Thursday, January 7, 2010

PR Firms Poised to Flounder and Fail

In early 2000 the NASDAQ was sneaking up on 5,000 and a myriad of VC-fueled entrepreneurs boldly proclaimed the Internet had changed everything.

The traditional rules of business no longer applied. That was until the crash…er…market correction in March changed all of that talk.

Fast forward a half dozen years and comparable babble about a forever rising residential real estate market peppered articles in many of the major business periodicals. Nay-sayers were summarily dismissed as dinosaurs who simply didn’t get it. Those rules of business were once again obsolete.

The credit freeze and cratered home prices of the past 18 months have again silenced the bulls.

The laws that guide the markets have proven to be constant. They allow for highs and lows, they turn fast-risers into decliners and they sweep away those who fail to innovate. The cycle time may differ, yet the story always plays out the same.

At times I wonder when industries in peril knew their fall had begun. Was there some “oh no” moment when silver haired executives recognized their world had forever changed?

Personally, my moment arrived in early 2008 after a series of conversations with clients and prospects about their priorities. Soon thereafter Strategic Communications Group (Strategic) began its transformation from a public relations consultancy to a provider of social media marketing – services that now account for nearly 80 percent of our annual revenue.

Yes…it was more of a hunch at the time. However, the signs and symptoms are now more apparent.

The laws of business and market maturation have landed on the desks of PR agency executives worldwide. It’s January 2010 and I now believe the era of public relations agency relevance has begun its decline.

Oh sure, there will still be PR shops in the future. Yet, their numbers and size will dwindle, and those that remain will shift their focus to digital and social media services.

Let’s explore why.

Lacking a Six Figure Punch

It’s important to understand how public relations consultancies have historically presented their business case to clients. First, they’re adept at providing strategic counsel on messaging and positioning because of extensive experience in multiple segments of the markets.

A related source of value is the positive impact a public relations firm can deliver with its guidance during times of corporate stress. This is particularly true in functions like crisis communications and mergers/acquisitions, when a company may have millions of dollars in jeopardy.

And finally, PR shops offer extensive tactical execution capabilities with a primary focus on media relations to generate editorial coverage. Visit an agency’s Web site and you’re bound to find claims of intimate journalist contacts and the resulting links to stories the firm has placed on behalf of its clients.

Although these areas of value will maintain their importance, clients are now appropriately questioning where to turn for this work and how much to pay. Moreover, the shift in influence from traditional sources of credibility like journalists, industry analysts and trade conferences to social networks shows no sign of abatement. There are simply fewer targets to pitch.

Even post recession, PR agencies will flounder when attempting to justify their six figure budget requirements.

The Changed PR Agency Landscape

In the next three years the PR agency landscape will be further pockmarked by consolidation, reductions in size and numerous shut downs. Who will remain?

For starters, public relations freelancers with expertise in high demand skills such as investor relations or crisis communications will shimmy up the ladder of importance. Services once outsourced by clients to boutique firms will now be earmarked to teams of independent consultants who can deliver a comparable work product at a reduced cost.

The global firms will remain, yet will evolve into providers of a more comprehensive set of communications services that encompass advertising, marketing, social media, Web, interactive and traditional PR. This metamorphosis is already taking shape as clients have become enamored with the ability to outsource a broader set of requirements to a single vendor.

So, where does all of this leave mid-size and small PR firms? They are on a slow burn to insolvency unless they shift direction.

And that is just what we have done at Strategic. We’ve focused in core markets, specialized in a service offering with a more measurable ROI and reinvented our staffing methodology.

The laws of business always win in the end. It’s time to innovate…or die.

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