Experimental Phase

NEW YORK Like many entrepreneurial ventures, comparison-shopping site Shopnik was born out of frustration. Shopping for a flat-screen television late last summer, Patrick Sarkissian found comparison shopping sites like NexTag hopelessly boring and unstylish. He imagined many urban, design-conscious consumers probably felt the same way.

At the same time, Sarkissian was working for Mazda in his day job as CEO of New York digital shop Sarkissian Mason. The vehicle-selector tool the shop created for the carmaker melded creativity with functionality as a way to sort through data. Sarkissian and his partner, Matt Mason, decided to apply the lessons from the Mazda project to create Shopnik, a new kind of e-commerce destination for high-end electronics and cars.

Sarkissian Mason, a 40-person shop, is one of several independent digital agencies exploring new ground by creating their own applications and media properties. Such projects outside the realm of regular billable client work can be a way for agencies to research new technologies, keep young employees motivated and, perhaps most importantly, explore new revenue opportunities beyond the strict pay-for-services model.

“There’s a frustration in being limited by clients,” Sarkissian said. “We’ll pitch ideas that are beyond the conservative tolerance of many clients. This is a way to have no other clients but ourselves. That’s when the best work happens.”

The moves are somewhat similar to efforts by more traditional agencies to provide creative outlets for employees. At WPP Group’s JWT, for example, creatives developed animated films around the poetry of Billy Collins that became the inspiration for an animated storytelling campaign for client JetBlue in 2006. And other agencies are exploring ways to create content outside of client work, with efforts such as Crispin Porter + Bogusky’s partnership with AmericaFree.tv and Droga5 and Smuggler’s ambitious effort to create HoneyShed.

“It’s different because we can actually make stuff,” said Michael Kantrow, managing director at Poke New York and a former executive at Margeotes Fertitta Powell and Euro RSCG. “We can make a product. We don’t just dream up ideas.”

For independent digital shops, non-client work is used as a test bed and a lure for employees. In many ways, they are embracing the ethos of Silicon Valley, specifically Google. Its celebrated “20 percent time” allows engineers to work on side projects. Several Google products, including Gmail and Orkut, are credited with originating during 20 percent time. A software design and development firm like 37signals has made this a key part of its business, working for clients but focusing on building proprietary Web services.

The idea of working on independent projects tends to appeal to younger workers, Sarkissian said. The core team of five that built Shopnik has stakes in it. “They’ll work harder and want to be part of something that’s outside of just the client realm,” he said.

What’s more, independent shops have the flexibility to explore new avenues that agencies within holding companies might not have. Tom Ajello, partner and creative director at Poke and a former executive at Omnicom Group’s Agency.com, said supporting non-client work simply doesn’t fit in the holding company model. Sarkissian, who worked at WPP Group’s Ogilvy & Mather, said an idea like Shopnik, which was developed in four months, would never come to fruition in a “traditional” interactive agency.

“The agency business is and always has been in solving a client’s problem around set parameters,” said Colleen DeCourcy, chief digital officer of TBWA\Worldwide, part of the Omnicom Group. “You’ve got a history of a financial model that’s set up to do that.”

Yet newer agencies are baking product development into their models, banking on some projects paying off as new sources of recurring revenue. At Poke New York, opened last June, several stand-alone projects are in the works. Last week, it rolled out SynchStep, an iPhone application that matches a user’s playlist to his stride, in effect making the body the navigational tool.

Greg Elliott, a user experience designer at Poke, started work on a custom MP3 player with an experimental interface while still a graduate student at the University of California at Irvine in late 2005. The end result was clunky and expensive to build, but the idea impressed those Elliott showed it to, including Poke executives during his interview there last summer. After joining, Elliott hooked up with other Poke colleagues to continue refining it, converting it from a stand-alone player to an iPhone application by hacking colleagues phones. A small team then formed to develop and brand SynchStep.

That kind of small-team development is essential to creativity, said Aaron Rutledge, a partner and technical director at Poke. He points to the creation of Twitter, built by a handful of developers over the course of a few weeks. And Google has proven the model can work quite well, even if it means creating a culture that embraces experimentation and acknowledges failures will be part of the process.

“They were all passion projects that addressed an issue,” Rutledge said. “Who knows how many thousand of them will never see the light of day?”

A side benefit of these independent projects is they can expose digital shops to new areas. SynchStep, for instance, let Poke experiment with new forms of navigation that will become more important as digital interactivity moves from a primarily computer-based activity to the real world. Blast Radius last year launched Sutori, a site for consumers to rate their brand experiences. They developed it using Ruby on Rails, a programming language known for letting developers build applications quickly at the sacrifice of more robust options. Similarly, Deep Focus is building a desktop application using Adobe Air, a platform introduced earlier this year.

The projects can become showcases that carry added weight with potential clients, shop executives said. While Sarkissian Mason hopes to turn Shopnik into a thriving business in its own right, it knows the site has proven an adept model for pitching e-commerce clients. It recently won work from Target, something Sarkissian directly credits to Shopnik for showing its chops at combining design and commerce.

The goal is to create a virtuous circle, in which client work feeds ideas that can live on their own, while independent projects inform client projects. At the same time, agencies can own intellectual property to license to clients and others. New York independent digital agency Deep Focus is working on several projects, according to CEO Ian Schafer, including a stand-alone digital media property and social networking applications. Such projects are critical if agencies are to figure out a better compensation model than selling their time, he said. Too often, agencies let clients take their best ideas merely in exchange for getting to pitch for the account.

“There are times we don’t get business, but then see the ideas we pitched out in the wild,” he said. “When that happens, it hurts. We’ve been burned one too many times.”

Combining client service with independent projects is a potentially powerful model, said Matt Dyke, a former planning director at DDB who recently linked up with executives from Naked Communications, Aegis Group and i-Level to form Analog Folk. Dyke saw the perils of agencies only creating applications for clients within the services model. At Tribal DDB, he helped create Monopoly Live, a real-life re-creation of the board game that used GPS-enabled cabs and mobile. The effort could easily have become a product in its own right, but the intellectual property rights to it were transferred to Hasbro, not its agency.

Analog Folk is working with clients, but it is following Google’s lead and earmarking one day per week to developing its own “communications products” with partners and on its own. For instance, it is helping to devise a social network platform for people who want to create private communities. It will share ownership in the product, which launches in the summer.

“There are so many ideas when you’re at an agency, you think, ‘That’s too big for a single brand,'” Dyke said. “If we have the ideas and the capacity to do it, why not have a go at it?”

The risk is that such projects will convince agencies they’re in a different business than they really are. Sarkissian said the biggest challenge is juggling how many resources should be put against Shopnik while the agency continues to grow. It has poured about $30,000 into a search marketing campaign for the site, which generates revenue through affiliate marketing networks.

At Poke, side projects like SynchStep are typically done on downtime, between client work. The pressure is always there to bill more hours on client work.

“At the end of the day, I’m not serving meals, but I’m in the services business,” said DeCourcy. “I’m paid to bring to the table what clients are asking for.”

Sarkissian sees product development as a key to keeping the agency’s DNA as an innovator, even if projects don’t grow into sizable businesses: “It takes courage to step outside the client mind-set and say, ‘We can do it ourselves.'”