Last December, an agency with no name, no office and no full-time employees shocked the media buying and planning world, without warning, by scooping up the lion's share of the North American business of Procter & Gamble, the world's largest advertiser. It followed that coup this past August by winning AT&T, the second-biggest media client in North America. The pair of wins encompassed approximately $5 billion in annual billings for two highly visible accounts that had been with Publicis and WPP, respectively, before moving on to their main rival, Omnicom (Dentsu Aegis' Carat retained some P&G business).
It seemed like a modern miracle. But the agency, Omnicom's Hearts & Science, is anything but an overnight success story.
New York's 7 World Trade Center rises 52 floors above the footprints of the former twin towers, where thousands flood into lower Manhattan daily. The floor-to-ceiling windows of the shop's headquarters on the 36th floor look out onto the Hudson River and beyond. Several blocks and more than a century removed from here is the American Telephone & Telegraph Building at 195 Broadway, which for years served as AT&T's home base. The neo-Classical icon, which hosted history's first intercontinental phone call in 1927, now houses the common thread weaving through this story's key players: a little-known data analytics company called Annalect.
A big data theory
Annalect founder Scott Hagedorn was a natural choice to lead the then still unnamed Hearts & Science after its P&G win took the industry by storm and Omnicom raced to build a new network almost entirely from scratch. It was Hagedorn, a 12-year veteran of Rapp, OMD and PHD, who answered the call in 2010 when Omnicom Media Group global chairman and CEO Daryl Simm and Omnicom CEO John Wren requested a review of the larger organization's data and analytics assets. That spark was the genesis of what would eventually become the holding company's not-so-secret media weapon.
"Annalect is part of the foundation of Omnicom Media Group in that it supports all of our agencies across the group and all of our capabilities," explains Simm. "But the broader vision here is we really have created a third media agency within our group that has a distinct positioning." Consequently, most of Hearts' leaders had for years worked together at other OMG shops and were all familiar with the Annalect platform.
The central, "disruptive" idea was simple: Omnicom decided that the most effective way to capitalize on the marketing world's increasing reliance on data wasn't to acquire an outside organization but, rather, build a new one from within.
"The reality is that we live in a world where CRM and addressable media channels are colliding," Hagedorn says. That is to say, the customer base of virtually every business has moved dramatically toward consuming media via mobile platforms and apps. Even the casual observer would conclude that the future of marketing, therefore, centers on using the data trails spawned by this behavioral trend in order to more effectively orchestrate creative campaigns. Annalect started as Omnicom's long-term effort to get ahead of this trend—or at least to keep from falling behind.
"We invested north of $10 million globally to create a [data management platform] five years ago for all of our clients because we thought it was going to be the new standard in marketing," says Hagedorn. "We're the first holding company to pay for doing one independently."
Today, Annalect is at the center of the Hearts operation. Hagedorn and company began to build the networkwide system by compiling multiple outside software programs, buying new assets and "renting out" others, and collaborating with a chain of programmers from New York to Bangalore (8 percent of Hearts' employees are in India).
"We took what had been a back-office capability [in Annalect] and brought it all the way to the front," Hagedorn explains, with the platform effectively becoming an agency unto itself.
"Omnicom demonstrated superior and proven performance in the area of data analytics, planning and buying, innovation, talent and financial value," P&G global brand officer Marc Pritchard told The Wall Street Journal following its review last December. He mentioned data and analytics first, but what really convinced the two largest U.S. advertisers to trust a new agency with their billions in media spending?
"Look, everybody in our business talks about data," says Hearts president Zachary Treuhaft. "In our case it was about making [that data] practical and actionable." One might say the agency's first pitch was in 2013, when Hagedorn met with Pritchard and P&G's then-chairman Bob McDonald at the Cannes Lions International Festival of Creativity to share the progress he had made on this long-term analytics project. His key argument was that P&G could no longer dominate the market by the sheer virtue of its size and reach. As it faced a growing number of smaller, more agile challengers, it would have to target consumers on an individual level instead.
Pritchard apparently never forgot that presentation when P&G launched a media agency review in May 2015.
