Spinning Agency Smarts Into New Revenue Streams

NEW YORK It has all the hallmarks of a Web 2.0 business. Tapping into the word-of-mouth phenomenon and user participation, Sutori.com lets users rate “brand experiences,” giving credit where credit is due and vitriol where it’s deserved. It was even written up by Mashable, a leading blog covering the Web 2.0 world, when it launched six months ago.

Yet Sutori.com is the handiwork not of 20-something Silicon Valley entrepreneurs, but Blast Radius, a Vancouver-based independent interactive agency. The shop created the site to apply its Web design and marketing expertise to its own creation. “Agencies are often forced into just the messaging and communications functions,” said Gurval Caer, Blast Radius’ founder and CEO. “They’ve forgotten the needs of the customer and what matters.”

The effort is one of several entrepreneurial projects percolating from agencies large and small. From ad servers and networks, to auction media software and mobile shopping tools, to consultancies and digital entertainment channels, shops are exploring new, higher-margin revenue opportunities in an effort to supplement the pay-per-hours model.

What’s driving the ventures? While the ease and low cost of entry into new digital media areas help, many agencies find their services model under pressure on several fronts as Google pushes advertising automation forward and clients scrutinize marketing spending closer than ever.

“Every [ad] company wants to figure out a way they get to a non-paid-for-hours model,” said Rishad Tobaccowala, CEO of Denuo, a new media consultancy. “A paid-for-hours model sooner or later becomes a how-cheap-can-we-get-it procurement model.”

Denuo is one of two attempts at new revenue streams Publicis is nurturing. Formed 15 months ago, the 24-person consulting firm is advising 20 startup firms on their ad strategy in return for stakes in the businesses. It is also consulting for over a dozen marketers, including General Motors, DuPont and Kellogg’s, on their digital strategies. Tobaccowala said it would be profitable this year on fees from clients, while it expects further rewards from its stakes in promising startups like out-of-home interactive specialist Reatrix, online video syndicator Brightcove and TV set-top box maker Sling Media. “My basic belief is if you want to attract innovative, entrepreneurial talent [for agencies], you can’t do that without entrepreneurial models,” Tobaccowala said.

Publicis is also betting up to $20 million on Honeyshed, the “QVC-meets-MTV” Web channel designed to celebrate “the sell,” being produced by Droga5. Rather than a services compensation model, Honeyshed, which will operate as a separate business, is taking a page from performance marketing and charging based on how many views brand content gets.

In most cases, however, independent digital agencies have led the charge by branching into software and beyond to find new revenue streams. Imc2, a Dallas independent digital shop, has spun out Enversa, an auction platform used by media buyers. Imc2 developed the technology for campaigns it ran for Procter & Gamble, but then realized it could offer it as a stand-alone product. Enversa was formed as a separate company last year, and several agencies have used it, according to imc2 president and founder Doug Levy.

The quintessential example of spinning off promising businesses is aQuantive. As Avenue A, the agency developed an ad-serving technology it spun out into a separate company, Atlas, in 2001. Three years later, it moved into the ad network business, using the user data collected by Atlas and the media-buying knowledge of Avenue A to create DrivePM.

The company now has “idea labs” in New York and Seattle that are looking at opportunities for new businesses. Staffers have already created applications that could at some point operate as stand-alone companies, such as Smartpox, a mobile technology for consumers to scan bar codes on ads, and Digiboard, a Web service for photo sharing.

“We have an advantage because being in the digital space, we’ve been inventing so much as we go along,” said Brad Aronson, evp, product development at Avenue A/Razorfish. “It’s in our DNA.”

But others advise caution. “Just because you make pizzas doesn’t mean you should go into the doughnut business because you work with dough,” warned Bant Breen, president of IPG’s Futures Marketing Group.

Imc2 learned this last year from a product initiative that flopped. It developed a tool for measuring brand impact of Web sites that it sought to sell directly to agencies and advertisers. But the agency abandoned the effort once it realized the software sales process was outside its expertise, an experience Levy said convinced him to completely spin out Enversa.

Despite his reservations, Breen sees opportunities for new businesses within the IPG fold that aid the evolution of its marketing services mandate for the digital age. “We have all these creative thinkers and customer insights,” he said. “They should be fertile ground for incredible new [business] ideas to blossom.”

Other traditional shops are exploring new ways to make money from their expertise. WPP Group’s JWT this month launched an e-commerce site, JWTIntelligence.com, to sell its market research. JWT CMO Marian Salzman said the site has promise for finding new revenue streams to fund initiatives. “You can launch it with a budget of less than $50,000, and you can test alternative models,” she said.

Imc2’s Levy, whose prior enterprises include a discount textbook business, is not sanguine that large agencies can conceive new business ideas, because they are too far from their entrepreneurial roots.

“The massive general agencies are more focused on maintaining the way things are than creating,” he said. “Independent shops put more energy into creating. That’s manifested through not only new accounts and new offices but also new business models.”