Summary:

With more ad dollars being devoted to social media, the major ad agencies have been looking for ways to sharpen their expertise and broaden…

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With more ad dollars being devoted to social media, the major ad agencies have been looking for ways to sharpen their expertise and broaden their offerings in that area. This week, Interpublic Group, one of the big three ad holding companies, will unveil details about its new social media unit, Rally.

Rally will be charged with conceiving ad campaigns around social media, as well as measuring buzz and effectiveness about clients’ brands, the WSJ reported. The new unit will be headed by Heidi Browning, who left MySpace (NSDQ: NWS) as SVP for insights and planning last October to take on the role of global digital officer for IPG’s Universal McCann.

Publicis Groupe is also in the process of starting a dedicated social media unit within its digital hub, VivaKi. The new social media unit will pull in executives from around the agency to spur more collaboration. It should be up and running by the end of the year.

But as the ad agencies build up their social media bona fides, they’re also seeing increased competition from an unfamiliar quarter. Meredith (NYSE: MDP), which last week bought up the remaining shares of mobile marketer The Hyperfactory, has seen its New Media Strategies subsidiary attract a lot of business lately from blue chip clients like Chrysler and Domino’s Pizza.

PR agencies are also challenging agencies for social media business to some extent. But ad agencies and PR firms are likely to be hampered somewhat in their attempt to include social media marketing as a distinct business. Rather than coming up with clever taglines and eye-catching creative, or in simply reaching out to blogs with news about a client, social media marketing is largely about customer relationship management. In the case of Domino’s, it decided to go with NMS, the Meredith unit, because it specialized in word-of-mouth marketing.

Still, the big agencies do possess one considerable advantage: their continued deep pockets, which allow them to target startups who appear to have figured out the social media space for acquisitions. M&A activity around marketing services led to a boost in deals over the first half, and while the economy remains shaky, the third and fourth quarters are likely to experience a particular uptick in transactions by agencies around social media.

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