If you were confused by Omnicom (OMC) CEO John Wren's explanation of his digital strategy, explained in three recent reports in the Financial Times, you're not alone. It only makes sense if you're aware of the ad agency holding company's tortured history with the digital business. Here are the Cliff's Notes:
On Dec. 27, FT said Omnicom planned no big digital acquisitions this year. Instead:
... the advertising group planned to introduce a technical education programme for all its 63,000 employees to teach them the ways of Google, Facebook and other online media.Can it really be the case that the folks at Omnicom don't know much about Google yet? That statement will likely have Omnicom employees at agencies like TBWA, BBDO and DDB fizzing with frustration as all those shops have spent the last five years trying to persuade clients that everything they do has a digital component. Wren's insistence on building his digital capabilities from within goes against the industry grain, as the same article pointed out:
Big acquisitions such as 24/7 Real Media, Digitas and Razorfish have allowed rivals WPP and Publicis to claim they generate a larger share of their revenues from digital services than Omnicom.One might add that Interpublic (IPG)'s R/GA fits into that list too: The largest, most prominent digital ad agencies in the business were often acquired by the holding companies as separet entities, not developed as organic additions within traditional media shops.
This insular strategy may have hurt Omnicom, the FT hinted on Dec. 28:
... its third-quarter like-for-like revenue growth of 6.9 per cent trailed WPP's 7.5 per cent and Publicis' 9.2 per cent, in spite of its weighting towards the US, the quickest of the leading advertising markets to recover.Omnicom is making some deals. It's looking at Blue State Digital (better known as Obama's ad agency, as the FT noted on Dec. 29), and Communispace (reportedly with a $100 million price tag, which would put it beyond Wren's willingness to pay). Here's Wren's logic for not making big buys:
There are more people outside the advertising industry creating new technologies and devices than there are who work in the advertising industry today. So some of this is a bit short-sighted, I think, if you are going to be in competition with that industry which is larger than you and isn't the focus of what your people are good at.The notion that Omnicom regards itself as competiting with the tech sector, rather than trying to be part of it, will strike many as completely counterintuitive. So why does Wren seem to have such a hands-off attititude toward digital agencies? In part it's because of the horrible experience Omnicom had when it waded into digital advertising in a big way back in the late 1990s.
Omnicom acquired stakes in Agency.com, Organic, Razorfish and a bunch of others just in time for the dot-com bust of 2000. It was then forced to sell its stake in Razorfish. The remaining digital brands -- many of whom went belly up* -- were moved into an off balance sheet entity called Seneca Investments, just in time for the Enron scandal to invite harsh scrutiny of such vehicles. History shows Omnicom should have done the opposite with Razorfish: The shop is now the mainstay of its rival, Publicis, and has revenues of about $380 million.
Given that, you can see why Wren remains so gun-shy.
Housekeeping: Award yourself a brownie point if you noticed in the Dec. 27 FT article that Omnicom has a similar relationship with Google -- and thus similar potential conflicts of interest -- to Publicis (PUB):
A possible template for such partnerships will be the deal Omnicom struck last summer with Google, agreeing to spend hundreds of millions of dollars via the technology company's display advertising exchange.Publicis' agreement with Google includes "payments" to the agency for placing its clients' business with Google. Whether those incentives are in the best interests of Publicis' clients -- who presumably expect their ads to appear where it's best for them, not for Publicis -- is an open question.
* Correction: Neither Razorfish nor Organic went out of business. Agency.com was abolished by Omnicom last year, but it was a going concern at the time and its operations were merged with other Omnicom entities. Apologies for the error.