Boston Agencies Pursue Product Revenue with Mixed Results

By Dave Wieneke | in Digital Agencies, Highlights | 9 Jun 2010 | 6 Comments

This is the story of three talented, scrappy agencies who did great client work, and who each tried to transition to selling products instead of services and engagements. It represents one way that agencies are remaking their business models.

Magic Hour
In the 1990s when I met them, Magic Hour Communications was a group of talented hunter-gatherers in Watertown, MA. Their 10-person shop made corporate films, software, and drop-dead-gorgeous brand websites. I first saw their work while judging the educational category for MITX (then MIMC), the Boston-area interactive awards.  And I got to know them while working on the State House’s website on Mass.gov, which beat out far larger projects for industry recognition.

Magic Hour’s CEO, Louis Gudema, started scoring lots of work for private school websites.  And he made the strategic choice to go deep in that industry, and eventually to productize a content management system for private school websites.  It took nearly ten years, but in 2009 they were acquired by Global Internet Managment, an educational marketing firm. The team is still at work, and they made the transition to having a product and residual income to sell.

BigBad Design
They were also award-winning, but at a higher level than Magic Hour. They had 50 staff, gained larger clients, and had an office on Fort Point Channel in downtown Boston. As I recall, their clients included Harvard, Lowjack, Camp Dresser McGee, Pratt & Whitney Helicopters, and lots of other colleges.

Like Magic Hour, they had also developed a technology for their education clients: an alumni portal. And last year they scored financing to develop the product. As their CEO, Ty Glasgow told the press, they hoped that a product offering would “de-commoditize the web” or at least their services.

The House Drops on BigBad

Less than a year later, BigBad was shuttered. The Boston Business Journal describes their end, which included the firm missing payroll for several cycles and facing complaints to the state’s Attorney General’s office and US Department of Labor.  Today, competitors buy the name “BigBad” as a keyword to recruit orphaned accounts.  And their corporate nameplate is hanging over my desk as a reminder of how fast agency fortunes shift.

When Bad Things Happen to Good Agencies
A friend who heard of their demise noted, in some disbelief: “But people for Sapient and Digitas went there.” So why was the smaller Magic Hour successful in crossing the chasm and becoming a product firm when Big Bad wasn’t?

Sure, timing is a factor. 2009’s financial crisis disrupted college investment in so many ways. Endowments were off and students couldn’t get loans to finish their programs, so it makes sense that alumni portal projects would be put on hold. But that can’t be the whole story.  All three agencies were deep in the education market.

Pick an Industry, and Love It
Magic Hour picked their niche and devoted themselves to that new business. That’s also how a third agency, Fable Vision, has thrived both as an agency and product firm. They provides interactive development and also create and market their own educational products. And along the way, the company has invested time and staff in becoming a well-known part of their industry.

I’m not sure Magic Hour or Fable Vision were ever the agency that BigBad was.  But the two smaller firms made it clear they would be fixtures in their industries, and that they were out for more than de-commoditizing their business model.

There were fantastic teams at all three firms. And, as someone who works across multiple agencies,  I’ve hopefully learned something about spotting shooting stars and telling them apart from the recently great who have become inwardly focused and are on the road to decline.

When you partner with a firm, their weaknesses become yours.  When you’re investing heavily in marketing, learning to read an agency and its challenges is a client-side survival skill.  It helps to ask if they are fantastic and devoted to a well defined market, as divergent opportunities spread agencies thin, and can dilute both their value and their viability.