NEW YORK Eighteen months ago, Martin Sorrell was among those questioning the wisdom of Rupert Murdoch after he paid $580 million for the company behind MySpace.com.
In 2005, Murdoch had embarked on an Internet shopping spree that the WPP Group CEO described as a "willy-nilly" strategy born of a "considerable degree of panic" that typified the concerns of traditional media owners over the loss of consumer attention and ad revenue. While many thought the News Corp. chief overpaid at the time, it turns out Murdoch got what might be the steal of the century—an RBC Capital Markets analyst reckons MySpace could be worth from $10 billion to $20 billion in a few years.
It now looks like Sorrell is searching for his own MySpace moment. In recent weeks, he has been a vocal critic of Google's proposed acquisition of Internet ad firm DoubleClick, which he had reportedly shown interest in as well, and he is said to be looking at an investment in 24/7 Real Media, which is also an ad server but not considered to be close in caliber. 24/7 did not return calls and Sorrell declined interview requests. He has, in the past, been front and center identifying early opportunities, taking an early interest in marketing services companies and evolving markets like China. Now, he's attaching a new urgency to investing in the new marketing technologies that will define emerging digital platforms.
In a recent piece published in WPP's internal publication, The Wire, Sorrell said: "The digital revolution represents a threat—particularly as the Internet and other new media offer clients ways to reach their customers without going through traditional agencies—but also an enormous opportunity which we have to grasp."
Historically, Publicis, Omnicom and the Interpublic Group of Companies made their digital investments in agencies and talent. Publicis, for instance, has staked its digital future on its $1.3 billion acquisition of Digitas.
Executives at Omnicom and IPG declined to comment on their future digital plans. Omnicom is said to believe that the technology is changing every day and the real game lies in figuring out how to use the data. Omnicom CEO John Wren, on a conference call last week with investors, remarked on Google's bid for DoubleClick: "I think, depending on [whether] this deal gets approved or not, it will be very beneficial for a company like Omnicom. ...By the time this deal gets approved and then implemented, we will be well ahead of everybody else by acquiring the right talent and building out incremental needs. We will have to be a very important client to them and a very important asset to our clients once the lines of privacy—what can be done and what can't be done—are better defined."
For his part, Sorrell appears to be pursuing the automation and technologies that are playing an increasing role in the world of marketing. (In a tongue-in-cheek speech at Cannes last year, Sorrell showed a Rube Goldberg contraption of a "fully-automated creative department" to replace the "painters and decorators" he now employs. He joked that of WPP's 957 or so companies full of "egomaniacs," the creative people were the worst, with "no common sense, no commercial sense and most of them can't even add up." Getting rid of the creative department would make running an ad agency so much easier, he said, adding that he now thinks that's possible.)
WPP is Google's largest individual customer, spending $200 million on Google's search advertising in 2006, up from $150 million in 2005. If Google is successful in its bid for DoubleClick, the Internet giant effectively becomes a WPP competitor—and one that clearly makes Sorrell nervous. In his public comments, Sorrell has frequently cited Google's market capitalization, underscoring how much larger it is than WPP, even though the holding company employs far greater numbers of people. "[Investors are] saying something about our business model," he's said about the differential. The message Sorrell appears to be taking from that is: Google has a highly automated advertising system while WPP is a less-efficient services business. While WPP's employees are sleeping at night, Google's machines are generating cash.
What's more, Google has proven that automating the creative and media process through ad networks is key to the future of digital media. WPP is said to have been talking to 24/7 on and off for the past year. 24/7, for example, places ads on 1,000 sites, which it is expanding into a mobile network. It also operates an ad server that publishers use to display ads on their sites and report their results to advertisers. By owning technology it could use to serve ads, WPP could potentially have access to reams of consumer behavioral data, yet it would likely be limited in its use.
DoubleClick, for instance, has said that Google would not have access to its data, which belongs to its clients. (Yet some have fudged the distinction. The most prominent example is aQuantive, which operates an agency business, Avenue A/Razorfish; ad server, Atlas and media network, DrivePM. All three parts feed each other.)
