A quarter of a century after Sir Martin Sorrell began the reincarnation of Wire and Plastic Products (now called WPP), a UK-based maker of wire baskets, as the world’s biggest marketing and advertising agency, the group remains focused on dealmaking to provide for its future.
This determination to grow through investment in whatever form is required, from partnerships to corporate venturing and majority acquisitions, has marked WPP’s rise to pre-eminence and remain there through the transition from traditional to digital services.
The company set up WPP Digital in 2007 to harness these "digital media opportunities" and acquisitions have powered its growth.
Its recent deals include December’s purchase of Blue State Digital, the marketing company behind US president Barack Obama’s election campaign, as well as the $649m purchase of 24/7 Real Media in 2007 and the smaller bolt-on of Schematic earlier in the year that helped WPP win a $2bn advertising account from US phone operator AT&T.
WPP Digital made up 27%, or $3.6bn, of its parent group’s revenues in its last annual accounts for 2009, compared with 20% from digital assets in 2006.
These digital revenues were with margins at or higher than traditional channels, WPP said, as specialist digital agencies deliver services in new areas, such as mobile or applications.
Overall, the digital market is expanding. In the UK, the internet overtook television two years ago to become the country’s largest advertising medium.
Globally, digital advertising and marketing services have grown 20.6% a year between 2005 to 2010, according WPP’s GroupM subsidiary.
But where an outright acquisition is unavailable, the group has also taken minority equity stakes. Since 2002, the group’s corporate venturing strategy has led it to invest in more than 20 companies, according to Global Corporate Venturing (see table, below).
Mark Read (pictured), who is now WPP’s strategy director, effectively Sir Martin’s right-hand man, and chief executive of WPP Digital, returned to the company in 2002 after initially joining in 1989 when the company was already in the throes of its transformation from basket-making to advertising.
Read said corporate venturing provided an important strand to its strategy for growth. He said: "Our goal is to bring innovation to our agencies and clients and to get access to ideas and technology that it may not be practical or possible for WPP to control 100%."
However, even where WPP owns a minority position, Read said: "We pretend we own 100% in order to facilitate introductions. We have no more rights than any other investor as we try not to overcomplicate things."
WPP in its digital strategy presentation for analysts in April said the company’s focus was on technology for marketing insights and media optimisation. It said digital was the area of greatest innovation and, hence, potential for business opportunities, such as improving the return on investment for clients, but also for disintermediation by new competitors.
WPP said by being able to simplify a complex set of technologies for clients in the long-term it had an opportunity to integrate data and insights from across its subsidiaries covering public relations, advertising and market research in a unique way.
John Taysom, chairman of Global Corporate Venturing and a 2011 Advanced Leadership Fellow at Harvard University, said: "WPP was among the first to realise the impact technology was going to have on its clients’ ability to efficiently execute a campaign.
"It is not surprising WPP was a co-investor with the Reuters Venture Fund when I ran it because there are many similarities between presenting news to users in context, in location, in time and delivering an impactful advertising message.
"My insight, back in 1994, was digital delivery of advertising collateral would enable advertising to become an ephemeral intangible good, a bit like forex [foreign exchange trading]. We are almost there.
"The current generation of technology, in databases dubbed ‘noSQL’, and the product innovations it is ena-bling around the theme of ‘big data’ will again see some overlap between finance and advertising platforms."
A number of corporate venturing deals have led to partnerships for WPP’s clients. These include Visible Technologies, in which WPP first invested in 2006 and where 40% of its 150 clients come from the advertising group; data analysis company Omniture, which had 30 of WPP’s top 50 advertiser clients using its software when the equity stake was made in early 2009; and Buddy Media, which provides services to clients using the Facebook social media platform.
The November add-on of WPP to Buddy’s venture capital consortium indicated how quickly the advertising and marketing group is moving to remain relevant as digitalisation and the internet shift communications and media consumption at an unprecedented pace.
At the time of the deal, Read said: "As Facebook has surpassed the half-billion-users milestone and is effectively the third-largest country in the world, it is no longer a matter of if brands should have a presence on Facebook, but how they can be successful.
"In the same way that brands have software for managing websites and search campaigns globally, it is also now appropriate we have software that will help manage the fastest-growing communication medium of all time: Facebook."
And, unlike other industries, in advertising and marketing the latest media channels promise greater returns.
Advertising agencies have 55% to 60% of the mobile and social media sector versus 12% of traditional media and 15% to 20% of search and display, WPP said in its digital strategy presentation in April.
