re ad agencies becoming obsolete?

A growing number of technology companies think so. They are bypassing or abandoning ad agencies to sign on with tech-savvy PR firms. For them, it’s a simple equation: big returns on small investments.

“PR is appreciably less expensive than advertising,” says Steve Cody, managing partner at PepperCom, New York. “PR gives clients a bigger bang for their buck. Successful public relations establishes credibility and awareness in the financial community, the business-to-business community and among consumers. You have a better chance to tell your story through public relations than advertising. An article in The Wall Street Journal, Barron’s or Forbes tends to carry more weight than advertising.”

Don Middleberg, chairman and CEO of New York-based Middleberg Euro RSCG, offers clients the following advice: “If you don’t have $10 million to spend on advertising, you’ll get a better return with CDs. But a $500,000 PR program buys you a huge amount of clout. To say nothing of a $1 million program, which is very high in PR terms.”

As a means of building credibility among industry analysts and venture capitalists looking to fund technology startups and young companies, PR is without peer, argue Cody and Middleberg. High-tech PR specialists are more adept than ad agencies at navigating that territory, they say.

“The Internet is not about themeline; it’s not about images. It’s about content and credibility,” says Cody. “That’s where PR stands out. It’s far better than advertising.”

Before releasing any PR messages, Cody takes a client’s product to the technology analysts. “We go to Gartner or Forester first,” he says. “We’ll get those analysts to talk with [the business press].” The analysts are like a third-party endorsement, Cody explains. They enhance credibility. “They’re dispassionate outside observers who provide insight to reporters.”

To build credibility among consumers, however, nothing beats word of mouth, argues Andrea Cunningham, CEO of Citigate Cunningham, a PR firm based in Palo Alto, Calif., specializing in high tech. “It’s probably the most important factor in selling a technology product,” she says. “If you don’t get the early adopters signed up, you’re not going to survive. And that’s what PR firms do.”

But Cunningham recognizes the value of advertising in the marketing mix for technology products. “You still need advertising and PR—they’re both necessary,” she says. “PR firms choose to send their clients’ messages through editorial coverage and opinion-molding media. But clients now require an integrated approach to their marketing and communication and international reach. That’s why big ad agencies are buying PR firms.”

For the many high-tech companies that need venture-capital funding, PR firms familiar with that process can help their clients secure the required visibility, says Aedhmar Hynes, North American president of San Francisco-based PR firm Text 100. “Technology startups and pre-IPOs look for a PR agency to help craft their message, to distinguish them in their industry and to make sure the public understands how they’re different,” she says.

Text 100, like other high-tech PR firms, has a knowledgeable staff that keeps up with the latest developments in technology. “All the people who join our company and progress in the organization have a passion for technology,” Hynes says. They also have a better grasp than their ad agency counterparts of industry trade and consumer publications, have established contacts among the editors and know what constitutes news, she says.

“Public relations is a relationship business,” says Jordan Chanofsky, CEO and founder of Fusion Public Relations, based in New York. “We work with editorial people, radio and TV production people and industry analysts. We help develop credible, objective articles, translate techno-babble to make it comprehensible to the layman and end-user and explain the [product’s] benefits. But we also talk to engineering and technical folk. Our job is primarily educational.”

As all PR firms do, Chanofsky’s shop sends out press releases and product announcements, but he cautions his staff not to rely too heavily on them. “How thoroughly do you read every press release you get?” he asks. Instead, Chanofsky builds a PR campaign, as do others, with additional tools.

“We sit down with reporters one-on-one, and explain the technology behind a product,” Chanofsky says. “We also do white papers, customer case studies. These are the areas where we can get the most coverage and the most accurate material into the media.”

Indeed, a theme echoed by many PR industry execs is the graduation of public relations from a secondary tactical role in marketing to full strategic partnership in the marketing process.

“PR firms are strategic partners with the client, a major change in the industry,” says Middleberg. “A constant lament of the old-time PR people was that they were never appreciated by the CEO. But that’s not the case today, particularly with the big dot-coms.”

The dot-coms and technology companies understand that hot new marketing methods are evolving on the Internet—and many have been quick to exploit them. But nobody yet believes the Internet will entirely replace print and broadcast media. What is being replaced—slowly but inevitably—is the distinction between PR firms and ad agencies.