• by Catharine P. Taylor , November 3, 2008

Some silicon players have ignored the DO NOT ENTER sign

A funny thing happened on the way to writing this story about the new Madison Avenue: Two of the new era's signature deals - the 2007 acquisitions by WPP Group of 24/7 Real Media, and by Microsoft of Avenue A | Razorfish - were rumored to be in the process of being undone.

In a swap of assets worthy of a Major League Baseball trade, the plan was for WPP to unload some of the ad-serving company's assets to Microsoft, owner (as of its acquisition of aQuantive) of one of 24/7 Real Media's chief competitors, Atlas Solutions. In return, Microsoft would hand Avenue A | Razorfish, the ad agency it acquired as part of the aQuantive deal, to WPP, ending one of the stranger holding company/agency relationships ever seen in the history of Madison Avenue. Who ever thought that while Bill Gates was busy making commercials with Jerry Seinfeld, among his progeny would be an ad agency?

Thus, WPP would be extracting itself from part of its acquisition of 24/7 Real Media - which gave WPP a number of sales-side functions - reasserting its focus on what it got into business for: giving advertisers a wide array of marketing communications services. By owning some of 24/7 Real Media's assets, Microsoft would be emphasizing that its place in the advertising world is primarily as a publisher and provider of technology. And as for Madison Avenue - which these days exists admittedly only as a state of sloganeering mind - it would be a return to its roots, albeit ones that have been forever altered by the drive toward technologically driven accountability, efficiency and effectiveness.

But don't be fooled. Even if the deal happens (the players involved either didn't comment on queries, or plead ignorance), it doesn't signify much of a return to anyone's heritage. The changes in technology, not to mention the insight and input from consumers that the technology has unleashed, have so profoundly altered the business of advertisers, agencies, media companies and some major technology companies that the boxes that once neatly
contained each of these industries are now, and perhaps forever, porous.

Even if such a deal were completed, the marketing and media industry would wake up the next morning and still find that in its midst were mutant newcomers such as Spot Runner, which is marrying technology and agency-like services, including creative, into a new kind of advertising company; Havas Digital would still be storing and analyzing data with its Artemis technology, described by the company as a "proprietary marketing decision support system;" and as for WPP (which, like competitor Interpublic Group, has a stake in Spot Runner), it would probably still be in hot pursuit of TNS, a leading provider of marketing intelligence, including data on how much marketers - including both WPP clients and non-clients - spend each year in advertising.

And Nancy Hill, the president-CEO of the American Association of Advertising Agencies, might still be wondering how she would field the call if Google, which certainly offers its share of agency-like services, were to request membership. When asked about this hypothetical, however, Hill's response isn't that Google wouldn't be permitted membership in the leading agency trade organization. Rather, the big decision would be how to determine what Google should pay in membership fees, since only some of its tens of billions of dollars in annual revenue comes from the agency-like services on which the 4A's dues are based. "Avenue A has been a member for years, so I think it would be unfair to say to Google, 'You can't join,'?" Hill says. Google says it is not an agency and has no plans to join the 4A's.

So, Google says it's not an advertising agency. But on the new Madison Avenue, the Silicon Valley darling still partially fits the definition.


Two-Way Street
While it may be strange to contemplate what it would be like if Google joined the 4A's, as WPP has illustrated, the line-crossing is taking place in both directions. Agencies, not known for cranking out code, are learning to embrace the once foreign world of technology. "Doing marketing and advertising right these days requires significant investments in technology and technological expertise," notes Randall Rothenberg, president and CEO of the Interactive Advertising Bureau.

But like the Silicon Valley companies that have led advertising's charge into using digital technology, the agency world, now that it has crossed the line and embraced technology, hasn't exactly followed one route, and therein lie the twists and turns along the once straightforward boulevard of Madison Avenue. It's no coincidence that probably the first agency to step outside of the agency services box was actually based nowhere near the place, and that was Seattle's Avenue A, which, in 2001, launched what became Atlas Solutions, offering what had been its in-house digital marketing technology to other agencies. At the time, it took a lot of audacity to suggest that agency competitors could simultaneously be customers. Even though advertisers, agencies and media companies had begun to dip a toe into digital media, they still stayed in their part of the pond. Digital agencies planned, bought and created ads; digital media companies sold inventory; advertisers advertised, and so forth.

And, back in 2001, the holding companies were still involved in bidding for their share of old-school "Big Bang" acquisitions. But the last time a holding company bought another major agency group was early 2005, when WPP bought Grey Global Group for $1.3 billion (rising share prices made the deal worth almost $1.7 billion), the exact same price that Publicis paid for the much smaller Digitas in December 2006.

Now, the sort of "co-opetition" that Avenue A pursued is, if not commonplace, at least raising fewer eyebrows. "It's a very difficult transition, but everybody's going to understand that it's for everybody's benefit," says Hill.

According to Rishad Tobaccowala, CEO of Publicis Groupe's Denuo, it's all an outgrowth of the vastly transformed relationships that consumers, via technology, have with advertisers, in which consumers are in charge. "In such a world, what starts to happen basically is that the structures of service-providing companies begin to fray," he explains.

