When Sir Martin Sorrell’s much-publicized search for a first-party data company ends, it will be because he has found a business that’s closest to the digital, search and CRM data services Merkle offered. Companies like Epsilon, which was acquired by Publicis in April, don’t have the first-party data assets the ad veteran thinks clients of his S4 Capital agency group will pay for.
Merkle was an agency that had expanded its data services beyond direct mail and email marketing to include loyalty initiatives, data strategy and modeling, as well as technology integration when Dentsu bought a majority stake in it in August 2016. And like Merkle, Sorrell wants the data S4 owns — and subsequently sells to clients — to come from nurturing relationships, steering creative ideas or post-purchase experiences, not only from media buys like traditional agency networks.
Off the back of S4 Capital’s annual gathering for shareholders last week, Sorrell expanded on his vision for the business in an interview with Digiday. Below are excerpts from the discussion, which has been edited and condensed for clarity.
You’ve spoken in the past about the need for S4 Capital to acquire a first-party data company. What does that kind of business look like?
There are a fair amount of first-party data companies around. And they’re usually pretty expensive. I don’t regard either Epsilon or Acxiom as good examples of what we’re talking about when it comes to first-party data. Liveramp, which is yet to be acquired, is more of an interesting one albeit at a high price. Merkle, which was acquired by Dentsu, is a good example of what we’re aiming for. There are conflicting views in the market around first-party data as evidenced by moves made by Publicis and IPG to acquire Denstu and Acxiom, respectively, in recent years versus WPP’s efforts to get out of the data business, albeit not completely. If I was going to rank those assets in terms of what’s attractive to us, I would say Merkle first, Acxiom second and Epsilon third. Those last two businesses are not the sort of first-party data assets we’re interested in.
If data is king, should advertisers look beyond the walled gardens?
The walled gardens have gotten taller because of privacy issues and the General Data Protection Regulation alongside concerns around brand safety and political advertising. Clients feel that direct-to-consumer is becoming more important and so are looking at ways they can have that direct relationship with as evidenced by the deals between Coca-Cola and Costa, Nestlé and Starbucks and Unilever and Dollar Shave Club. All of those deals are influenced in some way by the advertiser’s need to control first-party data or at least use it in a coordinated way.
Can increased regulation of the walled gardens help introduce more alternative platforms to advertisers?
There’s more concern over how the walled gardens are regulated to the point where even Tencent and Alibaba are being scrutinized. That’s not a bad thing for us because it raises the number of alternatives, and means less friction in the marketplace. Regardless, Google, Facebook and Amazon dominate the $200 billion ad market with $125 billion, a $52 billion and $12 billion, respectively, last year. We’ll have to see what happens when it comes to how those companies are regulated but either way, we’re anxious to operate with those big five plus Apple and Microsoft as well as Oracle, Adobe Salesforce, IBM and SAP. If you include Baidu in that group then there are 13 companies which are a key part of the ecosystem for us.
What’s changed in the market since 2016 when mentioned that the trend to in-house programmatic would be short-lived?
Speed is a competitive advantage now, and there’s increasing frustration in the market, particularly among legacy companies that can’t move fast enough and have digital businesses that are capable of driving significant growth. CMOs, CIOs, CTOs, CEOs and procurement officers are all trying to move their businesses as rapidly as they can toward digital, which is unfair in a way because often the legacy parts of those businesses are also their cash cows. Consequently, the pace of experimentation has gotten faster.
Given S4 Capital’s pitch around content, media planning and buying and first-party data, has the group found itself increasingly up against consulting firms in pitches?
The consulting firms are there or thereabouts. There was an example last week where we won a significant piece of business and one of the big consulting firms was involved in that pitch and they won a piece of it. If we continue to grow at the rate we are — we’re growing at 40% plus so far this year — then we’ll inevitably come up against those businesses more. But the consulting firms are effective at the higher reaches of companies, particularly amongst the senior management teams.
S4 Capital hasn’t ruled out acquiring more businesses this year. Are you on the lookout for a traditional media agency?
No. There’s no growth there because of the procurement pressure. It’s a space where brawn rather than brains is going to win.