Are Web Giants Looking to Edge Out Ad Agencies?

NEW YORK When Martin Sorrell used the term “frenemy” to describe WPP’s view of Google, he struck a chord in an industry wary of Internet giants’ growing might. Since then, concerns have grown even more as both Google and Microsoft edge further into agency services.

Both companies have a similar goal: becoming the advertising “operating system” of the future, used by marketers and agencies to run campaigns, and optimize them based on user behavior. Although neither claims to have an interest in cutting out agencies, recent moves lend credence to concerns that Google’s ever-expanding business will encroach on agency turf.

Google last week confirmed the development of a “Creative Lab,” charged with developing ad concepts using its many products and technologies. To head the effort, Google poached Ogilvy & Mather New York president Andy Berndt, whose background includes creative and account management positions at TBWA\Chiat\Day and Weiden + Kennedy. Microsoft, meanwhile, has already bridged the divide among agency, publisher, and technology provider with the acquisition of aQuantive, parent company of Avenue A/Razorfish. Google and Microsoft already are pushing ahead with far-reaching ad placement systems that could vastly undercut the role of media agencies, while they now own the top ad-serving companies.

“The holding companies are starting to realize the other holding companies are not necessarily the biggest competition they face anymore,” said David Moore, CEO of WPP Group’s 24/7 Real Media ad technology company. “The competition is not going to be IPG or Omnicom, it’s going to be Microsoft, Google and others that may not have emerged yet.”

While Google has been reaching out to Madison Avenue, its presentations have concentrated mostly on search, sources said, leading some to question its intentions.

A Google rep said Berndt’s hiring is not the harbinger of Google building creative services, and Berndt will not work directly with marketers. (Berndt declined to comment.) The main focus of his job, a rep said, is to work with agencies to utilize Google’s growing number of products aimed at brand marketers.

Yet Google is turning its attention squarely on brand ad budgets, after mostly building its search business directly with advertisers. Just last week, it launched widget ads, a display ad format that includes animation, video and other tools it hopes will appeal to big brand advertisers that have yet to spend significantly on Google’s non-search ads. It plans to tap into its pool of thousands of developers who already make Google widgets to provide creative services to advertisers that need them. It has a similar “ad creation marketplace” for video spots, and last week introduced a way for advertisers to make their own print ads for newspapers.

Microsoft, a distant advertising market force compared to Google, arouses less consternation with agencies. Yet some admit they aren’t thrilled that ad dollars going to Microsoft will support a competitive agency in Avenue A/Razorfish. “Are we thrilled Microsoft owns an ad agency? No,” said a holding company source.

Microsoft has vowed it will manage Avenue A/Razorfish “at arm’s length.” Meanwhile, it’s newly formed Advertising and Publisher Solutions unit will bring together the many assets that serve as the basis, it hopes, for a mass reach platform, along with campaign management tools, for agencies to use. Owning an agency will help the company develop services and tools, said Brian McAndrews, svp of Microsoft’s Advertising and Publisher Solutions unit and the former CEO of aQuantive.

“I just don’t think it will happen or can happen,” he said of Microsoft competing with agency groups. “Microsoft is arguably more agency friendly because we own one. It’s not a role APS wants to play. We want to play a support role.”

Microsoft has long wooed ad agencies in its efforts to make advertising a bigger part of its business. Now that it has acquired several assets in areas such as ad networks, video games and mobile, it is ramping up those efforts even more.

Agency executives profess skepticism that Microsoft will ever build up significant creative capabilities. Several agency executives and industry analysts said they still harbor doubts that Microsoft will keep Avenue A/Razorfish, since it is not critical to its goal of being an ad operating system, presents a conflict with a Microsoft unit negotiating to buy media from other Microsoft units, and potentially alienates agencies uneager to fund a competitor by buying from Microsoft. Peter Kim, a Forrester Research analyst, said, “Let’s watch that play out,” adding he would predict Microsoft sells or spins off the agency.

Of the holding companies, WPP Group has been the most publicly skeptical of Google, whose purchase of DoubleClick was the catalyst for closing the $649 million 24/7 Real Media deal. WPP CEO Mark Read said the purchase validated the company’s belief that advertising companies need to develop their own tech platforms to stave off competition from new sources.

“Google is a customer in some areas and a competitor in others,” he said. “We’ve been managing that. You see that across the industry with all the recent acquisitions. The landscape has gotten more complicated.”

But for all the talk about technology, many agency executives remain sanguine that tech companies can’t replicate agencies’ combination of creativity and unbiased strategy.

Micrsoft’s McAndrews agrees. “People who believe that all agencies do today can be replaced by a technology solution are just wrong,” he said.