Adds Mindshare North America CEO Scott Neslund, "We believe we're in an era of negotiation with consumers." That insight led to what the longtime media agency describes as a "reinvention" earlier this year, which bolstered the agency's research and analytics capabilities and its ability to create content and have stronger partnerships with media companies - and not just in terms of that old-school must-have: buying clout.

One of the most interesting examples of co-opetition, if not the most headline-grabbing, is the small stakes that both WPP and Interpublic Group have in Spot Runner, a company that uses technology to disrupt the people-driven infrastructure of the typical advertising agency. Describing itself at its start several years ago as an "Internet-based ad agency," it then featured a self-service media planning and buying platform for TV commercials, and dozens of customizable video ads in a number of categories. Its model suggested that not only media, but creative - the secret sauce of the agency world - could be commoditized. More recently, the company has moved into other media and begun to court national advertisers, which can use Spot Runner to target commercials at the neighborhood level, and promises data in real-time for TV - the kind of datastream that is usually associated with Internet ads. As the company's Web site explains: "At Spot Runner, we don't make art films, we grow your business." Ouch. Don't tell that to Lee Clow.

To company president John Gentry, the beauty of Spot Runner is that as media fragments into ever more channels, as data becomes more available and consumers harder to reach, its technology provides scale that old agency structures can't. "You can no longer scale that with people," he says. Today, most holding-company CEOs would nod their heads in agreement, as IPG and WPP have with their pocketbooks. "The opportunity to learn from and partner with a new media platform was attractive to us, in that it will help us raise the level of service we provide to our clients," explains Philippe Krakowsky, IPG's executive vice president for strategy and corporate relations. Go back 10 years, however, and their response probably would have been to pooh-pooh Spot Runner's model instead of partnering with it, secretly wondering if those quirky left-coast technologists were onto something that might destroy their business.


A Circuitous Route
But making small investments in a rule-breaking, technology-driven advertising company is but one way that agencies are in pursuit of building technology into their businesses. Not only is the new Madison Avenue full of twists and turns, it also has its share of side routes. None of the major holding companies are incorporating technology into their businesses in quite the same way.

Certainly, Interpublic and Omnicom Group have the most conservative strategies of the holding companies Big Four, pursuing smaller strategic partnerships, investments and acquisitions that tend to be in keeping with their marketing-services roots. Omnicom's Jonathan Nelson, who consults with CEO John Wren on digital matters, won't comment on its strategy, but one thing is for certain: It wouldn't have been interested in buying something like 24/7 Real Media. Instead, it has been working digital units - some of which it first invested in during the mid-1990s - into collaborative relationships with Omnicom companies with a more traditional bent. This includes giving support to DDB's strong digital unit, Tribal DDB, and having Organic work closely with BBDO; Omnicom also purchased a majority stake in digital shop EVB in 2006 and has arguably the biggest digital media agency in OMG Digital, the Omnicom unit that houses the digital operations of OMD and PhD. OMG leverages the two units' scale, not just in buying but in areas such as consumer insights, which can help clients plan better in digital media. All of this certainly puts Omnicom on the digital advertising map, but an issuer of press releases on earth-shaking digital deals it is not.

Interpublic's quieter approach is partly attributable to its management having to spend much of the past few years getting the financial house in order and straightening out existing units, such as DraftFCB, Initiative and MRM Worldwide, which it has been building into a global digital agency brand. While much of IPG's digital work is basic blocking and tackling, some of its smaller deals fit the road map of the new Madison Avenue: In addition to its Spot Runner investment, it owns less than one-half of 1 percent of Facebook (Microsoft's 1.6 percent stake has been valued at $240 million), and has a number of strategic partnerships with companies such as word-of-mouth practitioner BzzAgent. The importance of these small stakes is that they give IPG an early bead on each company's innovations and preferred pricing. Its IPG Emerging Media Lab gives hands-on test drives of new technologies to clients and also lets them test advertising in new applications. "We are making targeted and carefully considered investments from the corporate center that will provide opportunities to experiment with digital technologies, or that bring scarce or highly specialized competencies into the group," says Interpublic's Krakowsky. "But our most significant bets are being made at the agencies - principally in people and technology - so that leading-edge digital capabilities are embedded within all of our operating brands."

Even though Interpublic and Omnicom are quite serious about their digital strategies, neither telegraphs the peculiar dislocation that now finds companies cooperating that never would have decades ago, and, conversely, puts companies in entirely different businesses in competition with one another. Publicis, once an agency group with few strong digital assets, changed all that with its 2006 acquisition of Digitas, which, with Publicis' capital, is becoming a burgeoning global agency brand. It has an ongoing educational and technological partnership with Google (and other partnerships with companies including Comcast, Yahoo and AOL's advertising.com), and also bought a search agency, Performics, from Google that Google acquired through its purchase of DoubleClick. It has also started a digital production arm, Prodigious, which uses cheaper labor in places as far-flung as India and Costa Rica to produce the huge volume of ads needed to target ever more narrowly defined audiences. WPP recently followed suit.

