Publicis’ sweetheart ad deal with Google turns sour after kickback allegations

November 25, 2010

When is an agency kickback not a kickback? When it’s a strategic partnership with Google – according to Kurt Unkel, senior vice-president at Publicis Groupe digital arm VivaKi.

Google and Vivaki have found themselves in the eye of a hurricane, thanks to an exposé published by the respected online journal TechCrunch. It sheds disturbing light on the highly incestuous relationship between the internet giant and agency group, with particular reference to their collaborative display advertising operations.

The technicalities are complex, jargon-ridden and difficult for outsiders to understand, involving as they do the secretive workings of so-called agency “trading desks” and “demand side platforms” (DSPs). But at heart the issue is simple. It’s exactly the same one aired in one of my recent posts on a historic kickback scandal at Grey Advertising. It’s about playing the agency client for a mug, possibly because the client in question is indifferent, but more likely because he or she hasn’t the first idea about what is going on. Or, as one anonymous Publicis employee quoted in the TechCrunch piece bluntly puts it: “Our clients are so clueless it is a joke.”

So how does the scam, if that’s what it is, actually work? Google is desperate to prove that it is not a one-trick pony, relying pretty exclusively on search advertising revenue. It has made considerable inroads into display, which now accounts for $2.5bn a year revenue according to the company itself. Some of this comes from its own sites, which include YouTube, but quite a lot is also generated via special units, the DSPs mentioned above, which are attached to all the big agency network groups – Omnicom, WPP and Interpublic as much as Publicis. According to one source quoted by TechCrunch, these DSPs already handle 10% of online ad spending but, such is their power, they could handle up to half in a few years’ time.

The issue is not whether money changes hands between Google and Publicis to boost Google’s market share. An explicit bribe would be illegal, not least because the financial inducement would not have been remitted to the ultimate paymaster, the advertising client. Rather, what seems to be going on are a series of non-monetary inducements offered by Google to improve agency performance. These, according to TechCrunch, include investment in the agency trading platform, co-marketing and training.

Google does not deny this is what is happening with Publicis. That in itself is serious enough, because it hints at abuse of market power, which could in time attract the attention of the competition regulator. In a nutshell, is Google using profit gained from its search operation to distort the display market?

But the implications are even more serious for Publicis, which depends on digital advertising revenue to sustain its industry-beating profit margins, of which we have been hearing so much from Groupe chief Maurice Lévy of late. According to a Publicis secret squirrel quoted in the piece, Publicis will run $1bn of advertising through Google this year, most search but about $200m display. To put this figure in context, digital was nearly 30% of Publicis’  Q3 €1.3bn revenues. And the rate at which digital revenues are growing – 28% in North America, which is the hub of global activity – is much higher than the industry average of 17%. Just to round off the point, there is an incestuous relationship between Google and VivaKi’s DSP technology: the technology is effectively licensed from Google.

If that’s the case, the not unreasonable question arises: are media planners at VivaKi acting in the best interests of clients when they allocate client funds, or the best interests of their employer?

I should point out at this stage that VivaKi does do business with display ad exchanges other than Google’s DoubleClick; for instance Yahoo’s Right Media. It also has a sweetheart display advertising deal with Microsoft, struck as a clinching quid pro quo during the Razorfish acquisition last year.

Nor does Google have an exclusive partnership with Publicis. It has a relationship with all the major advertising holding companies and a similarly structured deal to the Publicis one with Omnicom.

Whichever way you look at it, however, this exposé is a wake-up call for clients. Advertisers really need to pay a lot more attention to how their money is being spent.

POSTSCRIPT: Troubles, they say, always come in threes. To add to Publicis’ Google woes, there is a still-breaking corruption scandal in its China media buying operation, plus fresh news that Matthew Freud’s high profile PR subsidiary is plotting defection. For more information on this last, see what my old chum Stephen Foster has to say over at More About Advertising.

Matthew Freud and the rise and rise of PR

April 30, 2010

The other day, I noted the CMO Council’s belief that management consultants such as Deloitte and Accenture are invading traditional ad agency terrain, thanks to their superior grasp of customer data capture and manipulation.

But in truth, it’s a pincer movement, in which the PR industry provides the other arm. I’m indebted to my old chum Stephen Foster for drawing attention to an interview with Matthew Freud, the doyen of PR and founder of the eponymously-named PR outfit, in his trade paper of choice. Here are some interesting excerpts:

So can we say that PR has finally moved up the marketing food chain?
“Ten or 15 years ago CEOs used to know the head of their advertising agency, but now our peer group has emerged as the strategic advisers of choice in marcoms. Clients are also now saying the best idea wins, rather than simply accepting their advertising shop as the lead agency.

“For many of our clients we are now the lead strategic or creative agency. We were certainly the lead agency for Nescafé – three TV campaigns in a row were our ideas. For Walkers, its most successful consumer-facing campaign – Do Us a Flavour – was conceived by us in conjunction with film director Paul Weiland. The ad agency AMV BBDO played no real part in the strategy or idea creation.”

AMV might have something to say about that.

Freud’s basic contention is that PR is better set up to deal with clients because it has more “rigour”, thanks to its daily dealings with cynical journalists. In his own words:

“PR – in terms of reputation management, third party endorsement, crisis management – is about as core a function as any company currently has. Reputationally there has never been a time when you can divide companies more easily into the f***ed and the nonf*** ed. There is total consumer transparency, extraordinary media scrutiny and a massive collapse of public trust in companies, governments and institutions. Reputation management is a firewall around your business. If you don’t have it, you are likely to fall over.”

Freud, the agency, is (just) majority owned by Publicis Groupe and it’s amusing to note Freud’s admiration for Publicis chief Maurice Lévy and his unvarnished contempt for both WPP and Omnicom (to whom Freud, the man, previously sold his business):

“When I did the Publicis deal, I didn’t want to repeat the mistakes I had made in the past [AMV/Omnicom]. I sold very few of my own shares and as far as I’m concerned it’s still my company… I have enormous respect for Maurice Levy [Publicis CEO]. If you compare him with his peer group, he is head and shoulders – quite literally in some cases – above them. He is my friend and partner.”

Full interview, by PR Week editor Danny Rogers, here.

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