"Omnicom Media Group had an opportunity to be invited into the P&G pitch," notes Hearts & Science COO Kathleen Brookbanks, who calls fellow OMD vet Hagedorn the yin to her yang. "The decision was that Scott would lead and we would pitch on the back of everything we had learned over the five years since he [started building] Annalect."
P&G, like so many clients, had been moving toward what pharma giant GSK called an "agency simplification" in the interest of cutting unnecessary marketing expenses and partners. Hagedorn recalls that "there was a savings component" to the P&G pitch, but his underlying strategy was the same one that helped an Annalect-powered PHD win Volkswagen and GSK: behavioral segmentation of audiences to facilitate smarter media spends.
The Hearts & Science group viewed P&G as a large, slow-moving vessel that needed a steady hand to guide its shift toward individualized marketing. "[Scott] had a vision of what the future of the agency business looked like," says managing director of marketing sciences Mike Storms, "and we were just waiting for the right place to act on it." Kind of like an industry Voltron, the agency ultimately reflected a group of well-tested parts ready to come together as a whole when an opportunity like P&G arose.
For its part, P&G is ready to adapt as it moves forward with the shop. "We're continuing to learn from each other as we refine the model," says Lauren Hoenig, director, North America media at P&G. "Overall, we're excited about the new capabilities and talent that Hearts & Science has brought, particularly with data, analytics and reporting. As a partner, Hearts has been responsive and agile, with a collaborative approach and strong accountability to helping our brands grow. Those are important foundational elements for us because we view our agencies as critical partners to our success."
The AT&T pitch came several months later. It started as a creative "jump ball" between BBDO and Grey (which worked on AT&T's newest acquisition, DirecTV) but ended as a tug of war over the technical capabilities of the agencies' parent companies. "We want to be even more innovative, efficient and precise in how we reach our customers," explains Fiona Carter, AT&T svp of brand marketing, advertising and sponsorships, about the telecom giant's decision to consolidate its business with Omnicom. Carter, who served as managing director of BBDO New York for more than a decade before moving to the client side, adds: "The integrated team of Hearts & Science and BBDO puts us in the best position to do that. They're delivering data-driven insights to help guide our advertising approach, from thinking and strategy to creative development and media buying. It's a game changer."
AT&T senior evp and global marketing officer Lori Lee was quoted in an industry publication saying Omnicom held a "slight" advantage in the review thanks to a pitch that cast Hearts as a way to enhance BBDO's creative work. Consolidation was especially appealing because, as the industry learned from AT&T's subsequent $85 billion bid for Time Warner, the company hopes for a future in which it owns both the ability to produce content and the distribution network through which it is seen. By combining the incumbent's creative work with Hearts' targeting, Omnicom presented the same sort of vision on the agency side.
"The fundamental premise is building an audience by individuals who we can then segment based on behavioral and contextual characteristics and interests," says BBDO Worldwide president and CEO Andrew Robertson. So rather than marketing to millennials or women 18-34, the AT&T teams at BBDO and Hearts can theoretically take segmentation much further, thereby reducing the risk in spending millions to make and place those ads.
40,000 needles in a digital haystack
"We don't call ourselves a media agency," Hagedorn declares. "I've never done a traditional media plan in my life." Yet despite talk of tech-driven differentiation, only 40 percent of Hearts' media buys are programmatic. Most of the aforementioned $5 billion still goes to place 15- and 30-second ads on live television.
The real differentiator, says Annalect global CEO Slavi Samardzija, lies in the thousands of individual data points, or needles, surrounding each anonymized consumer profile in the database on which Hearts built its business. "If we truly have access to all this big data that everybody's talking about, then how can we tap into it to find what's most relevant to solving that business challenge?" he asks.
To underscore this, Samardzija pulls up a profile of a man in his late 20s that includes more than 40,000 such needles, tracking everything from where he buys his coffee and how often he goes to the gym to which political news sites he frequents.
Many agencies see the massive data troves from which such profiles are drawn as inherently useless until they've been categorized. Samardzija says data providers like Nielsen and comScore were "completely shocked" when Annalect asked to start at the granular level and process this information internally rather than buying presorted data sets. But the act of deriving insights from these nameless individuals and their information (which has no value without context) can sometimes lead to surprising conclusions.
