NEW YORK (AdAge.com) -- There are few executives who rode 2007's digital-media acquisition spree more skillfully than Brian McAndrews, who as CEO of aQuantive sold the firm to Microsoft for $6 billion. He's known as a prescient executive: During the decade leading up to the sale, Mr. McAndrews amassed a number of technology, media and marketing-services assets to create what many considered a newfangled holding company. He's now bringing those skills to a Seattle-based venture-capital firm, Madrona Partners (which was one of aQuantive's early backers), where he is becoming a managing partner.
Mr. McAndrews -- who was named Ad Age's Digital Executive of the Year in 2008 -- and Madrona Managing Partner Matt McIlwain spoke to Ad Age about the direction digital media is headed, why holding companies' biggest problem is one of people, and the deal announced earlier this week, which sent digital agency Razorfish, formerly a part of aQuantive, from Microsoft to Publicis for $530 million.
Ad Age: It's been quiet -- where are the investment opportunities in digital marketing?
Mr. McIlwain: More recently we've invested in ... the tools and suppliers to the online interactive and digital media areas. Three recent ones include AdReady, which is trying to make the process of creating and distributing and measuring the online ad industry more effective. Then there's Mixpo, which does something similar but in video advertising, specifically [direct response] and local advertising. And our most recent investment is YieldEx, which helps large publishers optimize their inventory.
Ad Age: So do you think tools and technology -- or lack thereof -- are at the root of the problems agencies and digital-media companies are facing?
Mr. McAndrews: Technology is critical to the digital-media space, first because it's the medium that has the opportunity to be, by far, the most measureable, and secondly it's so complicated that you need the data collected efficiently and effectively to make any sense -- and that becomes more relevant when you start talking across multiple devices and media. Look at search and display: There's a deep interaction between search and display but it's very complicated to sort all that out and make decisions in real time. But the insight human beings bring to it is also critical.
Of course, larger traditional companies are still challenged from a pure people standpoint, trying to integrate the two worlds of traditional and digital.
Ad Age: What do you mean by the "people" challenge?
Mr. McAndrews: Getting people up to speed [on digital] is less of an issue. It's more the incentives. Companies who have made a lot of money and build their entire business models around a traditional model, be it enterprise software or TV, have a challenge when they bring in the new guys who aren't as profitable but are the future.
I remember Martin Sorrell saying, publicly, that one of his biggest challenges was getting the senior team pointed in the same direction. And it's not that they're not smart people, it's that they have different perspectives on how fast [to go] and what's the next priority. Startups tend to not have that challenge -- they have lots of other challenges. But startups tend to have a leadership team focused in the same direction. I recall being at aQuantive when Martin said that and thinking, "Wow, we have our challenges but that is not one of them."
I think Publicis with the Razorfish acquisition will have challenges. On the other hand David Kenny [managing partner of VivaKi] is a smart guy and he has gone through this once with Digitas.
Ad Age: Speaking of that, what do you think about Publicis buying Razorfish? It has essentially separated the agency from the technology assets that you aggregated at aQuantive.
Mr. McAndrews: It's the right thing, and to be perfectly candid, I recommended to Steve Ballmer that they [sell Razorfish]. Nothing against Microsoft, which is obviously an extremely successful company, but it is not a services organization and no one would argue that it is. Publicis clearly is, and when you think about what Publicis will bring to Razorfish -- a slew of new client relationships and, as Razorfish evolves into its next generation with its video offerings and interactive TV, it will be an advantage to be part of a company that has those TV assets and relationships. Now for the reasons I said earlier, it'll also have its challenges but in the long run the right home for Razorfish is a marketing-services company -- in everything from how they manage, pay people, incent people, the culture, the assets they have that they can mutually use.
Ad Age: Do holding companies today need to acquire more technology assets, much like you did when you were at aQuantive?
Mr. McAndrews: I think it's going to be more about working with technology companies. I think I saw you at one conference when I talked about ad platforms and how difficult it is to invest in an ad platform. Only a limited number of players will be able to invest across the entire span, from search, display, ad network, rich media. I still believe that.
Now having said that, innovation isn't always going to come from those big players, but with the entrepreneurs that Madrona works with. But I think the deep technology -- all the data you need to collect in real time and make sense of across multiple devices and multiple media -- that's a scale game. The day-to-day technology that the holding companies will use for media measurement and optimization will largely be outsourced ... to the Microsofts, the Googles and other large players.
Ad Age: What is the issue you think that should be keeping agency CEOs up at night?
Mr. McAndrews: I think the question about holding companies and technology was a good question because you saw what we did at aQuantive and you saw some holding companies try to emulate that, in a different way. They said, "Hey, look at this company which has found a way to make technology margins on a good chunk of business -- we want to do that." That's a real challenge and a lot easier said than done.
I don't think that's the right long-term path for holding companies. Their path is to stick to marketing services; become experts at digital, the insights and analytics; use tools to make you more efficient; and recognize you're not going to get Microsoft margins but that you still have healthy business. The challenge is the transition where you go from making a lot of money on TV and not making a lot on digital because it's digital and you don't have the tools you need. It's "How do I replace or cannibalize myself in a healthy way?" -- and that's unfortunately exacerbated by the recession.
Ad Age: Do you still keep in touch with Steve Ballmer?
Mr. McAndrews: I am in touch with Steve. I see him occasionally and I will ping him on things. I have a number of relationships over there -- I had lunch yesterday with one of the guys from the Microsoft advertising world.
Ad Age: What do you think of Bing?
Mr. McIlwain: Microsoft acquired a company of ours called Farecast, which is now Bing Travel. So we're biased. But I think things have gone quite well with the launch and its obviously very early but you can tell through the interactions you have with the folks at Microsoft that it's been a successful launch.