In a company like 24/7, WPP could use its technology as a platform to build a robust ad network. Here's how it would work: The London holding company could develop a WPP.com cookie for clients. It would be placed on consumer computers, and then WPP could use the aggregate user behavior to target ads across the Internet for clients. The purchase met some resistance from WPP Internet media agencies. They are said to have a low opinion of 24/7's network, which many consider to have low-quality sites, sources added. One source, commenting on the benefits of owning both the ad server and data: "It comes down to increased buying power. You can learn a lot and create a lot of leverage."
In the meantime, Microsoft, which lost out on DoubleClick, is also interested in 24/7. Microsoft did not respond to a request for comment. As one source put it: "There's no way Microsoft will lose a bidding war again, particularly to WPP." Sorrell publicly bristled at the multiples paid for MySpace. Similarly the WPP chief—and his industry competitors who have also looked at these ad network companies—have blanched at 24/7's $600 million price tag, sources said. They suggest Microsoft would be willing to go considerably higher than that.
"There are some seismic shifts we're seeing in the marketplace. It has big implications," said a WPP competitor. "[WPP] could be moving to a direction that is less creatively driven and much more systems driven."
WPP has already shown a particular interest in ad networks, investing in mobile search network JumpTap, online gaming network Wild Tangent, and budding video ad network VideoEgg—investments where the unifying thread is automation. In such businesses, Sorrell has found his Google, where machines replace the human process of placing ads. Spot Runner automates the placement of local TV ads, Wild Tangent automates running videogame spots, VideoEgg automates user-generated ads and Visible World automates changing TV creative.
An executive from a competing holding company conceded Sorrell's apparent strategy "sounds good" but cautions that it is a tricky balance: "Clients often dictate which ad server agencies use. WPP would need to prove really added value, and ensure clients they won't take their data and use it in other ways."
Sorrell recently expressed those very same concerns about a possible DoubleClick-Google combination. "There's a question over whether our clients want their data on advertising to be made available to Google. I just think the issue for us is whether we are willing to share our clients' data on targeted [Internet] advertising with a competitor," he said.
Mark Read, the chief executive of WPP Digital, couldn't be reached for comment. However, he was quoted in The Wire as saying: "We'd like to make four to six acquisitions a year—we expect the pace to step up a gear." He added that WPP is also funding its own digital start-ups, but said, "There are a number currently in the works, but they seem to take a frustratingly long time to come to fruition. If anybody has a fantastic idea for a start-up company, they must come to us."
Yet agencies have a spotty record developing technology assets on their own, and such capabilities are going to be necessary as digital media evolves. "We're coming into the next phase of incredibly hyper-targeted addressability and there's a need for media and technology to work together better than ever before," said a WPP insider. "You can't be in the business without having technology. [WPP] needs to move in this direction."
Rob Norman, CEO of Group M Interaction, said WPP's digital strategy is consistent with its approach to traditional media: "From the perspective of WPP, technology is closer to the front and center of the delivery systems of the future than in an analog world. WPP is making considerable investment in this area, but this is nothing new. In an analog world we've invested in optimizing data and planning. This is just a different box of toys," he said.
And it's one that is completely changing the marketing game. "[Internet protocol] will eventually pervade every channel we use and thus change every aspect of marketing and communication strategy," Norman said.
In 2005, at the time of Murdoch's Internet buying spree, Sorrell took to task corporate execs who weren't understanding that quickly enough: "The problem is that most of these companies are run by 50- to 60-year-olds who have difficulty in getting it and really don't want change on their watch, saying, 'Well the next generation, my kids, and my grandkids are going to have very different media consumption patterns' is a little bit of a cop-out. It's actually happening now."
And the WPP CEO is determined to get out the message that he is not one of them. Sorrell wants investors to know that he is hip to digital media, like Murdoch was with MySpace. "He wants to tell the Street he has an Internet strategy," said a source. "He hasn't stepped up and that's what's happening here [with 24/7]. But I don't think he's going to get it."