Sometimes to grow a business you’ve got to expand the boundaries. That’s exactly what PR firms have been doing over the last few years.
Just this week Richard Edelman embraced paid media — a smart move because the PR trend is moving in that direction. I agree with him. Successful digital promotions strategies will incorporate a combination of both earned and paid but also owned and shared media tactics.
To those that are editing out PR from their titles, I’d advise caution, because this isn’t about PR looking more like marketing, instead, it’s about marketing looking more like PR. Agree or not, surely we can find common ground in the fact that the changes are happening are in an effort to grow. That’s why we are in business.
Service firms add software tools, while tool vendors add services
Over the last several years, I’ve worked for a vendor that develops tools for PR pros. What’s always caught my attention is when PR firms launch tools. PR firms have long developed, promoted and trademarked methods and processes as points of differentiation, but developing software? This is relatively new.
On the other side, I’ve increasingly notice vendors beginning to offer services. Pick your favorite vendor and dig around on their website a bit and you’ll notice a lot of them are offering services — a set number of hours at a given price. That sounds to me like billable hours.
Many of the customers are downstream because vendors simply cannot compete upstream with the talent, organization and network of a professional agency. On the other hand, I tend to think the same way about services companies competing with technology companies with an R&D budget — and the experience of software development.
Even so, we’ve seen this happen before — I recall in 2003 or 2004 when VoIP was hitting it’s stride. You couldn’t pick up the printed edition of a newspaper back then without seeing a headline for Vonage. Today, the song from it’s TV ad campaign will stick in your head: Doot. Doo. Doot. Doot. Doo.
The Vonage era was merely an indication of a much larger trend: Cable companies were getting into the telecom business while telcos were getting into a line of business that traditionally belonged to cable companies. The increased competition benefited the consumer — you could gain internet access two ways. A duopoly replaced the monopoly. Two is better than one, isn’t it?
The last mile
As the markets became saturated in the densely populated areas, both types of providers — cable and telco — began looking for new markets: first, expand the offering, then expand the geography. The telco trades and marketers alike referred to this as “the last mile.” It’s hard to push digital packets in rural areas; so wireless got a lot of play, but those that bet on wireless bet too soon.
Stay with me, I’ll get back to the PR business in a second, I promise.
I once bought stock in one of these companies — Aether Systems. Over the years it reinvented itself several times over and wound up selling mortgage-back securities. Like, huh? Okay. Make me some money. Then 2008’s housing bust showed up. Whoops. I lost track of the firm when the shares held in my trading account switched to null; I can’t remember or not if it went bankrupt or was acquired.
Back to PR. We’re hardly at last mile for PR firms, but they are expanding geographically, and I’m pretty optimistic it will play out much differently. It’s a $10 billion industry, but the corporate spend isn’t included in those numbers. I bet it’s 50% more than that — and agencies, whether they realize it or not, compete against software tools for the kitty. How do I know? Do some rough math on PR software sales, or even those $1,200 press releases some vendors charge.
Who spends a grand on a press release these days? That’s insane. And it’s a disservice to the customer.
But things have changed and the content arms race bodes well for service providers. Further, these firms are making moves in markets that are mature and in need of such services.
Case in point is Raleigh, North Carolina, where earlier this week, Ketchum acquired Capstrat, and though the firm wasn’t ranked in the 2011 Triangle Business Journal’s Book of Lists for PR firms that I reviewed, it’s positioning in a different space. It was ranked — at #2 — on the Business Journal’s list of Advertising Agencies with 98 employees and $23 million in 2010 bookings.
I’ve been fortunate to have talked to dozens of people in Raleigh willing to give me a few moments on the phone this past week (thank you) — everyone knows Capstrat, MMI, and French | West | Vaughan. Though it’s doubtful they’d put themselves in a PR class, Ignite Social Media, is apparently killing it. That’s the word on the street, anyway; they do have a very good blog.
Ketchum is owned by Omnicom (NYSE: OMC) a holdings company that also owns Fleishman-Hillard, which is the only other PR firm in the Big 10 that has an office near Raleigh. Terms of the deal were not disclosed, though Ketchum’s CFO Rob Lorfink told PRWeek the firm earned $14.2 million in revenue in 2011 — a 20% increase over the year prior.
In a blog post about the deal, Capstrat’s President Karen Albritton wrote the acquisition was good for her firm, which has been in business for 12 years. “I get to work for one of the best agencies in the world, and I don’t have to leave a place I love,” she wrote.
“Like the Dulles Tech Corridor in Northern Virginia, or Boston’s Rte. 128, Raleigh is under-recognized because it stands in the shadow of San Francisco and New York.”
Prime Real Estate; Prime Time
Raleigh, with its Research Triangle Park (RTP), is a thriving technology center, including bio-tech, however, until recently, the big firms haven’t shown much interest. Like the Dulles Tech Corridor in Northern Virginia, or Boston’s Rte. 128, Raleigh-Durham is under-recognized because it stands in the shadow of San Francisco and New York.
However when I stepped off a plane from DC on a new business pitch in RTP circa 2004, while working for a small agency in Northern Virginia, it was easy to see the vibrance of an up-and-coming region. Recently, a PR native, who is very active in local professional organizations, tipped me off in a phone conversation that of the Big 10, only Fleishman had an office in Raleigh. However, new firms crop up almost every day. It’s hard to keep track of them all he noted.
Like the rest of the country, the last few years have been rough on the area but things seem to be picking up — unanimous according to my contacts. Data corroborates the belief: Unemployment in Wake County, where Raleigh is located, is 7 percent which is two percent lower than the state average. Other counties nearby track with similar numbers. Durham County reported 7.2 percent unemployment, which is higher, but others seem to be faring better. Orange County, for example, which encompasses communities like historic Hillsborough, had the states lowest at 5.7%.
