• by Joe Mandese  @mp_joemandese, March 5, 2008

De facto monopolies are the suppliers that customers love to hate in any industry, but when it comes to two of Madison Avenue's most dominant players--data processing services provider Donovan Data Systems, and media audience data and software provider Nielsen Co.-- the love/hate relationship is especially strong. Because Donovan's business is much less public than Nielsen's, the grousing is a little less loud and much less public, but it is no less heartfelt when it takes place in the back offices of some of the biggest advertising agencies in the world.

But the truth is that for all the complaints about how monopolies control the market, are slow to innovate, and adapt much-desired client preferences, DDS founder Michael Donovan has built the engine that powers most of the media buying in a half-a-trillion-dollar global advertising economy. It is, in essence, the operating system for media planning and buying.

In exchange, Madison Avenue has given him a dominant market share, and some $200 million in annual revenues. Competitors have come and gone, but none have managed to eat much of Donovan's market share for much the same reason that no outside player has yet managed to unseat Nielsen's control of the U.S. television marketplace: Media buyers have simply grown dependent on it.

And as Starcom's bold decision to emancipate itself from Donovan proves, it is not without good reason. Madison Avenue may never know the exact costs to SMG from making the move, but insiders acknowledge that there has been some significant dislocation in the agency's ability to handle its media buys during the transition period. Moreover, by SMG's own CFO's public testimony, the move cost the agency more than $1 million in incremental manpower costs associated with getting the new system ready, and transferring from the old one.

While outside observers admire and even applaud SMG's move, some say they are also unclear about how prudent the decision was. "There's a reason why no one has reinvented the wheel," says a senior executive at a non-Publicis media agency, adding that for all the ill will and Donovan-bashing that takes place, the company is actually pretty good at doing what agencies and their clients need it to do.

The fact is that Donovan has been challenged--both by its customers and its competitors--since its inception, but despite some noble attempts, the New York-based data-processing firm still controls significantly more than half the media buying in the world, as well as attendant systems that enable agencies to handle other "bill/pay" processing related to creative services, and talent and residual fees.

In fact, prior to switching to Donovan seven years ago, Starcom--and its predecessor, the Leo Burnett media department--had maintained its own in-house processing system, but its management team ultimately determined that it was too expensive and did not provide enough of a competitive advantage.

Over the years, SMG's relationship expanded, not waned, with Donovan. When it absorbed MediaVest, that agency switched from Datatech to Donovan. When it added General Motors' GM Planworks unit, that agency switched from Mediaplex, the ValueClick unit formerly known as AdWare Systems.

Ironically, even as SMG is pulling most of its business out of Donovan, it continues to use its services in a number of key markets including Canada and the U.K.--and for GM Planworks, due to separate contracts. Most of the rest of Publicis, including the ZenithOptimedia Group, also continue to use Donovan. Over the years a slew of competitors have either eyed or entered and left the media-buying data processing business, and a few smaller players continue to nip at Donovan's heels. Datatech--which was acquired by MediaBank midway through SMG's arbitration with Donovan--was its closest rival, but companies as diverse as Microsoft, Oracle and even Enron have considered but opted not to move onto Donovan's turf. That could all change soon. Michael Donovan, now 67, is believed to be nearing retirement, and may finally be ready to sell the firm to the right buyer. Microsoft and/or Google are good bets. Both have the capital, the corporate wherewithal, and seemingly, the imperative to do so. And both have begun muscling onto Madison Avenue's turf.

Microsoft acquired a leading interactive ad services firm last year, for $6 billion--including the Atlas DMT system, which is already involved in processing online and digital media buys, albeit from the publisher's side of the table. Atlas is the second-biggest online ad server after DoubleClick, and has also moved aggressively into ad serving on digital TV advertising platforms. Google, meanwhile, is in the process of acquiring DoubleClick for $3.1 billion.

Ironically, online media buys have been the most complex, the most manual, and the least digital to process for agencies to date. While the ad-serving systems provide state-of-the-art data flow on how ads served by publishers are performing, getting that data into media-buying accounting systems to be vetted, reconciled and paid has largely been a manual process. This was presented in excruciating detail by the American Association of Advertising Agencies two years ago, when it released its eBiz for Media report showing that Internet advertising buys were the least capable of being electronically processed of all the major media. TV, radio, and even magazines and newspapers were deemed to be well ahead of online media.

