S4 Capital has made waves in the advertising scene. Established in 2018 by former WPP chief Martin Sorrell, the agency has since bagged clients including BMW and Mondelēz. During the first quarter of this year, the agency reported strong growth and showed an acceleration in the like-for-like net revenue growth rate from 27% in the fourth quarter of last year to 33% and compared to 19% in the pandemic-affected first quarter in 2020.
According to S4 Capital, reported revenue was up 71% to £121.6 million and net revenue up over 71% to £104.0 million. Like-for-like revenues and net revenue were up 35% and 33% respectively. Pro-forma revenues and net revenue were up the same. All regions showed strong growth. The Americas reported net revenue up 63%, EMEA was up 97%, and Asia Pacific was up 95%.
The Group’s content practice, representing 72% of total net revenue, was up 64% in reported revenues and 62% in net revenue, up 35% and 31% like-for-like and the same pro-forma. The Group’s data and digital media practice, representing 28% of total net revenue, was up 100% in reported revenues and 101% in reported gross profit, up 35% and 36% like-for-like and the same pro-forma.
During last year's Digital Marketing Asia 2020 virtual conference, Sorrell sat down with MARKETING-INTERACTIVE for a fireside chat to discuss how the US-China tech war will impact Southeast Asia, why he thinks pitching is artificial and agencies should land and expand instead, as well as the areas S4 Capital is zooming in on.
He said that the pitch situation is artificial while land and expand is not. "It's a second-by-second appraisal of what you're doing and is a far stronger way of building the relationship," he explained. According to him, S4 Capital prefers to start working with clients on a project-basis and develop the relationship from that entry point.
"We tell clients to give us a project, maybe it's the toughest thing they have to do, and we then work on it and build on the relationship from there. That's a far better way of developing the business than just showing and telling [that often happens in pitches]. For pitches, clients have little idea about what the agency can truly do," Sorrell said.
Calling the pitch situation artificial, he added the “land and expand” strategy is a “second-by-second appraisal of what you're doing and is a far stronger way of building the relationship”.
"We are a 3,000-people small company and we don't have the resources to run our business, our existing clients, and pitch for business. We can do it, but it puts great strain on our resources and our people. We have to think about pitching very carefully. It's a long and arduous process and takes a lot of effort. We feel that time and effort can be better focused on existing clients," he explained.
MARKETING-INTERACTIVE: The FAANG companies are under a lot of scrutiny globally - Facebook, Amazon, Apple, Netflix and Google. Some of these names are also S4 Capital's clients. How does that risk and scrutiny translate for your business?
Sorrell: At the end of the day, from an advisory point of view, we look at who the companies are. Google, Facebook, Amazon, Tencent, Alibaba, TikTok, Apple, Microsoft, IBM, SAP, Twitter, Snap, LG, Samsung, Pinterest, Spotify, Netflix, Xiaomi, Baidu and Epic - these are the sort of companies that we try and understand as much as possible and assess the relative merits of our clients.
If they are split into 40 or 60 companies [across different markets and geographies], advising them would be even more complex. Ironically, if there was regulation in the form of splitting these companies up, that would be to our advantage as it would make the decision our clients make more complex. But do I think breaking them up is going to solve the problem? No. Do I think regulating them will solve the problem? No.
We've seen this in the energy and telco industry before. These companies get big and powerful [and have a target on their backs]. The moment Apple, Amazon, Microsoft and Google go past a trillion dollars in market cap, the media focuses on that and that's a big target on their backs.
But I have to say I've seen them exercising more responsibility. They are acknowledging that with their powerful positions come responsibility. We see how Facebook has hired [an army of] people to monitor editorial content. They have got rid of extremist groups and they have dealt with some of the extremes of fake news or facts that are incontrovertibly false.
In China, we’re seeing the government exercise greater control with the cancelling of Ant Financial's IPO. Clearly, the Chinese government is really pointing out who is boss. They are basically signalling that these companies have become too powerful, and of course in the Chinese system, what I call state-directed capitalism, the state is the boss and it determines what happens. They planned it very well and the Chinese economy is the second-largest in the world.
The final point is that we have to be careful of what we wish for. All of those platforms, the ones in the West and East, 60% to 70% of their ad revenues come from small businesses, that's the salvation for these businesses. If we regulate or make it more difficult for [the platforms], it will make it difficult for SMEs. It is [difficult] now, but it will be more so in the future.
The platforms are starting to position themselves as Jack Ma has done continuously around the small business positioning. I think that’s what they should do. That is the most effective way of dealing with the regulators. As Facebook [pointed out], over the last few quarters, it is quite noticeable that their business is outside the top 100 or 200 companies.
I regret that we had this competition, that China and US can’t work together and have one system. If we’re going to have two systems, that’s a good way of putting it that they should compete with one another and see who the best man or woman wins.
MARKETING-INTERACTIVE: Which industries are you focusing on?
Sorrell: Tech and healthcare are 55% to 60% of our revenue base. The whoppers we refer to, those are the clients which we operate with more than US$20 million revenue, including Google and BMW. ["Whoppers" is a term S4 Capital uses to describe its 20-squared client objective which means to develop 20 clients with more than US$20 million revenue per year.]
Tech, healthcare, online shopping, online communication, online education and online financial services - all these are areas I would call V-shaped. The second area is FMCG and automotive, but it depends on how the shape of the U is for FMCG. It might be a much more narrow U and a less difficult U for single product category companies such as L'Oréal, Colgate, General Mills and Kellogg's rather than more diverse companies such as P&G, Unilever and Nestle. Although P&G has stood out with stellar Q3 growth at 9% and Unilever's [growth] is strong at 4%. Even the multi-category companies are doing well in packaged goods where they have product portfolios that appeal in the COVID-19 environment.
Next is the L-shaped sectors which are more of travel and hospitality. Some of the tech platforms' biggest clients are in travel and if they recover and come back to spend, which they will do with the vaccine, we will then see growth there. But our focus will continue to be on those more V-shaped and the narrower U-shaped areas because that's where we see the greatest potential.
MARKETING-INTERACTIVE: What is the legacy you'd like to leave behind and are there any regrets or ambitions you had at WPP that you are now fulfilling at S4 Capital?
Sorrell: The mission for S4 Capital is to create a new age, new era advertising and marketing service model. In 20 to 25 years' time, people will look back and say it understood the changes and were in the vanguard of creating a new-age model which is purely digital and uses the holy trinity model. That covers first-party data, digital advertising content and programmatic. Thirdly, it is also faster, better and cheaper, and most importantly, it is unitary in concept.
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