Sir Martin Sorrell’s WPP has made a series of investments in the online space this year, most recently the purchase of a 10% stake in Spot Runner, the US-based online ad agency which had also attracted the attention of Google.
He told us why...
Your investments in the online sector this year haven’t been full acquisitions, and have been accompanied by partnerships and joint ventures. What was the thinking behind that strategy?
The reason for that is we want to understand what’s going on and to build these relationships. The LiveWorld model, although we made subsequent investments in it, is probably the best model. We actually took warrants on the LiveWorld stock and formed a 50/50 joint venture.
Also take BIG, which has 10,000 inventors on their network where clients give us a brief on a new product and service and we go out to the inventors and look for ideas.
So you’re trying to figure out what works?
It’s important we have the ability and the facilities to do that. It’s no different to Murdoch investing in Myspace or Jamba, or ITV doing Friends Reunited. We have to position ourselves and understand what’s going on.
But we don’t have to select technology, unlike media owners. We’re a better investment than a media owner, because they have to make bets on technology. We don’t, because to date we have not been excluded from any technology.
We have to understand the implications of what’s going on, so we can advise our clients what’s the best direction. The more technologies there are, the more advice we’re asked for, and the more complex the media planning and buying decisions.
Our media planning and buying business is growing at 5% to 6% and it becomes more valuable. Media buying will become more valuable in terms of securing value for our clients. We manage $50bn of media around the world and we have to make sure it is spent wisely.
The media owners have to choose the technology and we are not restricted from any technology at this moment in time – we might be in time, but not now.
You’ve said that WPP’s major opportunities lie in China and the internet. Which is more challenging?
The pace and momentum has grown in these areas because of the pressure that traditional media companies are under in mature markets. In emerging countries, the pressure is not as intense because the traditional media is stronger than in this market. If you spoke to institutions and analysts and asked them about what worries them, it's China and the internet.
China, for me, is an emblem for South America, Asia, Africa and the Middle East. The geographical stuff we can do, developing our businesses by focusing on these territories, and getting good nationals to work on them, making an investment locally in people. The more difficult area is the technology.
There are 1.5 billion Chinese and I’m sure there’s a Brin or a Page knocking around in that group. There may be five or six graduates sitting in a shed in Shanghai about to come up with the next big idea that makes them the Chinese Google.
WPP is in the important markets and, as markets expand and contract - as they will do - we can throw our weight very quickly through our client base and our people in those countries.
How big a threat to you are the online ad activities of Google, Microsoft and the other big portals?
We work very closely with Microsoft, it’s in our top ten clients and we are one of Google’s biggest customers.
There’s a section in the annual report I wrote called ‘Google: friend or foe?’. Perhaps I should have said ‘friend and foe’. The reality is that competitors link up with one another, such as Samsung and Intel, which compete with one another yet work together. You have these schizophrenic relationships and you have to figure out what’s going on.
Google is very technologically sophisticated - it’s different to Yahoo!, which I think is based on people, while Google is based on technology. Google is investing $3bn or $4bn a year. Google’s market cap is $130bn-odd and their revenue is the same as ours, although they are surpassing us now. Our market cap is $15bn and they are almost ten times that on the same levels of revenue, which makes me somewhat envious.
What’s your reaction to the big ad deals they’re signing with the likes of Myspace?
We’re interested in them and we follow them, and we will be working with Google and our clients to develop them further.
We have outlined an arrangement with Google whereby we work with our clients where it’s of benefit to them to expand their investment in Google’s ad network.
But Google tends to be focused on business to business, rather then being consumer orientated. Companies that advertise on Google tend to be smaller businesses. It hasn’t spread as rapidly as Google would like.
Are you confident about mobile advertising, despite its slow uptake?
Yes. In this country, GroupM has forecast that online will be 14% of total ad spend by November of this year, which is bigger than national press, and mobile will double to £60m, which is small but it’s growing.
Is there still a reticence among ad agencies towards new media?
Yes, because if you take a traditional business like us, we have $11bn of revenues of which $2bn is new media, so there’s $9bn that is by definition old media.
There is always a reticence. The person starting with a clean sheet will always have an advantage. If you are a bicycle manufacturer in India you always have an advantage over an old plant in the West with employee and healthcare issues.
However, if you take us and Google, for example, we have the database of clients and they don’t have the penetration. They have the advantage and disadvantage of not having the history. You want the institutional strength but also the flexibility.
How difficult do you find that?
I’m old. It’s older people’s inability to be flexible. If you see what kids can do, it’s amazing. If you’re young, you’re not as terrified by technology as people my age are. It is much more difficult for me – as I’m not a nerd - to understand the technology as it changes so rapidly.
Do you like power?
I don’t think I’m powerful. The masters are the clients and agencies are the servants.
Did you expect WPP to become this big?
I wanted it to become a big company, but if you’re talking $50bn worth of media the answer’s no. We could probably go back to two people in a room if we’re not careful.
How do you want to be remembered?
If you’re asking me what I want on my epitaph, I suppose it would be that he founded and was instrumental in building the best company in our industry, and that means everywhere in the world – and that’s important.
Sir Martin talked to Richard Maven.