Donovan has already begun working with DoubleClick's DART system as well as with Atlas, developing a process for integrating with their ad-serving databases to seamlessly flow media data into Donovan's new iDesk product, which will be formally unveiled during the American Association of Advertising Agencies' Media Conference and Trade Show in Orlando today.

Whether the industry ultimately judges iDesk to be the digital media technology solution that Donovan executives claim it will be remains to be seen, but the competing pitches that will take place during the AAAA conference promise to make the trade-show exhibit floor more interesting than the conference's main stage. In a development that some attendees may read symbolism into, Donovan's exhibit space will be situated at the opposite side of the hall from MediaBank's.

MediaBank, meanwhile, has a lot of things going for it--not the least of which is some pretty high name recognition due to the publicity surrounding SMG's fallout with Donovan. It also has significant capital resources from its management team, which includes some savvy venture capital executives. Beyond that, its move to acquire Datatech Software Corp. last June would seem to be an acknowledgement that it needed an older, analog media-based legacy system to compete effectively with Donovan and service SMG's business--but executives familiar with it say Datatech had already begun a major "overhaul" of its systems prior to its acquisition by MediaBank, and had made considerable inroads toward the management of digital media buys.

But others have come and failed to unseat Donovan's dominant market position in the past with claims of technological and service innovations. Even Nielsen--which would seem to have had both the wherewithal and technology knowledge to do it better--failed. After two years of development and millions of dollars in capital investments, Nielsen folded its so-called New Millennium system, after it failed to crack a single major agency as a client.

But just as Madison Avenue's love/hate relationship with Nielsen has proved so many times in the past, the industry historically has exploited new competitors to motivate its entrenched monopoly provider to adopt some crucial innovations. AGB did that by forcing Nielsen to adopt people meters in the U.S. in the 1980s. erinMedia, TNS and others are now forcing it to embrace digital TV set-top data streams as an alternative option. And a wide array of new media players are forcing it to embrace and adopt an array of technologies for "following the video" anywhere and anytime it shows up on a new platform.

Whether Donovan will prove to have similar market leverage is not yet clear. Unlike Nielsen, which represents the trading "currency" that allows buyers and sellers of media to conduct commerce, Donovan's intellectual property is not based on unique streams of data. It is based on what it claims is a uniquely superior way of processing them. And for better or worse, that has made Donovan Data Systems the de facto operating system for Madison Avenue. The big question on everyone's mind will be whether MediaBank will represent for Donovan what Apple did for Microsoft.

2000 Starcom shutters highly regarded, but expensive in-house data processing system, begins using DDS.

2004: SMG signs a three-year contract with DDS.

2005: SMG offers to renegotiate its contract with DDS trough 2007 and extend a new contract through 2012. Offer would form a "partnership" in which it would help develop a new, state-of-the-art digital media system in exchange for some preferential terms/treatment. DDS declines. SMG says it will pursue an alternative resource for its digital solution.

July 2006: DDS receives a call from MediaBank to make a presentation on its systems.

August 2006: DDS executive James Biskupic presents to MediaBank.

November 2006: Nancy Oppasser hired to work on project to design a new media data processing system for MediaBank. December 17, 2006: Oppasser expresses her ethical concerns about access to proprietary DDS information.

December 18, 2006: Oppasser is fired.

February 2007: Oppasser shares her concerns with DDS.

May 14, 2007: Michael Donovan flies to Chicago to meet with Publicis Media Group CEO Jack Klues and CFO Frank Voris. Shocks them by revealing "confidential" document.

June 2007: MediaBank acquires Datatech. SMG begins the process of transitioning from DDS to Datatech.

October 2007: SMG begins hiring "temporary help" to aid in the transition, claims more than $1 million in incremental, temporary labor costs to manage the process. Begins processing its media transactions on parallel systems: DDS and Datatech.

Dec. 20, 2007: Judge denies SMG's motion for a temporary restraining order that would require DDS to continue processing buys for SMG's clients.

Dec. 31, 2007: Donovan pulls plug on SMG systems (except for Canada, the U.K. and GM Planworks).

January 2007: Publicis Groupe Media Executive Director of Digital Development Nick Pahade leaves agency to join GSI Commerce after leading the team that developed the MedaiBank system for SMG.

Feb. 15, 2008: Wall Street Journal breaks "Ad Heavyweights Battle Over Software" story.

March 5, 2008: DDS unveils iDesk, MediaBank pitches OX at American Association of Advertising Agencies' Media Conference and Trade Show in Orlando.