As well as Facebook, WPP has also struck a partnership with the other main disruptive media force over the past decade: US-listed Google, which effectively monetarises searches on the internet through paid advertising.
In 2009, WPP and Google jointly set up a marketing research awards programme to see how online media influenes consumer behaviour and the two have invested in at least two of the same deals through corporate venturing, Invidi Technologies and Visible World, for internet-enabled television advertising.
A co-investor in Visible Worlds said that although addressable TV advertising was a "hot space right now" WPP had identifiedthe area early and tapped into a com-pany with a deep portfolio of patents to support its growth and position.
Read said WPP tended to select the best company it could in specific areas. He said: "Our goal is to invest in what we believe is the best company in each area so we tend to avoid significant overlaps.
Both Invidi and Visible World are based in the US, where WPP’s corporate venturing unit has completed most of its deals, but the company has looked globally, across all stages of development and size of minority equity position from 3% to 49% and receives hundreds of proposals each year.
In Africa, WPP has taken minority stakes in Smollan Group, Scangroup and Jupiter Drawing Room, while in Europe it has backed online analysis company E-Commera and games devel-oper Realtime Worlds, which fell into administration late last year after $80m of funding.
Despite the setback with Realtime Worlds, WPP has continued to invest in the expectation it can provide returns as well as knowledge.
Ultimately, Read said WPP wanted to buy out its portfolio companies "but we have learned not to stipulate that type of arrangement up front".
He said WPP had both strategic and financial returns and the group was "open to the best financial return for the [portfolio] company [as] there is always the danger that so-called ‘strategic’ investments are the ones that lose money – so we pay close attention to the financial returns and each [deal] is assessed by different teams".
But WPP is interested primarily in the strategic advan-tages of corporate venturing.
Last year, Read said: "For WPP it is about connecting our 134,000 staff with innovation. Technology is changing the advertising industry and not all innovation can be found inside our businesses.
"Corporate venturing is a way to get engaged and insights in a lower-cost and more practical way than starting up businesses ourselves or buying one directly."
Read said he had four to five people "drawn from our strategy and mergers and acquisitions team that work closely together" but he preferred co-investing with venture capital (VC) firms.
He said: "In an ideal world, we will partner a VC as experience has taught us they bring a discipline and rigour to the process of investing and managing the investment that can complement our skills."
Read’s return to WPP followed first-hand experience of VC backing. After a spell at consultant Booz Allen Hamilton, Read in October 1999 co-founded WebRewards, a UK-based consumer loyalty programme that foreshadowed Groupon and subsequently became a subsidiary of Germany-based peer Webmiles.
In a rapid exit, Germany-based media group Bertelsmann acquired the entire Webmiles group in October 2000 to provide an exit for VC firm Wellington Partners.
This first internet gold rush led to a number of high valuations but even greater wealth is now being created given Facebook’s $50bn valuations at its latest private placement last month.
It is a second rush that WPP is keenly mining for assets to provide for its future.
Key people
Chief executive: Martin Sorrell
Head of strategy and chief executive WPP Digital: Mark Read
Directors venture capital: Lance Maerov and Sheila Spence
WPP’s corporate venturing deals
Date Target Round Size ($m)
Nov 2010 Buddy Media C 28
Jun 2010 Ace Metrix C 2.2
May 2010 TRA Global C 18.2
May 2010 Invidi Technologies D 23
Apr 2010 E-Commera n/d >8
Jan 2009 Omniture n/d 25
Jan 2009 Jupiter Drawing Room n/d n/d
Oct 2008 Smollan Group n/d n/d
Sept 2008 Proclivity Systems B 5.2
Aug 2008 Scangroup n/d n/d
Aug 2008 Realtime Worlds*** B 50
June 2008 Yield Software B 6
Feb 2008 NuConomy A 3
Jan 2008 Integrated Media Measurement C 25
Apr 2007 Say Media* C 3
Mar 2007 Iconmobile n/d n/d
Oct 2006 Spot Runner B 40
Sept 2006 LiveWorld n/d 2
Aug 2006 WildTangent n/d n/d
Aug 2006 Visible Technologies** A 3.5
2006 Jumptap C n/d
Oct 2005 MMetrics B 7
Nov 2003 Visible World B 8
* Plus a $15m D round in Sept 2007
** Plus $12m B round in Sept 2007 and $28m C round Jan 2010
*** WPP previously invested in Realtime’s $31m A round
n/d: not disclosed
Source: Global Corporate Venturing