Art & Commerce: Fates and Fortunes

Online companies take center stage in the marketplace
There are a lot of smart reasons for America Online and Time Warner to join forces in one of the first portents of media convergence. But consider which entity is making the acquisition, and which is surrendering its shares: In a stock market where dot.coms command crazy valuations, virtual companies are using their sizable war chests to acquire brick-and-mortar assets.
Not hindered by old-world notions like profitability, publicly traded dot.coms and traditional corporations aren’t competing on an even playing field. (The disparity of market cap between Time Warner and AOL–despite the older company’s greater revenue and cash flow–was reportedly one of Time Warner chief executive Gerald Levin’s concerns about signing off on the transaction.)
Of course, your clients are already living this reality where market size and entrenched brand recognition are not a defense. Look at Merrill Lynch, the world’s biggest broker. After initially ignoring upstarts like E*Trade–and losing business to them–the global giant was forced last year to rush through construction of its own online brokerage.
The message is: Disregard your fledgling Internet-driven competition at your own risk. Time Warner has always been the buyer, not the prey. Similarly, agency holding companies have been the ones buying into the industry’s fledgling Web companies.
But who’s to say a David-and- Goliath scenario–similar to AOL and Time Warner–couldn’t happen on Madison Avenue.
Just look at Wall Street’s $2.5 billion response to the prospects of, a company started a little over five years ago by two guys with laptop computers and $80 in the bank. The online advertising company, which has been on an acquisition spree of its own, saw its stock nearly triple to $98 in its first day of trading in December. (Never mind that’s losses widened during the first nine months of 1999 on higher revenue.)
By comparison, Omnicom–the world’s largest advertising group which owns almost 47 percent of–saw its shares hit a 52-week high of $106 a share that same day.’s shares have fallen since, but not before whetting the appetite of others. Bronnercom, which plans an IPO as Digitas, wants to join the growing fray.
Why would Internet startups have any interest in traditional ad agencies? Like Time Warner, which created blue-chip franchises over 70 years, ad agencies have key client relationships, often developed over decades.
Those clients presumably are looking to transform themselves from brick-and-mortar businesses into Web entities, just as Internet marketing companies have.
Granted, the multiples garnered by these Internet concerns may not be sustainable at current levels. They may not even prove to be interested in buying traditional agencies. Still, it’s worth taking the long view: Do you remember the last time the industry restructured?
Advertising agencies were compelled to react to new market forces in the form of young English holding companies with deep pockets lined by the City. K