GroupM has a math problem. The numbers behind its agency model no longer add up.
The economics that allowed GroupM to become one of the ad industry’s main powerbrokers are changing to the point where GroupM’s high-volume, low-margin business is at risk. It’s no longer enough to be able to buy ads from media owners at a discount and then repackage and resell that inventory to advertisers at a higher rate. Blame programmatic. When so many of those ads are bought in online auctions, an agency’s buying power isn’t as important to securing the best rates. In a biddable world, many advertisers don’t just need a buyer, they also need an expert.
Whether GroupM can be that expert depends on new CEO Christian Juhl, who took the reins from Kelly Clark at the start of the month. On the face of it, Juhl is an astute pick by WPP CEO Mark Read. He turned what was a digital agency in Essence into a digital-first media shop that’s savvy enough to earn Google’s trust as its main ad buyer. Under Juhl, Essence doubled down on hiring developers and programmatic experts in the belief it could win more business purely on the basis that it had more specialists than its rivals. Last year, Essence won 23 new clients, including Coty, British Telecom and BP.
“Buying power is a hygiene factor that all the holding groups offer to a good level,” said an Essence client on condition of anonymity. “We went with Essence because they could buy smart. It was able to show media value in a way that’s closer to our business, not abstract savings and discounts. It was value in a different way.”
A new model
Essence is known for transparent pricing models that couldn’t be further from its owner’s non-disclosed contracts. Juhl’s challenge is balancing those two models while maintaining revenues and margins when previously they were largely accrued through methods at odds with the new order for clients and agencies. As much as WPP wants GroupM remolded in Essence’s image, it must keep milking its cash cow to protect squeezed margins. The holding group last saw growth from GroupM in the U.S. three years ago.
“Juhl is young and has a proven success story behind him, but he is also ‘new’ in the group,” said a former GroupM exec. “I am sure he will have to deal with a lot of politics. GroupM is a different beast.”
It is already a tense time at GroupM, according to interviews with 10 sources, including clients, former execs and consultants who work with the team. Tensions stems from a mix of a business that’s pushing hard on cost savings and efficiencies in the name of better client service while shaking up its leadership ranks.
“There are some egos on the leadership team who have been broken or bruised due to their roles being made redundant or devoid of strategic thinking and feel like they’ve become executors of strategies that are being made without their input,” said one exec with knowledge of GroupM’s plan.
Add to that, the structural challenges of overhauling GroupM. At its best, and even at its worst, GroupM is a tidy microcosm of advertising itself. Dated business models, taking the real-time and data-driven approach used in digital into traditional areas like TV, Closer alignment with creative to ensure customization for audiences and channels, moving from undifferentiated agency brands to client-dedicated agile teams leveraging talents and tech across the group, increasing employee retention as talent moves to Google, Facebook and Amazon as well as the consulting firms.
Welcome to the impossible job.
It’s a job that’s only possible if GroupM can somehow redefine what media value means to advertisers. And more importantly, get them to pay a premium for it. Juhl wants this value to come from its ability to be able to execute projects for advertisers globally in multiple markets simultaneously at the same level of quality. That sort of scale can’t be achieved without technology and data as Essence’s emergence has shown.
“Where we can do better than maybe GroupM has done in the past is to provide some singular solutions on a global basis and figure out what is best in class,” said Juhl. “We need to figure out how we build a layer of intelligence that can operate globally at a scale that services our agencies on things like measurement, data collection and data processing.”
This isn’t the first time GroupM has tried to pivot from media to data analytics and technology. In 2011, the Xaxis trading desk was the golden child within the holding group and in 2016 it was mPlatform. Both brands still exist within GroupM today, but they don’t enjoy the same status they once did. The problem for both agency brands was that GroupM thought the arbitrage model it had mastered for traditional media could work for biddable media and data. It had mixed results. In fact, some clients weren’t happy with how the business intended to make money from their data.
“As soon as we heard the pitch for Xaxis we said we weren’t prepared to share our data,” said a former marketing director.” Our stance stayed the same even when they offered a transparent model through mPlatform because our trust in that part of the business was lost right at the beginning.”
Still, not every advertiser shares the same view. It is worth noting that Xaxis remains one of the fastest-growing parts of GroupM and WPP – double-digit growth in 2018 and very much on track for the same in 2019. The problem is, however, that having two business models — disclosed and undisclosed — that are polar opposite has created its own tensions with some clients, according to an exec who works with the business.
Previously the difference between Xaxis and PBU was the commercial model. Now Xaxis has a disclosed deal with Ford, it muddies the waters of what the points of differences are between them. The concerns aren’t new to Juhl, who believes some of them will be appeased once GroupM is clearer with advertisers about how it profits from their money and data.
“I wouldn’t want to be the one always trying to sell a particular data asset that we own in that scenario,” he said. “We need to be clear about when we own something, when we’re charging on outcomes and when we’re consulting to help our clients manage their data.”
Eventually, there will be clearer lines of separation between GroupM’s outcome-based business that will be built on how it uses its own data to execute projects against certain projects, and an advisory business built on publicly available data that can be bought or licensed on behalf of its clients, said Juhl.
“The vast majority of conversations I’m having with clients involve them wanting to own their own data,” said Juhl. “They want advice on how to use it, manage it and activate largely in what we call the walled gardens and their willingness to pay for those services.”
As smart as borrowing from the Essence playbook is, doing so also has its risks. There are gaps in the Essence story that could become pitfalls for GroupM. It’s digital capability is very Google stack focused, according to one exec who has seen the agency pitch. Work is also needed on the agency’s strategic ability too, said the exec. After all, media agencies do a lot more than digital optimization, which is where Essence has lead the way.
“What Essence did really well was build a global system that the client teams all understood very well and were able to represent to clients,” said Juhl. “I’d like to be in a place where GroupM comes out says ‘this is what we believe you do search globally’ or ‘this is the way we believe programmatic media needs to work’ or this is how analytics works across these environments’. We’re going to deploy those solutions globally and then allow our agencies to access those things in a way that really works for their clients.”