• by Gavin O'Malley  @mp_gavin, June 3, 2010

In the wake of Hearst Corp.'s agreement to buy iCrossing, questions remain as to whether the deal makes sense for both companies, and what it means for rival publishers and digital agencies.

No doubt, Hearst acquiring iCrossing further "expands the universe of buyers [for digital agencies], and puts pressure on other publishers to follow suit," said Philip Palazzo, founder and CEO of Palazzo, a financial advisory and acquisitions firm for the marketing communications industry.

The other reality facing Hearst Corp. is that traditional media is suffering, and for publishers to survive: "They need to find ways to gain exposure to the higher-growth areas that the Web offers," said Aaron Kessler, an analyst at ThinkEquity.

Hearst's strategy of ramping up its online marketing efforts by acquiring iCrossing is being compared to a series of similar deals executed by rival Meredith Corp.

In 2007 alone, Meredith bought digital marketing services firms O'Grady Meyers and Genex, database/CRM firm Directive Corp., and buzz marketing firm New Media Strategies (NMS). More recently, it bought health care marketer Big Communications in 2008, along with a strategic stake in mobile marketing firm The Hyperfactory in 2009.

Yet according to Palazzo, Hearst has a ways to go before it can begin to compete with the cohesive marketing services offering that Meredith has assembled.

"If you look at the businesses that Meredith has acquired, they'll enjoy more synergies," said Palazzo. Rather than creating synergies, iCrossing represents a diversification of Hearst's core business, which is "to its potential disadvantage," Palazzo suggested.

Likewise, Kessler viewed the deal largely as a way for Hearst to diversify, which he said is not as advantageous as creating synergies. "You're better off if one plus one equals three," Kessler said of the potential for synergistic business partnerships. "Diversifying is more like one plus one equaling two."

To its distinct advantage, Hearst recently hired Matthew Petersen -- formerly SVP of integrated marketing at Meredith -- to run its newly created Hearst Marketing Services division, which will oversee iCrossing and future marketing-services investments.

To support Petersen's efforts, "We plan to effectively bolster iCrossing's strengths with future investments that add complementary capabilities and services," Frank Bennack, vice chairman and CEO of Hearst Corp., said in a statement Wednesday.

While iCrossing has long been recognized as a search specialist, the acquisition does immediately give Hearst a number of digital marketing capabilities, including paid search, search engine optimization, Web development, mobile, social marketing, and data analytics.

ICrossing already works with Bank of America, Toyota, Travelocity and The Coca-Cola Company, among other clients, to help them connect with customers via digital platforms and increase search effectiveness and consumer engagement.