The RTP area also houses its share of venture capital firms, including Novaquest Pharma Opportunities, which raised a $244 million dollar investment fund — the largest “committed fund” in the fourth quarter of 2012 according to a press release issued jointly by Thomson Reuters and the National Venture Capital Association (NVCA). The NVCA has been issuing these press releases quarterly for a long time; it’s a credible source.
A $200 million dollar fund in the Mid-Atlantic area, in which the NVCA also includes North Carolina, isn’t quite top-tier among venture funds, but it’s top of the list in the second tier. Forty-two VC firms raised $3.3 billion in Q4 2012, nationally, and commitments were up 10% for the full year. VC are attracted to exits and they are happening. Earlier this year, my former employer, Vocus acquired iContact for $169 million, according to TechCrunch. iContact, an email marketing software company, is based in RTP and was venture-backed. In 2010, the company raised a $40 million dollar Series B round.
Forbes reported this week that in contrast to the big cities, like New York and Los Angeles, “lower-density metro areas” including Raleigh have seen “double-digit rate expansions of tech employment” over the last decade. PRSA and IABC both have active chapters in the area, as does the Triangle Interactive Marketing Association and the Triangle AMA, the local chapter of the American Marketing Association is long-standing since its founding in 1981. It has 400 members and appears to be well organized.
The Raleigh-Durham area is a prime business opportunity, both in market opportunity and talent.
Culturally fitting
Like many of the big firms, Ketchum has office is New York and Washington, DC. Then there’s a geographical gap — which Raleigh now fills — followed by offices further south and west, in Atlanta, Miami and Dallas. In a press release announcing the deal, CEO Rob Flaherty said, “This acquisition is another important milestone in Ketchum’s strategic growth plan.”
Flaherty spoke on a PRSA International Conference panel last fall on the “Agency of the future.” It was a packed session, and if I recall correctly, he was the first speaker to stand up from behind a table to address the crowd and spoke fairly extensively on the role of culture.
Several weeks later I observed him working the room at the PRWeek awards judging program — and he struck me as a charismatic guy. His sense of culture was a sentiment reflected by Ketchum’s CFO in the release on the deal, “Ketchum and Capstrat share very similar cultures and priorities.”
It’s easy to gloss over such statements of company culture as hyperbole. Often they are, as SEOMoz’s Rand Fishkin wrote, easily confused with “Karaoke nights” and “bean bag chairs.” Having a gym on-site isn’t culture. Getting everyone up at zero-dark-thirty to conduct physical training together is culture. Whether that’s fun or not, depends on the culture.
I once belonged to a small high-tech firm that was acquired by a Big 10 firm and we were not a cultural fit.
Everything was different, from process to tools. We followed a uniformed process; they had different processes on different teams. We used Vocus; they used one of those other tools. We pitched the Potomac Tech Journal; they pitched the Washington Post’s Lifestyle section. Jeans and polo shirts clashed with dress pants and button-downs. We thought we were smarter — and they thought they were smarter. “We” and “they.” Terrible terms to use, but that’s was the word among the rank and file.
It was tragic.
Management tried to alleviate this — at least from my view on the bottom rung looking up — by mixing up the teams in an effort to integrate us. But that was, like any old Soldier knows, similar to a putting a band-aid on a sucking chest wound (warning graphic). You can’t seal the sides of the bandage to the wound — and that means a lung is going to collapse.
However, what’s sticks with me was that 12-18 months later almost every employee and nearly every client, were gone.
While certainly there were economic factors at stake — we did have a recession in 2001 — the layoffs and dot-com collapse didn’t help. However, what’s sticks with me was that 12-18 months later almost every employee and nearly every client, were gone. Just like it never happened.
In the months leading up to that bust, I remember when a VC-backed company that had raised $140 million went belly-up; a senior colleague remarked, “Someone should go to jail for that.”
No M&A is perfect — I’ve lived through two as part of the company being acquired — and also a couple as a member of the acquiring company. But certainly there are lessons to be learned from that deal. It’s not all dollars and cents. It’s culture and people sense. Leadership is hard and for many it doesn’t come naturally. Army doctrine says leaders are made, not born.
Ketchum and Capstrat seem to be striking the right tone in discussing the deal; words matter.
“Capstrat will continue to use its own brand, and founder and CEO Ken Eudy will still lead the firm as part of Ketchum’s North American operations,” according to the aforementioned PRWeek article. It also noted no layoffs were planned.
More deals to follow?
There are more than a dozen agencies, including those named above, in the area that I’m studying up on — and no doubt other large firms are too — as RTP comes into focus. Don’t count out the mid-sized independent firms either — there’s a few that have made high profile talent acquisitions, are building out offices and generally on the up and up. The market is bigger than $10 billion and the way social media is headed, the opportunity is likely substantially higher.
PR is a go-getter’s world. PR is not a profession, it’s a lifestyle.
In looking at the landscape with a fairly fresh perspective, I don’t think it’s bold or fresh to predict there will be more acquisitions like this in the RTP area in 2013.
* * *
Both Omnicom’s annual revenue and net income have been on a modest, but steady climb, since 2009. It’s stock price was up .60 or 1.17 percent at the close of business on Thursday — well above its 52-week low. Ketchum’s US revenue was between $250 and $300 million with 2,500 employees globally according to PRWeek data as of May 2012. In my circles, Ketchum has a good reputation for taking care of it’s people and that strikes me as sound practice. Grow your people, they will grow your clients and the rest falls into place.
If you enjoyed this post, you might also like:
The market opportunity: sizing up the PR market
Image credit: Unsplash
