NEW YORK (AdAge.com) -- In a move that will generate 25% of Publicis Groupe's revenue from digital, the holding company will buy Razorfish, the digital-marketing agency owned by Microsoft since 2007, in a cash-and-stock deal worth about $530 million, the Paris-based ad giant said today.
As part of the deal, the two companies will enter into a five-year strategic alliance that will allow Publicis-owned agencies to buy display and search advertising from Microsoft on "favorable terms" in exchange for a guarantee that Publicis will buy a certain amount of ad volume. Also as part of the deal, Razorfish will remain a preferred provider of digital strategy and creative and experiential marketing services to Microsoft. The marketer will guarantee a minimum amount of spending with Razorfish each year of the agreement.
Razorfish will be part of Publicis' VivaKi unit and operate as its own agency brand, although some Razorfish employees and technology assets could also become part of VivaKi's central technology group, the VivaKi Nerve Center.
The move will help Razorfish in two ways, said its CEO, Bob Lord, who will remain in place and report to David Kenny, managing partner of VivaKi. It will allow it to more quickly expand globally and give it traditional corporate siblings with whom it could work to pitch bigger clients. Razorfish has won agency-of-record duties for some smaller clients, such as Lasik, and has worked with other traditional media shops to pitch for larger accounts. It has offices in Australia, China, France, Germany, Japan, Spain and the U.K.
"A lot of our clients have asked us to help them with global reach," Mr. Lord said. "It would have taken us a lot longer to do it without Publicis Groupe."
The Razorfish addition will give VivaKi greater media scale and mean more than half of its revenue will come from digital, Mr. Kenny said, citing that as a major "culture change."
"This is the first serious digital-majority company in the agency space," Mr. Kenny said. "It gets us a culture that's more savvy about technology and innovation, more nimble and more connected to Silicon Valley. We're very connected to Microsoft and very connected to Google -- the big platforms underneath all of this. To be their biggest customers is very useful." He said Publicis was not required to make certain spending commitments to Microsoft but that it could take the terms to clients and, if they agreed to buy certain ad volumes, it would lock in beneficial pricing. Mr. Kenny compared it to the traditional of buying ad time upfront in the TV space.
The terms of the Razorfish sale should help Microsoft bolster its ad-sales business through an alliance with the third-largest owner of marketing-services agencies, whose clients include the likes of Procter & Gamble, Coca-Cola and General Motors. This news comes a little more than a week after Microsoft inked a search deal with Yahoo designed to create a stronger competitor to Google.
Razorfish came to Microsoft as part of a 2007 deal for parent aQuantive, and it was immediately rumored that the tech giant, which sells ad space but doesn't count making ads as part of its core business, would turn around and sell the agency operation. Rumors again heated up this summer when it emerged that Publicis was a suitor and the likely favorite to come away with Razorfish. Other companies believed to be in the hunt were Dentsu, WPP, Omnicom Group, Interpublic Group of Cos. and AKQA's private-equity investor, General Atlantic.
Publicis adds Razorfish to a growing collection of digital assets that already includes Digitas, acquired in 2005, as well as VivaKi. Mr. Kenny listed off several several specific skills Razorfish brings to VivaKi. "It's stronger in technology than Digitas and it knows Microsoft and the Atlas [ad serving] platform well ... so now we have strength in both Atlas and DoubleClick. It can handle a wider range of clients, as there are some conflict categories for Digitas. And it's done some very good stuff with dashboards through Razorfish Edge and some fantastic innovation work around social, mobile and video where they're a little more ahead. And certainly in deep site design."
Razorfish's major clients include Best Buy, Ford, McDonald's and, of course, Microsoft.
Under Microsoft rule, Razorfish was kept as a separate division so it couldn't be accused of having potential conflicts of interest, being owned by a major seller of media. It was separated from former aQuantive siblings Atlas and DrivePM, which became part of Microsoft's Advertiser and Publisher Solutions group. In 2008 Razorfish grew at an 11% pace -- it was up 6% in the U.S. and 33% internationally. But without the heft of a holding company behind it, its growth rate lagged slightly the general digital growth rate of 15% among the agencies covered in the Ad Age DataCenter.
Mr. Kenny called Razorfish "an orphan island on its own" within Microsoft and said it would benefit in the same way Digitas has within Publicis -- by teaming with sibling agencies to help it win bigger clients (he cited Walt Disney and AstraZeneca) and by benefiting from the top-to-top relationships a holding company and big marketer have.
"They'll be further up the org chart now," he said.
Razorfish will be another agency brand within VivaKi, which includes Starcom Mediavest Group, ZenithOptimedia, Digitas and Denuo. While Razorfish has to stand alone for conflict reasons, Mr. Kenny said, "we've sometimes combined operations in smaller countries. I think we'll look at things we can do to help each other."
He added: "Economic cycles actually help companies with strong balance sheets. We've been saving up for this."