Buying Into Digital: A Look at the Holding Companies

WPP, IPG, Omnicom All Work on Smaller Scale as Publicis Shells out Billions

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How Publicis' $1.3B Acquisition Is Changing the Company's Mind-Set
NEW YORK (AdAge.com) -- Digital is the future. On that point, industry executives agree.

Consider Publicis Groupe CEO Maurice Levy's comment last December: "Digital is becoming the core marketing tool. ... It is, and we should have no doubt about this, a fundamental and irreversible evolution."
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Mark Read, CEO WPP Digital, says that the boundaries between digital and everything else will be irrelevant within the next five years.

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Or this, from Mark Read, CEO of WPP Digital, on his definition of success: "We'll be successful when we won't need to exist anymore. Particularly in five years' time, the boundaries of what's digital and what's not will be irrelevant." In a call with Wall Street analysts last month, Omnicom Group Chief Financial Officer Randall Weisenburger said: "We're not seeing any slowdown in the push toward digital. We see digital in a broader perspective, not just in online advertising. We see it as online marketing and branding."

Varied approaches
But how best to tackle this fundamental shift to creating communications to a digital world is a matter of debate, as the differing strategies of Omnicom, WPP, Publicis and Interpublic Group of Cos. attest. In the past 18 months, each has invested in digital companies to strengthen its offerings in creative and media, but the amounts of money spent and deal structures vary widely, as does each holding company's use of acquired assets.

Publicis in January made the biggest financial commitment to the area with its $1.3 billion purchase of digital-marketing-communications company Digitas.

WPP also has been active in the space. In the past year it has made eight investments in companies specializing in mobile-marketing search, online-advertising production and building online communities. But unlike Publicis, WPP's move is not the billion-dollar sort; the total amount it's spent is "meaningful, but not significant in the scheme of WPP," said Mr. Read, who heads the company's investments in the discipline.

His boss, WPP Chief Executive Martin Sorrell, is quite outspoken about valuations of digital companies being rich -- too rich, for the most part, for his liking. But the holding company understands how a few dollars well spent with a startup can open up dialogue. "The investments help to cement the relationships," Mr. Read said, and generally are minority stakes.

Taking it slow
Omnicom, like WPP, has shied away from big-dollar commitments; its focus, said Jonathan Nelson, the former co-founder and chairman of digital agency Organic who now advises Omnicom chief John Wren on digital strategies, is "on the assets we have." The holding company invests according to its networks' needs.

"We've not focused on our venture-capital portfolio as the others have," Mr. Nelson. "If a market is resurging, the question we ask is: What do we have there? Do we need to make an acquisition?" In the past year, Omnicom bought an interactive agency in the Netherlands and merged it with Tribal DDB's offices in Amsterdam; in the U.K. it added Weapon 7, a digital-interactive-TV consultancy, to bolster Zulu Group.
Jonathan Nelson, former co-founder and chairman of digital agency Organic, now advises Omnicom chief John Wren on digital strategies.
Jonathan Nelson, former co-founder and chairman of digital agency Organic, now advises Omnicom chief John Wren on digital strategies.

Of all the Big Four holding companies, Interpublic's been the least acquisitive. It bought partial stakes in social-networking site Facebook and in internet-based media-and-ad-production shop Spot Runner in 2006. This year it's taken an equity stake in an online event-planning and promotion company and bought 100% of search-marketing firm Reprise Media.

"We look for partnerships and strategic investments that allow us to learn about and bring emerging technologies or new business for our clients. Some capabilities are so central to our offering that we will seek to acquire them outright," said Bant Breen, president, Interpublic Futures Marketing Group, a recently created unit that provides resources to all Interpublic companies.

The Google wildcard
Many believe acquisitions will increase in the coming months. "It is more important than it was two years ago," WPP's Mr. Read said. A contributing factor to the agency's activities in the digital arena is Google's increasing forays into advertising. "As companies like Google enter new industries where they've not been in before, it changes the dynamics of what's being applied there," Mr. Read said. "It's hard to predict how things will play out."

But certainly some of the industry's top minds are giving the future a lot of thought. After Google announced its plans to buy DoubleClick in late April, WPP's Mr. Sorrell described the move as "game changing." The announcement "forced us to accelerate our thinking" on the company's digital strategy, he said.
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