For example, the Annalect team found that the value most common to consumers searching for electric cars is not environmentalism but a do-it-yourself aesthetic—would-be Tesla buyers are more likely to look up home improvement tips, science news and stock market updates than video guides to the zero-waste lifestyle. "We renegotiated a lot of our data contracts to get the data at the respondent level and then we used that as a way to create currencies, if you will," says Hagedorn. According to Samardzija, Hearts can now "put that [data] in the hands of a nontechnical user who can then point and click to combine all of these sources." Some of those laymen are planners who use the analyses to write creative briefs for the agencies working on clients' campaigns.
The team has gone so far as to develop a technology that collects thousands of YouTube videos sorted by the behavioral traits of the users who watch them, automatically scans each one frame-by-frame and creates a series of searchable tags based on such seemingly irrelevant commonalities as color palettes, crafting preferences and the aggregate facial expressions of the characters seen therein. In the future, if you happen to see an electric car ad focused on homemaking hacks or a campaign for a cleaning product featuring a young mom crocheting, you may well be able to thank Annalect.
Every agency that shares an Annalect client has access to the data in some form, whether it is part of Omnicom or another P&G roster shop like Wieden + Kennedy (which handles the Secret brand) or Grey (Gillette).
"One thing that's been a driver of our success is [that] clients are frustrated—they want it all to work better together," says Ralph Pardo, president of the AT&T account with Hearts. "We often talk about the reunification [of media and creative], but it's really not reunification. It's something new in its entirety."
Hearts & Science drew from Omnicom Media Group to staff its operations and also reached out to many of the executives who had handled its two clients' accounts at their previous agencies, MEC and Starcom Mediavest Group. But in keeping with its "smarter creative" goal, the shop has also hired executives from outside the media agency world: Treuhaft came from Grey and chief experience officer Tara Levine was CMO at Deutsch.
Levine, who Hagedorn has dubbed "minister of culture," framed the challenge as such: "We really are hiring way outside the usual agency box. Advertising's allure hasn't been what it has needed to be. We're thinking, what [about] the next generation?"
The agency's very name hints at a duality of old and new. "[We've] tried to position ourselves not as a luxury brand," Levine says, "but as one that is coveted. We want to pitch clients that feel right for us both culturally and in terms of being in line with our vision." It's a vision that combines the science of Annalect with the rhetorical "hearts" of the human capital radiating from a programmatic center.
On a broader scale, Hearts & Science could be seen as a victory for programmers and tech nerds over more "traditional" account managers. Or as Hagedorn's puts it, "I like to think of the new art director/copywriter duo being a strategist and a data scientist."
Delivering on a promise
An internal video describes Hearts as an agency for the "post-media world" in which telecoms like Verizon and AT&T compete directly with tech and ecommerce giants including Facebook, Google and Amazon to develop databases of increasingly well-defined user profiles. The most important decision a consumer can make in terms of his or her place in that market is which mobile device to buy and which provider's plan to use with it, because that decision determines how and where the advertisers whose investment makes the media universe run will try to sell them products and services.
In other words, Hearts aims to compete in the market that comes after TV as we've known it since the '50s. As tech and telecom companies compete to offer access to the most desirable "walled gardens" of content, Hagedorn says his agency will continue to distinguish itself by remaining platform neutral—unlike rivals that have acquired products made to favor one provider over another.
What will be the surest sign his approach has succeeded? "[It's about] leaving a mark on the industry and bringing a CRM capability to mass media … making advertising essentially sentient, if you will," says Hagedorn. "Making ads behave based on who somebody is and what they're likely to buy versus just blasting everybody with the same message over and over again until submission."
Naturally, this approach has its skeptics, as do all new ideas in an intensely competitive industry. "It's like JFK in 1962," argues principal Greg Paull of international agency consultancy R3. "They have a mission to fly to the moon, but we should wait to see if they can get there first."
Prospective clients of Hearts & Science will ultimately decide if the shop has made it to the moon. For now, though, P&G and AT&T have boarded the rocket and are well on their way.
This story first appeared in the November 14, 2016 issue of Adweek magazine.
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