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Digital Buying Transparency & Profitability

Sir Martin Sorrell
Founder of WPP and Founder, Executive Chairman S4 Capital

Learning outcomes

  • The transparency issues in media buying and potential pressure on media buying margins
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Executive Bio

Sir Martin Sorrell

Founder of WPP and Founder, Executive Chairman S4 Capital

Sir Martin Sorrell is Founder and Executive Chairman of S4 Capital plc, which is building a purely digital advertising and marketing services business for global, multinational, regional, local clients and millennial-driven influencer brands. Sir Martin was CEO of WPP for 33 years, building it from a £1 million “shell” company in 1985 into the world’s largest advertising and marketing services company. When Sir Martin left in April 2018, WPP had a market capitalisation of over £16 billion, revenues of over £15 billion, profits of approximately £2 billion and over 200,000 people in 113 countries. Prior to that, Sir Martin was Group Financial Director of Saatchi & Saatchi plc for 9 years and worked for James Gulliver, Mark McCormack and Glendinning Associates before that. S4 Capital plc merged with MediaMonks, its content practice, in July 2018 and MightyHive, its programmatic practice, in December 2018 and has added eight further content programmatic and data companies to both practices in 2019 and six in 2020. It is listed on the London Stock Exchange under SFOR.L and after a little over two years, S4 Capital plc has over 2870 people in 30 countries, with a market capitalization of over $2.7 billion. Sir Martin supports a number of leading business schools and universities, including his alma maters, Harvard Business School and Cambridge University and a number of charities, including his family foundation.Read more

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Interview Transcript

I saw a recent comment from WPP’s CEO, where he actually said that, from £100 allocated on Google, they earn 5% to 6% for media buying, where I believe it’s around 3% for TV media buying, even though it’s somewhat more concentrated, with Google and Facebook being most of the digital inventory out there. Why is digital media buying somewhat more profitable than TV?

I don’t know where he gets that statistic from. It may be that it’s because, when we were there, we created a thing called Xaxis, which acted as principal and bought media online inventory. That may be the reason. The thing that drives all these advertising holding groups is the media business. If you’re WPP, you have $50 billion of media buying and your biggest customer is Google. That’s online and offline but, mainly in the case of WPP, it would be principally the online business.

The same is true of Publicis; it has $30-35 billion. The reason why the advertising groups have done okay in the recession, in a way – WPP are down about 8% or 9% this year, in the top-line, and people might have thought it was going to be 10% - 15% – is the media; that’s what drives it. I don’t know where Mark Read gets that statistic from, but it may be that he has mistakenly referred to Xaxis and the inventory profit. That’s a controversial area. You asked about why MightyHive has an advantage. The advantage it has is that it is transparent. You can’t be totally transparent; you’re either transparent or you’re not. You’re either transparent or you’re opaque.

It’s true that when we were at WPP, we went to clients and we said, look, here’s Xaxis. We can buy inventory cheaper and we can turn that inventory. We’re not going to tell you what the prices are. Do you opt in? Havas took the opposite way. They just did it, without going to clients and asking them to opt in. We actually ripped up, I think, 2,000 contracts and went back and renegotiated each contract and said, are you prepared to opt in, on this basis? I think that’s probably why.

First of all, there has been this great hoo-hah ever since about 2016 about transparency, driven by privacy, brand safety, interference in elections, but there is controversy about transparency in the digital ecosystem anyway. The more relevant statistic is not what we quote, but what is the proportion of client cost that goes through to the publisher and gets to the publisher, because there are so many sticky fingers. That’s where new blockchain technologies may, actually, be quite helpful in eliminating the friction and risks in the channel. But I think what he was talking about – and again, I think he tripped up on this inventory issue – is something that irks clients a lot; clients are very concerned about transparency. Transparency in the Indian and Chinese markets is really top of the pile, in terms of importance.

Let’s just say, for example, that buying digital media is somewhat more profitable than buying TV or analogue media. Does scale actually matter or is it really the competence and purchasing?

You said more profitable; it may not be sustainable.

There’s a transparency issue?

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