Want to Survive? You'll Have to Put Some Skin in the Game

Agencies Have to Make Investments in Technology and Talent or Risk Losing Out to Microsoft and Google

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Agencies have long fantasized about owning their intellectual property. Instead of simply handing over a potentially business-changing idea to a marketer, shops imagine that they might own and continue to profit from it.

The problem has always been that agencies' only skin in the game is the time and human resources they put into creating marketing programs, which are typically considered to be covered by the cost-plus type fee paid by the marketer. In other words, any IP created is just part of the shop's expected service.

But if you listen to Irwin Gotlieb, CEO of WPP's Group M and a man acknowledged by many as being one of the cleverest people in the business today, owning IP is no longer just gold at the end of the rainbow but is becoming essential to the survival, or at least the continued profitability, of agencies -- particularly media agencies. The change in the IP equation Mr. Gotlieb envisions owes much to the growing role that technology will play in the future of the marketing business.

It seems inevitable that the business of planning and buying media will be increasingly automated, a shift that will make it both more transparent and harder for the shops to mark up as a value-added service. At the same time, marketers will demand more microtargeting, addressability, and new levels of tracking across different media and systems.

Delivering such tools and metrics is going to require an investment in technology and talent. It's an investment that's already being made by technology companies, not least Google and Microsoft, and if agencies don't make similar investments, they're going to run the risk of being devalued in the eyes of marketers and even disintermediated.

Gotlieb put it like this: "Media and technology are at a crossroads today. For the first time we're competing with technology and media companies, businesses that aren't 100% services. Over time we'll have to weight the service side of our business against the nonservice time. I don't know the weighting, but I do know we're going to have to play in technology."

Group M is already playing. It was one of four companies to invest $25 million in the second round of financing for Invidi, a company developing addressable TV ad technology, and it also bought a stake in Visible World, a software suite that allows advertisers to customize their spots for specific markets. Group M's digital unit is in the process of hiring hundreds of new employees, too.

The cost of such investments is not covered by the usual fees paid by WPP clients. Rather, it is being funded by WPP itself. Mr. Gotlieb and his boss, Martin Sorrell, are putting skin in the game, and that means they don't have to show clients every last detail of what was spent. Instead, if these investments work out, Group M can charge whatever the market will bear for that product.

Perhaps in the case of an Invidi, Group M ends up selling its stake in the company or selling the technology to cable and satellite companies or, more likely, based on Mr. Gotlieb's comments, it starts buying large chunks of TV inventory, making it addressable, and then reselling it to marketers.

Technology should be an IP opportunity for all agencies. More marketers are going to be asking for new digital tools, especially in the social-media, online-measurement, gaming and mobile-marketing spaces. Are shops going to continue to simply hand over the code for such things as part of their regular service, or are they going to invest in them upfront and finally have a chance to create their own IP? Given their history of selling themselves short, I'm not placing any bets -- but maybe some of the agencies should.
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