For agencies to evolve, clients need to change their structure, explained Sir Martin Sorrell (pictured) at the recent S4 APAC office opening in Singapore. The problem, he said, is that agencies now have a lot more pressure put on them.
“Agencies are the meat in the sandwich, if I may say so,” he said, adding that in the current structure, agencies are a point for “referred pain”. Speaking of a meeting he had several years ago with now retiring Unilever CMO Keith Weed, he says that in the meeting he asked Weed why he was being “so difficult”. To this, the outgoing CMO of Unilever said he had been subject to a three-hour difficult meeting prior to the one with Sorrell, so why shouldn’t he be the same.
“So I think, it’s about referred pain. Agencies are often the subject of referred pain,” he said. He added that it isn’t about clients being easy to work with, but it’s about respecting the expertise of agencies. “Respect is intangible. Clients who give agencies respect, whatever the structure might be, get the best work from their agencies,” he said, adding:
Unfortunately the pressures in the market are so severe, that sometimes the respect goes out the window.
“If an agency feels valued, the yield in productivity from the agency is huge,” he said.
Sorrell also added that the current reporting structure needs to evolve on the client side for agencies of the future, such as S4, to succeed. “There is no point in us having a unitary P&L if we have to deal with multiple points from the client. So the clients have to change their structure too.”
Moreover, given the rise of the walled gardens, clients today have become very focused on who is going to control data and that has led to in-housing across verticles such as programmatic and content. He said:
It is about clients wanting to exercise control because they have lost control.
“Around 2016, the walls in the walled gardens of platform owners such as Google and Facebook started to grow and coincided with the time that clients thought that they could establish a closer, direct relationship with consumers,” he said, adding that the platform owners blocked that relationships and access to data.
“That’s where the war is,” he said. “In this era of walled gardens, clients have to be more focused on direct to consumer.”
Growth strategy and the future
Organic growth and acquisition is still on the cards for S4 which most recently continued its acquisition spree with the addition of food and liquids film studio Caramel Pictures, based out of Amsterdam, for an undisclosed cash sum. In addition, MightyHive also recently combined with ProgMedia, a São Paulo-based programmatic consultancy founded two years ago by ex-Google employees and ProgMedia is set to become MightyHive’s base in Latin America.
In a statement, S4 said that both initiatives were made in line with its recently announced strategic imperatives of broadening and deepening its functional and geographic capabilities in first-party data, digital content and programmatic offerings.
When asked about the future plans, Sorrell said,”When you start with nothing, like we did with a £2m cash show and it’s £550m now in a short period of time, you have to merge and acquire.” But organic growth, is also vital for a company like S4, he added.
Most recently, S4 Capital’s 2019 results also beat expectations after a strong first quarter with gross profit increasing more than 37% to £32.8 million. Meanwhile, revenue gained more than 38%. Content arm MediaMonks saw a 27% rise in reported revenue and a 22% increase in gross profit. This accounted for close to two-thirds of S4’s gross profit. Programmatic player MightyHive filled the other third of gross profit, which jumped 81% in the quarter.
Sorrell added that organic growth rate for the company is 35% to 38% and this year, S4 plans to grow to 50% organic growth rate.
Organic growth is really important as we don’t have infinite funding. But if you have a good idea or opportunity, its not difficult to find the financing.
“Our biggest clients are small compared to when I was at WPP. So I always say we have to grow ‘whopper’ relationships and that’s defined as 20 to 50 million dollar relationships, as compared to the 10 to 20 million dollar relationships we have at the moment,” he said.
“After WPP, my kids said to me that I should take some time off and I did the opposite. I couldn’t imagine not doing anything. Two doors down from our office David Cameron has an office, and he asked me to take a rest and said, ‘They wont forget you’. I did precisely the opposite,” he said, adding:
People often forget we have done it twice before actually. Once with the Saatchi brothers and then at WPP. It is very difficult to do it three times, but let’s see.