategic planner at Tribal DDB, London, agreed. He said that with technology start-ups now cheaper and faster to pull off, the funding spotlight is shifting to more of a service model, where it's all about spotting the right idea at the right time and bringing it to market.

"Digital agency networks have strong assets to leverage in this new environment and building a venture offering or a partnership with a venture capital firm would create value for both parties," he said.