IPG Plays VC

Everyone nowadays, even journalists and PR people, wants to be a venture capitalist. That includes ad agencies, of course.

Interpublic Group this week announced a cash investment in mobile ad firm Kiip as part of its latest $11 million round and also revealed two other relationships with stealth-mode advertising technology startups. The moves are not the first time IPG has played its hand at investing. In 2012, the company made more than 10 investments in digital companies, mostly based in Europe and mostly agency businesses. It can only hope they work out as well as its $5 million investment in a college social network called Facebook back in 2006. That stake was eventually worth over $250 million when it sold half of it in 2011.

The latest round of investments, according to IPG Media Lab managing director Chad Stoller, is intended to serve two purposes, as far as the agency group is concerned. The holding company clearly sees the potential for profitable exits, but perhaps more important, they inevitably help forge closer business relationships with these vendors. Kiip has gained attention from major agencies and brands for its mobile rewards product, which, instead of just thrusting banners in front of smartphone app users, offers them coupons and discounts that relate to the context of those apps.

“We don’t get strategic advantages over other agencies, but that financial tie helps make a really great relationship,” Stoller said. “We can explore every opportunity, share best practices, and work to gain better insights. It’s about getting close to where the fire is hottest,” he added, in relation to Kiip’s current traction in the mobile ad marketplace.

As the lines between agencies and their vendor partners continue to blur, however, the potential for conflicts of interest inevitably emerges. If an agency has a financial interest in a certain vendors success, then it might become incentivized to direct its clients’ budgets in that direction. At least six of IPG’s clients have purchased campaigns with the company, for example.

“We have to be responsible and transparent, and we disclose these relationships to all clients,” Stoller said. “But then we also get to explain why we invested in these companies, and it’s because we believe in the strength of their offerings.”

With the Kiip deal, for example, there are absolutely no guarantees in place around the volume of media IPG agencies will purchase from the company. That’s not the case with investments in vendors from some other holding companies, he said.

Other holding companies have also seen the opportunity to benefit from financial positions in their vendors. WPP, for example, invested $5 million in social media management company Buddy Media in 2010, selected it as “preferred vendor” for its GroupM agencies, and ultimately made more than $50 million when it subsequently sold to Salesforce.

Agency groups are strategic investors. That means they bring something more to the table than just money and expertise in building companies. For a fairly new company like Kiip, IPG has an incentive to open doors at agencies. But anyone in the agency world can tell you that this hardly means it will automatically get onto plans. There has been talk about “mandates” to use portfolio companies at other holding companies, but one former ad exec once said of holding companies, “They’re not able to organize a one-car funeral, much less a conspiracy.”

“We see this as a validation of our model from the agency community,” Kiip CEO Brian Wong explained. “This is about us learning and working closer with agencies to figure out what it is brands want.

Despite the IPG relationship, Kiip has and intends to maintain relationships with the other three major holding companies. It has no interest in exclusivity, either, if it intends to build a scalable ad business.

But that doesn’t mean it won’t look to IPG for help. In addition to cash, the relationship will involve a certain amount of consultancy and advice around product direction and perhaps even the development of further offerings.

“Companies come to us to get a better understanding of the ad game and what agencies and brands want. The more we can help them understand that, the more it’ll help our agencies and clients, and other agencies, too.”

But ultimately, it’ll be IPG that ends up benefiting most, of course, from its relationships with Kiip and other fledgling ad tech companies. As well as the potential upside from the investment itself, it will also most likely have first refusal of new offerings. As a result, there’s value in that for agencies’ clients and, therefore, its agencies themselves, too.

“As these solutions start to launch, we’ll have the opportunity to go to clients and give them the advantages of getting in early,” Stoller concluded.