Recently, David Kenny, who along with Jack Klues is co-managing director of VivaKi, sat down with Online Media Daily to explain what it's really about, how it works, and why other big agency holding companies might ultimately move to similar media organizations.
OMD: Well, it's clear that a slowdown has taken place during the first half of this year, and that it's also beginning to take some steam out of the growth engine for online and digital media.
Kenny: Certainly, advertisers are responding to a challenging economy, and most will adjust their overall budgets to fit the reality of the marketplace. This varies by client, by category and by degree. There are still growth opportunities in new areas, however. Digital has gained share in promotional and direct marketing. Social media is ripe for expansion as we navigate into that arena. Performance marketing, with its focus on customer acquisition and inherent measurability, will become de rigueur for our industry. Clients after all, still need to build their brands, and most recognize the need to do so in tough times as well as good.
OMD: A couple of weeks ago, we had a mostly off-the-record summit with the CEOs of the media services operations of the major agency holding companies. And your partner Jack Klues was there representing Publicis. And there seemed to be a little bit of angst that the business may not simply be going through a cyclical change in the economy, but that the media services business may be going through a secular change, and that the traditional way agencies serviced media may not be a sustainable business for much longer.
Kenny: I doubt Jack was expressing angst, because he is a co-author of VivaKi. We are partners because we have common views about what it takes to win, and VivaKi is very much a response to the fact that we are at the beginning of a fundamental change in the agency business.
For the last two decades, being a strong media agency meant aggregating a lot of clout, and using that clout to get better deals for advertisers. Advertisers were also aggregating brands, and media companies were consolidating. That's how it worked. During that period, advertisers were facing a lot of procurement pressure. None of this improved the pricing model. We still work fundamentally for 100,000 Euros per person per year, and fees are under constant pressure. This has created an industry in which agencies are constantly trying to get people to work harder, or trying to deliver value with fewer people.
The service businesses that have flourished--banking, consulting, IT--have done so by developing multiple revenue streams. They add value to both buyer and seller. They take far more risks in exchange for more return. They automate the appropriate aspects of their operations. They use multiple labor pools with different fee structures to manage costs. There are lessons to learn in this approach. Our fundamental mission is to reinvent the agency world on some of these constructs. We believe that the digitization of media combined with the expansion of media as bid-and-ask, plus greater targetability will add up to new opportunities for us.
This is what VivaKi is really about. On the one hand, we need to have different agency brands to serve advertisers. On the other hand, we need VivaKi to face the media owners and the networks and find new ways to add value to the brands and to our clients. Can we aggregate data? Can we target people more accurately and effectively? Can we create premium ad networks (because today ad networks exist only as a commodity)? What new market mechanisms can we develop? Can we accelerate the global footprint of important partners?
We are not building a better agency--we want to build a better marketplace while also bringing more value to our business. This is a much smarter proposition than just working for fees to manage buys. I don't want to diminish any of the work we've been doing, but our agencies are home to brilliant thinkers and we intend to liberate them to deliver true innovation.
OMD: So VivaKi is really the media industry-facing component, and the other media services units are still the client-facing organizations.
Kenny: Right. VivaKi is an accelerant that lives inside the brands. A lot of what we are trying to do is to face the media publishers and the networks (think Google, Microsoft, etc.), and work with them to build a better operating system so our advertisers can find the right audiences, as opposed to just buying space in some existing inventory.
OMD: So it's not using your centralized clout to leverage better deals with the media. It's utilizing your collective intelligence to find better ways of creating value for all the stakeholders: your clients, the media, and of course, Publicis.
Kenny: Yes. We think that's a more sustainable business to be in. We believe we are coming to the end of the way media has traditionally been negotiated. And we don't actually think it takes advantage of what digital can offer, which is to more readily target the most valuable audiences.
OMD: So there is a commodities aspect to the media marketplace, but what you are trying to do is elevate the value of what you are buying. And to automate the commoditized part of what you do with superior systems in a way that would create a more efficient marketplace so that you can concentrate your human capital and intelligence to create better value between the suppliers and your clients.
Kenny: Yes. Having some parts of this be automated, and more of it becoming transparent, would be helpful to making more intelligent decisions about the value of media. There will always be a part of the marketplace that is commoditized--things you buy to get pure reach--and that should be secured as efficiently as possible. But while some people fear that shift, we want to accelerate it. We think it is a competitive advantage to accelerate it, and then redeploy our client investments into things that create more value.
OMD: Another thing that came out of our CEO summit is that the media services industry is becoming a stratified market, with some agencies embracing a sort of open-source philosophy like Publicis, Aegis and Havas, and others striving to maintain a proprietary approach to the marketplace that leverages proprietary systems, methods and databases to maintain a market advantage. It's almost like a schism has taken place in our industry, and you guys are on one side of it. And some other big agencies are on the other side.
Kenny: I think that's correct. I don't want to speak about our competitors, but I think there is a fundamental debate taking place between open-source and proprietary systems, and our reaction has potential to reshape the marketplace. Again, there are lessons to learn from successful industries. In other markets, open systems have always won. At the end of the day, the Windows platform beat the Apple platform. The VHS system beat the Betamax. A closed system doesn't benefit from the most information and input. It doesn't capitalize on the best intelligence available.
OMD: Describe for us your vision of the ideal, most optimized world and where you want VivaKi to be two to three years from now, or whenever we get out of the economic malaise we are in right now?
Kenny: Ultimately, I'd like to say that our pricing will change--that the current, hours-based retainer will be replaced by more compensation tied to results, be they sales or brand measures. I want to see us build systems to buy audiences and communities, not just space in programming. And I think we can begin to get our segmentation embedded into the data of the publishers' segmentation. I want to see us more engaged in the development of programming. I don't want to over-commercialize programming, but understanding what is working and what is not working makes everything better.
OMD: Agencies have always played a role in the network TV development process. Do you mean playing a role in the development of programming across all media?
Kenny: Yes, all media. And I don't think that agencies have necessarily added enough value in the process to date. I would like them to be more fact-based about how they do it, more rigorous in the role they play, and more accountable to the process. I think too much of what has been done has been based on gut and anecdotal outcome. But program development is changing. The new process has to take into account multiple screens. We need to have more skin the game. If we want to invest in it, and have more performance-based advertising, we need to prove it. I want us to take more risks and get better returns for our clients as a result.
OMD: You alluded to your desire to develop new media services revenue streams. Would some of this kind of media investment spending be a part of that solution? Would you take positions in programming and media on behalf of Publicis?
Kenny: Yes. I also want to share the responsibility--and benefits--with clients. I think big advertisers have the ability to take profitable positions in media. I want to help them to do that with transparency and measurable return.
I also think that we can create valuable layers on top of ad servers that create better targeting. And we can bake that into a percentage of the revenue fee. I also believe we have extremely valuable data that we can sell to publishers and ad networks. There are consulting services, and data services, that can go from us to the media owners as well, because I can help them get better yield on their inventory by giving us greater targeting across their audiences.