Monday, September 26, 2005

For Sale?

With all the merger and acquisition activity going on at the moment it has set me thinking what exactly makes up the prices that are being paid. Anything has a value which is dictated by how much people will pay, simple supply and demand, but what elements are making up the prices people are paying at the moment.

The various methods of valuation are of course well documented, but there are so many synergy based valuations going on at the moment it is starting to look like the bubble is back.

For an agency, current clients is the obvious thing that people will pay for as well as historical performance, and profitability. All these things obviously have a value which would be fairly easy to put a total price on.

Value of kit is so easy now to work out that its probably taught in schools so that’s not an issue either.

What about the value of the portfolio though. This has the ability to demonstrate a track record in a particular sector and therefore open up new avenues for a prospective buyer. Surely though in the context of Interactive Media a portfolio loses value over time as work becomes less current. How should you measure that? It can’t be the same as on a piece of kit as that loses value to the point of zero but a portfolio has to be able to keep some value as it is work which has been done and therefore is a track record, which whilst it diminishes over time, is still relevant to some degree.

Surely that should be looked at in terms of the staff that created it and whether they are still there. A seasoned team that is used to working efficiently together has to have value as it is a well oiled machine capable of turning around projects quickly efficiently and (presumably) profitably.

This also begs the question about strength in depth and individual weakness within the team or parts of it. How much value is lost for instance if the design team is efficient but the technical team isn’t or visa versa. Is it as simple as just working out the percentage of billings and apply that ratio?

Finally what are the intangible elements. How much value can be allocated to the potential of a business in a burgeoning market. Similarly, is it right to put a price on things purely based on potential and isn’t this the same mistake that was made during the Internet bubble in 2000? Is speculation therefore always what its really about?

Random thoughts but worth me getting them down, even if it is only for later reference.

Edit. Unknown to me when I wrote this, my former colleague Alex Barnett has also been putting his thoughts down relating to the bubble and current valuations. He also has a few more links discussing the topic

Friday, September 23, 2005

Proof of Concept

..... and I suppose the speed with which my previous post of the day got spammed by someone advertising their (unwanted) offer of a business opportunity is proof of concept in a way of how blogging can be used as a marketing tool. Of course this is the worst kind of marketing application for the medium but it does prove a point. My friend and old colleague James Cherkoff was right and anyone wanting to speak to someone who is on the crest of this wave (and who doesn't subscribe to the spamming technique) should check out his company, Collaborate marketing.

It was never about the technology

A while ago I saw this letter in New Media Age from Catriona Campbell of The Usability Company. It highlights a topic I’ve been giving great thought to over the last year or so. I replied and even though it didn’t get printed in the magazine, I copied Catriona in on the reply and it started a dialogue between us. My letter is below:

I read with Interest Catriona Cambell’s letter in NMA 31/03/05.

She is correct when she says that an agency is made up of a series of specialists with different skill sets. Once upon a time we all stuck to those specialities and every body built up large and impressive client lists. Then the bubble burst and swathes of people were laid off leaving skeleton staff levels. That is really the point where general new media people were required, and this situation saw some people through the lean times of 2002/03.

Many agencies are still looking to follow this generalised model but the marketplace has recovered somewhat from those lean times. In its place is an expectation that any interactive work undertaken should be done so at a bargain basement price. We should therefore be wary about adopting long term business strategies based on short term market forces.

Anybody who has been around a few years will admit that market prices were too high in the past and are too low now. As trust and demand returns to Interactive projects amongst clients, then market forces will right themselves. I’ve been using the analogy of a suit for as long as this industry has been around to show the various offerings that different companies have when it comes to a website.

Everyone needs a suit, some people go to a budget high street retailer and pay less than £100, others get a designer label suit for £600-£1000, then some want the tailor made service of Saville Row. All you have is a suit, it’s made of cloth and it has arms, vents and buttons, but you get what you pay for. People make decisions about you based on your suit and how long it lasts depends on the cloth and the tailoring but also on you and how well you look after it. Clients are beginning to realise that they cannot ask for Saville Row quality at High street prices because the agencies they are going to will go out of business by supplying this, or will make the obvious cuts in service and not deliver what the client wants.

The danger with any educational accreditation is that it will be out of date by the time its gets approved, and in this industry all any accreditation will signify is how competent someone is with last years techniques. It was never the technology that made New Media new, it was the creative thinking. Somewhere on this roller coaster that point is being lost.

At the end of the day quality does speak, and quality of design is eternal. Robert Liederman hired me two decades ago as a teenager and he said something then that has rung true in every aspect of the media “A creative agency lives and dies by its creativity.” That great old man is much missed by this world, he wasn’t talking about interactive agencies, but he might as well have been.

Aaron Savage
Business Development Director
Butterfly Effect

I am perhaps an embarrassingly late entrant to this type of Blog. A vast number of my peers and colleagues have been keeping records of their professional thoughts in their careers for many years. The truth is that I have kept online records but these have been focused on my personal life, friends and the things that I have encountered which have just struck me as funny and this type of record has passed me by. What changed was that I got back in contact with 2 former colleagues recently and they persuaded me that Blogging your professional thoughts was an essential aspect of a professional life in the web, and so this is the result.

Oh and just a word about the name. For many years now I have lived as a professional gypsy, moving Internationally from country to country settling for a few years, working hard and learning about the nuances of different International markets, and it has become a bit of a mission of mine to see how the Web works not just on a worldwide scale but also how it is perceived and used locally...... hence 'The Gypsy Mission'