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Ad world in a tizzy as tech companies start shopping

Ad world in a tizzy as tech companies start shopping
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First Published: Tue, Jun 26 2007. 12 25 AM IST
Updated: Tue, Jun 26 2007. 12 25 AM IST
Cannes: How far will Google, Microsoft, Yahoo or other Internet powerhouses go in their effort to dominate digital advertising, the fastest-growing part of the marketing business?
That was the top question on many people’s minds last week, during the advertising industry’s annual gathering in Cannes. After a $10 billion (Rs41,000 crore) spending spree by the technology companies, in which they have snapped up several of the leading Internet advertising specialists, some executives gave voice to a thought that might have seemed far-fetched only a few months ago.
“Will one of these companies try to buy a big agency or a holding company next?” asked Bob Jeffrey, chief executive of JWT, part of WPP Group, referring to publicly traded companies such as WPP, Omnicom, Interpublic and Publicis, that own most of the leading ad agencies.
In the hothouse environment of the Cannes Lions International Advertising Festival, speculation travels fast. Liberal amounts of Côtes de Provence rosé fuelled the rumour mill—as did the news that Martin Sorrell and Maurice Levy, chief executives of WPP and Publicis, respectively, and generally highly visible Cannes attendees, had skipped the event this year.
Still, the recent deals have added to the uncertainty in the industry, already wrestling with how to take advantage of the opportunity of digital advertising—a $30 billion-plus market, growing at more than 20% a year—while meeting the challenges it poses to agencies’ traditional business models.
“There are no boundaries anymore, and if the table used to be square, it is now circular, and we are all taking different positions at it,” said Mainardo de Nardis, chief executive of the media buying division of Aegis Group, which also owns a leading digital ad agency, Isobar.
In April, Google Inc. took a bigger seat at the table when it announced that it was acquiring DoubleClick for $3.1 billion. Yahoo! Inc. countered by agreeing to pay $680 million for the 80% of RightMedia that it did not already own. Microsoft Corp. later upped the ante with a deal to buy aQuantive for $6 billion.
Advertising companies have not been left entirely on the sidelines. Publicis recently acquired Digitas, a US-based Internet specialist, for $1.3 billion. WPP has agreed to acquire 24/7 Real Media for $649 million.
But some ad executives fret that the technology companies’ deep pockets will price them out of future deals. The $6 billion that Microsoft is spending on aQuantive is more than the market capitalization of Interpublic, a company that owns agencies like McCann Erickson, Lowe and Foote, Cone & Belding and that had 14 times the revenue of aQuantive last year.
The aQuantive deal also raised eyebrows among advertising executives because it moves Microsoft further into the ad agencies’ traditional turf than the previous deals, which mostly involved the techie business of matching up advertising buyers and sellers on the Web and tracking the performance of the ads. AQuantive owns a so-called ad serving platform, but it also creates advertising, at an agency called Avenue A/Razorfish.
Ad agencies are moving the other way, too, staking out claims in the area where their business increasingly intersects with that of the Internet giants. At JWT, Jeffrey is hiring software engineers to work on digital advertising. Another WPP unit, Ogilvy, has set up a mobile marketing lab in Singapore whose employees include a former Nasa scientist.
But ad agencies seem divided on how best to organize for the digital future. Some executives, like Jeffrey, say online capabilities should be “integrated” into agencies like JWT. Publicis Groupe, meanwhile, is trying to turn Digitas into a separate global network specializing in digital ads, alongside its Leo Burnett, Publicis and Saatchi & Saatchi divisions.
Publicis this month announced plans to acquire a French Internet advertising specialist, Business Interactif, for €137 million ($184 million). The deal will help Publicis expand the European presence of Digitas and will help it counter the recent moves by the Internet companies, said David Kenny, chief executive of Digitas.
“As the Google system and the Yahoo system and the Microsoft system get stronger, there’s a need for more scale on the agency side,” Kenny said as the company announced the deal. “All of a sudden, size matters in digital advertising.”
Indeed, the days when digital advertising was confined to a few tattooed 20-somethings in a loft are long gone.
The recent moves by Internet companies have also added complexity to formerly straightforward relationships between ad agencies, clients and media owners.
“Microsoft can be a competitor in the morning and a client in the evening”, because its MSN websites are big outlets for advertising, de Nardisnoted.
Of the leading Internet companies, Microsoft, perhaps went the furthest to try to ingratiate itself with the advertising industry in Cannes. It sent more than 150 employees to the festival, according to Steve Berkowitz, senior vice-president in the company’s online services group, rented a yacht for cruises around the harbour and tried to portray Google as a common enemy.
“We want this industry to be successful,” Berkowitz said of the ad agencies. “They’re rooting for us, which is a bit unusual for Microsoft. They don’t want Google to dominate.”
While he conceded that the advertising firms might have a hard time matching the financial firepower of Google or Microsoft, he said the digital game wasn’t over for them. “Some agencies will fail, but it will be because they didn’t adopt the medium, not because they didn’t buy a digital advertising company,” he said.
Was Microsoft contemplating any further acquisitions in the ad industry?
“You never know,” he said.
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First Published: Tue, Jun 26 2007. 12 25 AM IST