And then there's VivaKi, the organization that serves as an umbrella group over Publicis's digital assets. According to David Kenny, the former Digitas chief who serves as managing partner of the organization with longtime media agency chief Jack Klues, "The formation of VivaKi was a pretty clear declaration that we were stepping up to this market." The unit's primary aim is to create scale across all of its digital assets, making its relationships with the media community more productive, but if that sounds like OMG Digital, VivaKi is not its doppelgänger. The organization is embracing the open-source movement, so, theoretically anyway, some of the systems it develops could be used or collaborated on with competitors such as WPP, Omnicom and Interpublic. "That's our strategy," Kenny says. "We also felt that open systems scale better."

In trying to develop platforms open to any interested party, Publicis could help address a key issue that inhibits ad spending: lack of standardization. According to a study of the marketing and media ecosystem that Booz & Company is conducting with the 4As, the IAB and the Association of National Advertisers, 98 percent of media companies say lack of standardization is a major problem. [Editor's note: The reporter has served as a consulting editor to Booz & Co., and has helped draft stories about the study for the firm, but did not participate in the research.]
Given the long, contentious rivalry between agency holding companies, could competitors really learn to play nice with Publicis? According to Steve Lanzano, U.S. COO of Havas's mpg, maybe not. Asked if competitors would embrace a groundbreaking advertising technology built by a rival holding company, he says, "First and foremost, they'll try to duplicate it or find somebody who can."

To some, the question of being "open source" has more to do with being open-minded about what resources to use. To Mindshare's Neslund, it has more to do with being open-minded about partnering with whatever resource makes sense. "You allow open source when and where you need it," he says.

While Publicis differentiates itself by applying the term "open source" partly to technological solutions, the approach followed by WPP in terms of partnerships is more wary. CEO Sir Martin Sorrell has famously referred to Google as a "frenemy" or a "froe" and seems skeptical of Publicis's alliance with the search giant. He said at this year's World Economic Forum in Davos,
"Next time I meet with [Google CEO] Eric Schmidt, I think we'll send out a press release." (WPP would not comment about its digital strategy.)

Although WPP is building an online media-trading platform with Yahoo, it's proprietary - no outside holding companies need apply. However, a WPP marketplace that is also being built out as part of the deal does allow third-party publishers in.

The acquisition of 24/7 Real Media was a direct attempt by WPP to compete with Google and Microsoft, since 24/7's two prime competitors, DoubleClick and Atlas Solutions, are owned by Google and Microsoft respectively. But there's another way of looking at the deal, and that's that WPP wanted to own its own batch of consumer insights, something that agencies don't usually have. Chris Vollmer, Booz & Company partner and leader of its U.S. media business, sees owning consumer insights as the straw that stirs digital media's drink, and attributes the vast amounts of consumer data sitting on the servers of digital media companies as fundamental to their rise. "The media companies themselves, particularly the digital media companies, have evolved and taken a broader role than they used to," he says. Indeed, the Booz & Company research shows what a hugely powerful weapon the ownership of data can be; the vast majority of media companies that have participated in its study leverage their consumer insights to provide agency-like services, with 91 percent saying they provide such things as campaign development, creative development and idea generation. What media companies are often able to do is use the data they gain from their digital properties' audience to build customized programs, often getting rid of the middleman: the ad agency.

It's not that they necessarily want this role. Most see creative as still being the job of the agency, but with many agencies continuing to find their way in the digital era, media companies and clients, increasingly pressured to use digital media to drive accountability, have done what it takes to execute digital advertising.

The WPP-24/7 Real Media partnership has worked, at least from 24/7's perspective. Says David Moore, 24/7's chairman and founder, being part of WPP "gives us access, better understanding of what [agencies and advertisers] are trying to accomplish."

WPP also diverges from the pack in its strategy of securing small stakes in a variety of companies involved, somehow, in the digital advertising business. And the emphasis is firmly on the somehow.

In addition to its Spot Runner stake and digital agency holdings, such as Los Angeles-based Schematic, WPP has investments in Visible Technologies, which provides software that enables advertisers to manage their reputations online, online video platform provider VideoEgg and Visible World, which is involved in addressable, video-based advertising, to name a few. Ian Schafer, CEO of the independent digital agency Deep Focus, says a strategy such as WPP's "illustrates ... that holding companies are diversified investment portfolios." In other words, with the question perpetually unanswered as to how digital advertising will shake out, the best way to create value for shareholders is to place measured bets in a number of areas, even if they fall outside the longtime agency role.

Talk to a few competitors off the record, and the following becomes clear: Virtually nobody thinks WPP's strategy is on target. One rival went so far as to call it a "lack of strategy."

In the agency world, a more popular viewpoint seems to be not owning data, as WPP does, but being able to analyze it. "We have to be able to analyze data," Kenny emphasizes.

But who's to say WPP isn't the one on the money? Throughout other parts of the marketing, media and advertising industries, unusual business structures abound. Johnson & Johnson owns the über-parent portal BabyCenter; Meredith owns interactive agencies; and Microsoft, as of this writing, at least, still owns Avenue A | Razorfish.

On the new Madison Avenue, what's just around the curve remains unclear.