WPP Takes Stake In Chinese Digital Ad Firm

by Steve McClellan, Oct 24, 2011, 5:55 PM

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WPP has made another in a series of continuing bets on digital firms in faster-growing markets around the world.

The latest investment, which the UK-based marketing services holding company confirmed Monday, is a minority stake in Leading Smart Holdings, the British Virgin Islands-based parent company of Moment Systems, a digital advertising measurement firm in China.

For WPP, it was the second investment in a Chinese digital firm this month. Two weeks ago, it confirmed buying a majority of digital shop A4A, whose offering includes digital strategy, social media communications, rich media, online advertising, search marketing and other disciplines.

WPP's investment in Leading Smart was part of a second round of financing that also included Kleiner Perkins Caufield & Byers and Redpoint Ventures.

Moment Systems was founded in 2006 in Beijing and now employes 140 people.

For WPP, the investment is part of a strategy that is banking on future growth coming mostly from digital marketing services in key markets.

At a presentation to investors last week Mark Read, CEO of WPP Digital, reported that 52% of the holding company's revenue growth last year came from digital or high-growth markets like the BRIC (Brazil, India, China and Russia) territories.

So far in 2011, Read said, half of the company’s acquisitions have been for digital companies, and most were high-growth markets.

Currently, digital revenues account for 30% of WPP's overall revenues -- and the expectation is that by 2016, digital will account for between 35% and 40% of the firm's revenues, Read said.

Part of the reason for the focus on digital is that it is lucrative. A  significantly higher proportion of clients’ marketing dollars end up with the agencies planning and implementing digital strategies, compared to traditional media.

Read noted that agencies typically collect about 12% of the client spending allocated to traditional media in some form of compensation, with the rest going to the media companies. But agencies collect between 15% and 20% of client budgets earmarked for search and display services.

For mobile and social-media services, the take for agencies is between 55% and 60%.

China is likely to remain a focus for future acquisitions for WPP. It is currently the firm's fourth-largest market, accounting for more than $1 billion in revenues. Of that total, digital revenues now account for about $200 million, the company has confirmed.

At the same investor event, WPP CEO Martin Sorrell said the firm believes that digital will grow almost as rapidly during the next five years -- 15% annually -- as it did the previous five years, when the medium grew about 18% annually.

In China, he added, “digital is not emerging anymore” -- meaning that it has very much arrived. 

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