Q&A: Digitas’ Kenny

NEW YORK In December, Publicis Groupe inked a $1.3 billion deal to acquire Digitas, the Boston-based digital communications company that includes Modem Media and Medical Broadcasting Co.

The deal brought the second-largest independent interactive ad company into the Publicis fold, allowing the Paris-based firm to diversify its revenue mix with added marketing services.

Six weeks later, Digitas CEO David Kenny sat down with Adweek senior reporter Brian Morrissey to discuss the Publicis deal and the digital space in general.

Q: What does being part of Publicis mean for Digitas?
A: For the Digitas clients that have global operations, they’ll be able to use a global digital agency [through the reach of the Publicis network]. For our media partners, they’ll be able to work on a technical and operational plan that can be scaled globally with an eight-digit global media buyer.

How much does scale really matter in the world of online advertising?
Scale matters because technology matters. If you’re going to build next-generation analytic capabilities, or you’re going to build integrated search and display capabilities, you need scale. It’s like the software business. Think of the big portals as operating systems for advertising. Being the biggest value-added reseller of an operating system is a good position to be in.

Describe the mechanism for Digitas’ globalization.
In each major market, we have a choice of rebranding a Publicis asset, or opening organically by moving people but having them work in another Publicis facility. Or we can make acquisitions. But within Publicis, there’s already an infrastructure to build from.

It sounds like you’re partial to building, versus buying.
Absolutely. I’ve always favored organic [expansion]. That isn’t to say we haven’t done a couple of good acquisitions—but acquisitions are hard. We have a way of doing things, and we have a culture. That’s much easier to [transplant] organically.

Why is it time for interactive agencies to be global?
Google’s becoming a global franchise. MSN’s a global franchise. Yahoo’s becoming a global franchise. [And] there are some emerging markets like Russia and China and India: As they get new wealth and consumer buying power, people there jump immediately to the Internet.

When you were independent, you said it didn’t matter that you weren’t part of the same holding company as clients’ traditional agencies. Why does it matter now?
What’s becoming clear is the degree of operational coordination required in tagging assets and then measuring what happens across the Net. [With a client] like General Motors, we have a strong relationship with GM Planworks as the media agency. By getting the teams together and aligning the P&L’s, we’re able to move much faster for GM to make sure the creative side and the media side are connected. We certainly tried to coordinate before, but I think the full alignment of incentives makes it easier for the teams to work together.

You had mentioned before that Publicis was unique among the holding companies. How is it different?
It’s been dealing with big clients over the years like P&G and GM to build capabilities. Because it’s [comfortable with] building something that’s client specific, it’s a lot easier for the digital operations to be configured [properly], as opposed to just trying to bolt digital onto a general agency.

Are Digitas agencies jointly pitching clients with other Publicis agencies?
They all have some digital capabilities: Leo Burnett has Arc, Starcom has IP and Initiative has Moxie. When clients have needed a more scaled marketing engine, they’ve introduced Digitas. Where it’s clear Digitas will play a role…we’ve gone in as a team [with other Publicis shops] and it’s actually been quite seamless.

Would you expect clients to want more of that seamless approach?
Packaged-goods, movies, quick-serve restaurants and apparel and cosmetics companies have tended to be [focused on] image advertising. They don’t want the complexity of the digital agency, for the most part. On the other end of the spectrum, the direct marketing businesses—financial services, retail, travel—have a digital agency that actually drives sales in addition to a brand agency. They don’t necessarily think those need to be connected. In the middle are very targeted businesses like auto and pharma that don’t transact online. They want a deeper level of coordination.

Where do you expect the most growth for digital marketing?
The direct marketing sector: those companies are already spending the biggest share of their budgets online, and it’s accelerating because it’s substituting for direct mail, it’s substituting for newspaper ads. It’s a way you can build segmented offers and segmented brand positions. Globalizing those clients and moving more of the brand dollars is going to continue to drive growth. The new sectors that have real potential are auto and pharma. We’ve had a good run with GM and I would expect us to continue to play a central role in their marketing. Pharma is our biggest investing sector. Pharma is a sector that is really getting serious about the Internet.

You don’t seem as bullish about packaged-goods companies, the traditional big spenders in offline advertising. Do you see their media mix changing?
I think it’s going to change because the retailers are getting smarter about marketing and they have to make sure the private labels don’t surpass them. VOD, DVRs and the convergence of the PC and television will change it. Mobile might change it.

You just won Miller. That’s a packaged-goods marketer.
Miller understands they need to move to digital media to attract their target [audience of people in their 20s and 30s]. They need to find new ad forms. You will see them invest a lot in content and a lot in more progressive media plans. Miller’s pretty forward thinking. I don’t think the whole food and beverage category has gotten to the place [where] they are.

Which areas of emerging media will be most important in 2007?
We still haven’t found the ad unit for social media. We’ve been able to do things like Cingular Underground on YouTube, and that’s working really well. But what is the right ad unit on YouTube? What is the right unit on MySpace? Is there a place for ads in the blog world? These are important questions for us to solve in partnership with the ad networks. I’m not satisfied yet that we’ve cracked that code.

What are some of the biggest issues facing the interactive industry?
Talent’s still a challenge, because you either have to retrain people who grew up in analog media or you have to hire new people and teach them the whole thing. This is so new and different that you really have a responsibility to attract, train, develop and then retain people. Getting the people part of the equation right is pretty essential to the industry, and it requires more investment than we’ve seen in the traditional world. Secondly, within the IAB [Interactive Advertising Bureau], we need to sort out the billing reconciliation process to be simpler, because it’s got so many different kinds of ad units that the system hasn’t really kept up with the volume of online media.

What is the most pressing issue facing the ad industry in general?
You’ve got to get people excited about learning the new, but not drop the ball on the traditional. I think this is a transition that could last a few more years.