Omnicom’s John Wren
The ad industry has been roundly criticized with the ultimate dis of the interactive age: “They just don’t get it.” One exception may be Omnicom CEO John Wren. Early on, Wren understood the value of online media and the entrepreneurial mind-set found at interactive startups. His interest in online media became evident in 1996, when he bought minority stakes in a handful of shops that were probably still paying off the credit-card debt that helped launched them. Some of those companies, including Razorfish and Agency.com, flourished. And Wren isn’t done investing yet. Last week, Omnicom’s Rapp Collins acquired Critical Mass, a Calgary-based shop that handles the new online cosmetics store reflect.com, which is partly financed by Procter & Gamble. Wren explains to IQ editor Catharine P. Taylor how the investments of the past need to be realigned for the future.
Adweek: Omnicom was the first advertising holding company to invest in interactive agencies. What was the motivation for embracing this category so early on?
WREN: Instinctively, I knew that it could become an important vehicle for communications. I had built DAS (Diversified Agency Services) from scratch when no one cared about it, but one of the focal points was database marketing and communicating to customers on a one-to-one basis and understanding the power of that. We saw an opportunity in these companies to take conventional database marketing up to a level we haven’t seen before.
Adweek: How did you select the agencies you ultimately invested in?
WREN: We evaluated the market two ways. First, we independently went out and evaluated who is in this space, what are their principals, and what kind of environment are they interested in. Then we went to our top clients and asked, “Have you guys toyed with this and if so, who have you spoken to?” Essentially, we married the two lists and cut the population down to 15. Then I personally went out and spoke to all 15. You can review the client list, but the rest of it is gut; it’s intangible. These companies were so small and brand new they could have either succeeded or failed. So I had to determine which type of people I wanted to work closely with and assist in becoming successful.
Adweek: Is it frustrating to hold only a minority interest in these interactive shops. Doesn’t that limit the real benefits?
WREN: No. I intentionally didn’t go to majority because I had a funny feeling Wall Street would do what Wall Street has done. And, you get the best and brightest people by being able to attract them to the newest and hottest environment. We were perfect for that. We knew how to work with entrepreneurs, we knew how to get them from the garage to the first floor, up to owning the whole building. We felt that a significant minority was absolutely appropriate to continue to nurture independence but still be the largest, and in many cases, single shareholder who would have influence.
Adweek: How closely do those companies work with the other Omnicom agencies, and what organizational structure do you see as the best way to service clients moving forward?
WREN: The real opportunity and the real challenge is to develop relationships with clients where you represent the portfolio of companies and you can properly advise them on how and where to spend their money. I think, increasingly, clients have to have that confidence that there are general practitioners that have access to resources that address all their special needs. It’s incumbent upon us to figure out how to accomplish that, how to build organizations which are pretty flat but client centered. We’re not there yet.
Adweek: You’re talking about integration. Hasn’t history proved that approach doesn’t always work, the “whole egg” model, for example?
WREN: The models of the past where you bang everybody together is not the cure because we live in a world where less hierarchy is important. “Whole egg” blows up in your face because Y&R wants to be the guy [running the show]. The challenge is creating the general practitioner; that the client has enough faith in to say that this individual is going to direct me to ideas and to the right resources and to where I’m going to spend my money. The challenge also is to identify those individuals who are more worried about the client growing its business than they are about their individual little silo. For example, out of the seven disciplines that service Chrysler or Pepsi, the question is: “Who are the key influences the client seems to have the most respect for?” It doesn’t matter what subsidiary they come from. Those people might have the primary relationship, but they are also going to have access to public relations, Internet companies, direct response companies and all sorts of other resources. I think you can build teams which are reflective of the way the client wants to operate, and start to lose the importance of the silos which were created in the traditional companies as they were built and then brought together.
Adweek: Have you been able to eliminate or reduce the squabbling and turf wars that would prevent an executive from outside the general agencies to run such a group?
WREN: No. Not completely. But I’m not saying that individual is going to tell the creative director of any of our traditional ad agencies how to create an ad. But when that individual needs that type of advertising, they will have access to those people. At this point, it comes down to the power and importance of the client. It comes down to the strength of the individual. It has to be a completely decentralized decision-making process for clients down to the lowest line level. And we will not interfere with that. It creates our strength, it creates an environment where very strong people find it easy to work. The challenge is how do we take that strength and get those people to better communicate with each other. How do we motivate them to accomplish that? How do we adapt the way we [motivate] people, both financially and emotionally, and align the client issues with their own personal game issues? We haven’t solved that yet.
Adweek: What’s your best idea so far for getting those companies to work together?
WREN: The best idea is to try a lot of ideas. We are looking at testing multiple models to figure out what makes sense. Just as every client-centric organization is going to require different things, there isn’t any one formula that is the answer. And you have to be careful not to destroy the past while you are creating the new. The objective is to align general media advertising, direct response, sales promotion and interactive marketing and transform our agency networks into communications groups. Our hope is that these communication groups can become media neutral and therefore more flexible in working for clients. Internally, everyone agrees in principle, but we are being very careful. The combinations must benefit clients, not our corporate egos.
