“Modem Media Adapts to a Merger and Comes out on Top”

Pioneering interactive advertising agency Modem Media married into the True North Communications family last year. Now “synergy” is the company’s motto as Modem reaps the benefits of family relationships and adjusts as a rival-turned-sibling enters the fold through the latest megamerger.

Founded in 1987 by Doug Ahlers and G.M. O’Connell, Modem Media revolutionized the Web by combining technology and advertising know-how to help create the still-immature industry of online advertising. The Westport, Conn., startup pushed interactive brand identity forward with innovative campaigns such as those executed for Zima and AT&T in 1995, the first year that online ads existed. Modem was a giant fish in the tiny $50 million pond of online advertising revenues, but industry analysts were predicting an imminent flood.

In October 1996 Modem merged with TN Technologies, an interactive holding company under the larger umbrella of True North Communications, the $8 billion advertising colossus whose holdings include Foote Cone Belding (FCB). O’Connell became the president and COO of TN; Ahlers became president of Relationship Technology Group (RTG), a TN company which developed technological underpinnings for Web sites; and Bob Allen, a Modem partner who had joined the company in 1989, became president of Modem.

When Entrepreneurial Edge last wrote about Modem (Vol. 3, 1997), the company was celebrating its 10th year in business. However, in O’Connell’s words, they were “in the top of the first inning” in relation to playing on the TN Technologies team. A year later, they’ve been through the rotation, fewer players are on the roster, and Modem is TN’s starting pitcher.

“As we got into it, we found out by far the company with the most potential within the holding company was Modem Media,” explains O’Connell, “and we made a conscious decision about three months into it to really try to consolidate all of our units around our strength.”

Merge Ahead

Instead of being subsumed by the larger holding company, the agency became the dominant brand, absorbing sister agency Northern Lights Interactive and RTG. All of the Northern Lights offices were converted to the Modem name, and the RTG unit run by Ahlers now operates within Modem.

When Modem entered into the merger, Advertising Age estimated its revenues at $11.5 million. The merger instantly tripled its size, while the absorption of Northern Lights gave the company global access far more quickly than they could have built from scratch (Modem now has offices in Westport, New York, Chicago, San Francisco, Toronto, London and Hong Kong). The cooperative relationship with FCB also provided the thin end of the wedge at prestigious and lucrative FCB clients.

“We have a lot of synergy with FCB,” admits Allen. “In several cases we’ve shared clients that pre-existed, but we’ve also gained access to some of FCB’s star clients. Some of the clients who have come out of the FCB relationship include Kraft, Nabisco, Lucent — we’ve gone and joined the pitch to do business and we’ve both won.”

While the merger gave Modem increased prominence, that advantage is being challenged within the company itself. On December 30, 1997, True North acquired Bozell, Jacobs, Kenyon & Eckhardt, the parent of New York interactive power Poppe Tyson. Poppe, along with Modem and CKS (Cupertino, Calif.), had formed a triumvirate at the summit of the interactive industry in the mid-1990s.

Early in 1996, before courting TN Technologies, Modem had approached Poppe for a merger, but the engagement had broken off a few steps from the altar. Now that the fierce rivalry between Poppe and Modem is sibling rivalry, no one, including Modem’s founders, is sure how the relationship will work.

“We’re operating on a case-by-case basis now,” says Allen. “We’re competing against other True North companies, but generally we’re looking for synergies to pitch a united front, particularly as we continue to target global markets, where Poppe’s offices have a very strong international presence.”

Adjusting To Changing Audiences

The increasing consolidation of interactive agencies is beginning to bear a resemblance to the world of print and broadcast. That’s no coincidence. In 1997 online ad revenues reached $700 million worldwide, according to the Internet Advertising Bureau, and the number of individuals online reached 100 million. Those numbers describe a mass market, not the tiny niche the online world once was.

“It’s not just predominantly a male, upscale audience anymore,” says Allen. “That means because the target audience is becoming broader, we can appeal to a wider range of advertisers. So packaged-goods companies can now participate as well as high-tech product and service companies.”

The proliferation of high-quality, high-traffic, content-driven sites means that online advertising is changing as well. A year ago, much of the buzz about Web advertising focused on the use of breakout technologies like Java and Shockwave. Today the most influential innovations haven’t been in new technology but advancements in the way existing technology is used. For example, Modem’s Zima.com campaign included one of the most successful sites of 1995, but the model of a graphic-heavy, content-light destination site just wouldn’t work now.

“When we did Zima, it was easy because there were only two places you could go on the Web back then: Bianca’s Smut Shack or Zima.com,” explains Allen. O’Connell continues: “Now it’s difficult to see why someone would go to Zima.com. You either bought Zima and it’s in your refrigerator, or it isn’t. There’s not a lot to build a Zima Web site around.”

For consumer products companies, Modem now stresses messaging by placing media-rich banners on mass-audience or specialized content-based sites. One successful campaign was a Web sampling program for Mentadent, which delivered the toothpaste brand’s message through Web sites that matched Mentadent user demographics.

The other strategy Modem is using is one that O’Connell described to Entrepreneurial Edge last year: “Our underlying strategy is to harness what we call digital current. Businesses can link up with each other in new and innovative ways because there is a common digital infrastructure that we can plug into. It’s kind of like smart electricity, and if you just tap into the grid that is emerging you are going to be able to do great things with your brand and how your brand forms relationships with customers.” Digital current has helped Modem produce sites like the one for Delta Air Lines, which allows customers to plan trips and check SkyMiles accounts, or the AT&T Winter Olympics campaign, which used collectible video trading cards to demonstrate how AT&T’s digital network could link people around the world.

Adjusting To Changing Roles

Although the founders of Modem Media have never been afraid to innovate for their clients, the biggest changes they’ve faced in the past year have been within their own roles. Despite the adjustment, all claim that the furthering of their original goal — to be the preeminent interactive agency increasing the relationships between people and brands — is more important than any individual.

Ahlers claims not to be fazed by the changes of the past year, including the switch from serving as president of RTG to being the director of technology for Modem. “My responsibilities are still very much the same as they were a year ago,” he says. “Really what we’ve done is that as a division of Modem Media we’re much more able to use synergies with Modem on the agency side and RTG on the technology side.”

O’Connell, as the president and COO of TN Technologies, now has a more corporate position at a slight distance from the company he founded. His biggest regret is that Modem Media won’t let him play on the company softball team now that he’s one of the corporate suits (although he admits, “They’re doing much better without me anyway”), but he still manages to root for the Modem team.

“I’m not that detached from Modem,” says O’Connell. “The fact is that Modem is the heart and lungs of TN Technologies. In a lot of ways Modem is more important than TN. It’s where the revenues come from. It’s where the profits come from. It’s where the best clients are.”

While the goals and loyalties of the three partners have not changed, the relationship among them has adjusted to the changes that came along with the TN merger. Ahlers says, a bit wistfully, “There have been changes. It used to be there was no corporate structure, no directors — it was just based on us.”

“I think we still work closely together, but maybe not as closely as we were accustomed to at one point,” continues Allen. “We miss that a little bit, but it’s one of the necessary evils of expanding to the size of Modem.”

About the Writer: Kelly J. Andrews is a former senior editor for Entrepreneurial Edge magazine. This article originally appeared in the Volume 2 (Spring) 1998 edition.

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