How to Fix Holding Companies? Win Dell-Sized Accounts

At UBS Media Conference: WPP Chief Martin Sorrell

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NEW YORK (AdAge.com) -- Fresh off his company's win of Dell's $1.5 billion marketing account, WPP Group Chief Executive Martin Sorrell today said the traditional advertising-holding-company model needs a makeover, and that better solutions, such as the new agency WPP is creating for Dell, are needed.
Martin Sorrell
Martin Sorrell Credit: Tom Stockill

Speaking at the UBS Global Media & Communications Conference, Mr. Sorrell said marketers have become frustrated with holding-company approaches that are "too diluted." He seemed to be referring to Bank of America's decision to end its exclusive relationship Omnicom Group, though he didn't mention it specifically.

New agency for Dell
For the Dell business that was awarded just a few days ago, WPP is creating a new agency comprised of more than a 1,000 people who will work on all of the computer-maker's marketing services, from creative and media planning to PR and CRM.

"Dell is a radically new development. [We are] not cobbling together companies ... we are building an agency from scratch," he said. "I think in the long term we are going to increasingly see these sort of things happen, that clients will say, 'We have different objectives ... we have different cultures and we want to build something for ourselves.'"

No fear of recession
He also disputed claims that 2008 will bring a recession, but said if it does come, WPP would be mostly unscathed, due in part to the cushion from recent wins, including the $1.5 billion Dell business and the $3.4 billion AT&T media account. Mr. Sorrell also said WPP is increasingly gaining revenue from marketing services, such as public relations, which are fee driven and therefore more "recession-resistant." About 54% of WPP's revenue currently comes from marketing services compared with 40% in 2000.

Further insulating WPP from the effects of a possible recession, Mr. Sorrell said, is its investment in emerging markets, such as Asia Pacific, Latin America and Central Europe, which currently comprise about 23% of WPP's global revenue. (The group aims to bump that percentage up to a third within the next five to 10 years.)

"It's quite clear that there is a massive shift in economic power from the West to the East," Mr. Sorrell said, "If America sneezes, we don't catch influenza anymore. We catch a cold."

WPP's 'frenemy'
Finally, WPP is continuing to develop its digital services, which currently make up 23% of total revenue. Mr. Sorrell pointed to the holding company's investment in digital in traditional legacy businesses such as Wunderman and OglivyInteractive, which he said both bring in $700 million in revenue annually. But Mr. Sorrell conceded that Google, which may or may not bring about the "disintermediation" of ad agencies, is a threat to WPP. Referring to the search behemoth as a "frenemy," he said that "we have to find some way of coexisting with them," and noted that WPP will spend about $600 million dollars with Google this year.

Though he minimized concerns about a recession hurting the ad industry in 2008, Mr. Sorrell said the real challenge lies ahead in 2009, when there will be a new U.S. president faced with issues of government spending and taxes.

"I can't see why 2008 is going to be a bad year," he said. "I'm still of the view that the issues are what happens after 2008."
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