Adweek: OK, describe one of the more promising examples.
WREN: A good example is Chrysler, BBDO’s largest client. DAS owned Ross Roy, whose primary client was Chrysler. The agency also had about $5 million in non-Chrysler revenue. In order to streamline the process of servicing Chrysler, we resigned all non-Chrysler revenue and moved the ownership and management of this company from DAS to BBDO Detroit. More recently, DAS gave BBDO a 40 percent equity interest in [promotional agency] TLP with the promise of transferring the balance of the ownership to BBDO in the future if they increase the revenue they both earn from other common clients.
Adweek: As your agencies try new ways to organize their resources, at what point do you interfere or object?
WREN: As long as it is a sound business idea, which is ultimately there to service the client’s needs, we don’t object. When you don’t really respect the people running your companies, your tendency is to become a policeman. We have a great deal of respect, even though we might not do certain things one way or the other. The other factor is, because we have been able to get ahead of some of these things, very often we have a greater knowledge base about some of it than our traditional companies that are getting into it. So they are not just presenting us with ideas to be reviewed and approved. Very often, they come to us and say, this is idea, you have some experience in this, can you look at it and comment. But I would have to say that the individual initiatives, especially the traditional companies, are largely being driven by their desires, their needs, their clients. We can operate all these different models to make sure we arrive at the proper place. That’s the beauty of a holding company; we can hold two opposing thoughts in our mind at once.
Adweek: What do you think about the role and importance of digital versus traditional marketing moving forward?
WREN: The analog business is still doing very well and advertising is growing. Actually, one of the things fueling advertising is all the IPO money that all these [new media] companies are spending in the traditional space. So one side is validating the other in a way. And, if you want to sell cars or soda or hamburgers, you are still going to be on network TV. Or if you want to introduce new products. The Internet has not depleted the importance of the traditional side of the business. And I would imagine that’s where I think we’ve been really lucky. If you look at our three worldwide networks and the four national agencies, we have consistently stayed at the top in terms of creativity. Ultimately, when somebody can zap out a commercial, the only thing that is going to make somebody come and look at it is if it is interesting, important and somewhat entertaining. It is more important to be the premiere supplier in that market than ever before. I think there’s an awareness, even by the greatest dinosaurs that still roam the land, that they have to gain some knowledge [of the online world] so they can talk intelligently to their clients.
Adweek: So if you are in traditional advertising, you shouldn’t worry?
WREN: No. I don’t think you need to worry any more than any other business. There’s certainly nothing to worry about in terms of what you do, being overtaken or replaced by this new environment. Are you in a business that’s going to be different 36 months from now? Absolutely. That’s the new world. That’s the new phenomenon. That’s the new requirement, whether you are in a traditional advertising agency or in an Internet company, that’s historically not what’s happened. If you had started in the work- force in 1970, you could have looked forward 10 years and projected more or less what the company was going to look like, and what they were going to be doing. Today, you can’t do that. Human nature isn’t going to change, the people aspects aren’t going to change that much. They haven’t changed since we crawled out of the caves, but the business-to- business environment, the requirements, the technology are all going to change. The only people who under any real risks in this environment are the preservationists, the people who want to preserve the status quo or revisit the past. Those people are in trouble. Everybody else is in a great position.
Adweek: Do you worry that perks like stock options are making it harder for general agencies to attract talent?
WREN: When the interactive companies used to be three or four people, you could give them all stock options; you could promise them a piece of the future. You could give them all eight hours off to go work on their specific projects and not worry about deadlines. Now, they’ve grown to be 800 or 1,000 employees, and you can’t give all those people stock options. So the financial incentive for people who are coming late to this, who didn’t get there early, is not nearly the same.
Adweek: But there is still a perception problem, though.
WREN: Yes, there is a perception problem. The other side of it is that a service business has the constant issue of what type of environment they create to attract employees. That is a real battle ground and I would imagine, if I was coming out of school today, I would find it a lot cooler to go work in Silicon Alley than I would to work on Madison Avenue. But it’s temporary.
Adweek: When do you think traditional agencies will become more comfortable with technology? And how does the reluctance on the part of some agency executives to embrace technology affect overall staffing issues?
WREN: Every business has turnover and those people leaving the agency business are not being replaced with people who are 45 years old who still think of computers as foreign objects or tools to accomplish a task. They are hiring people that are 20 and 22 and 24 who have long since incorporated technology into to their everyday life. In five years, you’ll find that the population of the traditional companies that have survived and prospered will be 50 or 60 percent people who embrace technology, rather than 15 or 20 percent. And the input that those employees have will be greatly influenced by the languages they know and the things that they are most comfortable with.
Adweek: Despite all the promising opportunities, many interactive agencies still seem focused purely on banner ads. What do you think of that?
WREN: That’s just not where it is at. Very little revenue comes from banner-ad type of work. They are not the Holy Grail. They are the coupons of the future. People are chasing it, but that’s a fool’s game. But that’s where some people think they have to go. People who haven’t spent or invested any time on this don’t understand it and they feel this pain in their belly and say they need to get into that space. And that’s space I am happy to let them have. They can have that business. They can have all of it. I want the upper end, the higher end of it where really smart people can actually have input. I don’t want the commodity side of the business. I think what the Internet opens up is all sorts of new channels of distribution, ways to sell products, ways to create environments where people will be interested in your brand. The new channels of distribution are what’s fueling the Organics and the Razorfishes and everything else. There are ways to eliminate the cost of printing 20 million brochures when you can do it interactively. It isn’t the advertiser that’s been taken way from the advertising agency, it’s the printing, the paper cost, and all the other costs.
Adweek: If agencies have yet to understand the full potential of the interactive medium, how does that affect convergence?
WREN: There’s not going to be any genuine acceptance of it until bandwidth gets to a level where the audio/visual aspects of it are of TV quality. Then I think you will see immediate acceptance. I don’t think it is as foreign as direct response was to traditional advertising. I think they are running at parallel paths until technology completes the task, and then you are going to see convergence. When bandwidth gets extended, when all of the other audio/visual impacts of the way people are used to getting messages become available, you will see advertising, what you think is traditional advertising, jump over and get on that track right away. The other thing that is happening is the emergence of specialist companies right now, and we own quite a few of them, thank God. A lot them are the early promoters of the business and they have gained a lot in size and importance and are extending their geographic reach, as well as the level of skills and the types of services they offer. I think those companies are going to prosper. But I don’t think you are going to see 50 more of those coming in and challenging them. It’ll be a very discreet group of very well-recognized brand names for companies that are capable of operatingin the space, and really are the masters of it.
Adweek: What’s your theory as to why certain agencies or CEOs are resisting the new technological realities?
WREN: Thank God I am actively engaged in a lot of different parts of the business, and I still find it fun. But the problem at the top is that if you’re closing in on the end of your career and you know that nothing is going to change that much over the next five years, you might say to yourself, ‘I don’t have to be as interested as everybody, because it’s not going to impact me.’ Now that would be a stupid position for a CEO to take. But it happens all the time. One of the benefits that I have is that the heads of my companies, either through pure intellectual interest, or just absolute love of their own brands, want to see those brands preserved beyond them into the future. They have more interest, or at least they have more hope and even if they don’t fully understand it, they will listen to it.
Adweek: We discussed how you are exploring ways to better organize your companies’ resources. Do you think clients are ahead or behind their agencies and their other communications partners when it comes to organizational issues?
WREN: I think you have clients who are organized in a certain way, and they haven’t yet cracked internally how to get their own companies to function more fully. If you look at a classic car company, the parts department may not talk to the new sales department. And the used-car department certainly isn’t going to talk to the new car sales group, so you don’t know how many people are communicating. And in that respect, clients face similar issues we do. In that environment, the question becomes: “Who owns the customer? Does the salesperson in the showroom own the customer, or does the manufacturer of the car? The Internet facilitates your ability to go directly to the customers–and that’s a new channel of distribution. But yet, they have this $100 billion company that’s been set up in a certain fashion. So the question for a lot of clients moving forward is: “How fast and in what way do they tinker with the organization in order to break the mold to play the game better. I think it is terribly important, when faced with this challenge, to be the market leader, because then you can take greater risks.
Adweek: On the economic side, what do interactive companies have to look forward to?
WREN: Eventually, five years from now the dust will settle. Internet companies won’t be selling at 90 times earnings. Ultimately their multiples will be brought down because the growth factors will be brought down, and the bigger they become, the more complicated it becomes, and the more geographies they operate in, the more management structures they have to implement. Eventually, they will still be high-flying, important stocks, but their multiples, and everything else, will be adjusted.
Adweek: What other trends do you see in the interactive arena five years out?
WREN: The one thing that the interactive world has proven more than anything else is how difficult it is to precisely project what is going to be important 6 to 12 months from now. But I think it’s fair to say there will be more consolidation. We’ve already seen some companies fall by the wayside, and some have been absorbed. Even though the industry was in the infant stages. The advertising world waited until it reached its adult life before it started to consolidate. The Internet world started five years ago, and it already has been going through all these later life stages and growth stages. Five years from now, there will be a lot more convergence.
Adweek: What role do you see consultants playing in this environment.
WREN: Consultants come in and evaluate your ideas. They are not involved in the creation of ideas, or in standing toe to toe with a client that is in the implementation stage and has to live with the decisions whether good or bad. Whereas consulting is important, and has a role in this environment, it is going to fall way short because it doesn’t have the creativity. I think it’s a shorter walk for us to push our capabilities up into that space than it is for consultants.
Adweek: What’s the most important thing Omnicom has to accomplish as a holding company during the next year, besides, of course, the financial obligations to shareholders.
WREN: In the immediate term, it has to complete the task we started with OMD, which is the independent media [division] of the company. Increasingly, it will be to find ways to make the organization function in a more client-centric fashion while preserving autonomy.
Adweek: Sounds thorny.
WREN: It’s very thorny. But that’s what it is. It’s not easy to do.
Omnicom’s John Wren