How Hillary Clinton’s former political adviser plans to take over the ad industry
- Business Insider
Mark Penn, former chief strategy officer at Microsoft and political adviser to both Clintons, has plans to disrupt the ad world.
Penn told The Wall Street Journal that he wants to create a more digitally-focused advertising group, made up of companies which do not overlap in function — using his private equity fund Stagwell Group LLC, which raised $250 million in funding last July,
Stagwell Group has already acquired the agency Code and Theory, PR firm SKDKnickerbocker, as well as research firm NRG, but it is looking for more.
By expanding, Penn hopes he will be able to capitalize on the cracks showing in the current model of large holding companies, like WPP, Interpublic, Omnicom, and Publicis.
Penn said that Stagwell Group is looking for companies which have revenue "primarily in the $40 million to $50 million range."
The former Microsoft exec has had a great deal of experience at Martin Sorrell's advertising company WPP, where he held various roles, including CEO at PR firm Burson-Marsteller.
“In a lot of the big holding companies, there’s so much competition among the companies that that gets in the way of collaboration,” Penn said. “I can never eliminate that totally, but I’m trying to minimize that in the planning that we do.”
Penn's vision is to create a "Noah’s ark, but we’ll have one of each kind," he earlier told The New York Times. This means he will try to make sure there is little internal competition in his group, in contrast to holding companies.
With the backing of former Microsoft CEO Steve Ballmer, Penn is in process of piecing the ark together.
Mark Penn Is Out to Reinvent the Ad Holding Company
- Wall Street Journal
As a political adviser to Hillary Clinton in 2008, Mark Penn took aim at Barack Obama with the famous “3 a.m.” campaign ad. As a Microsoft strategy guru, he went after Google with a “Scroogled” campaign.
Now, Mr. Penn is taking on the ad industry itself.
Armed with $250 million in funding, the 62-year-old is building what he hopes will be a new kind of advertising conglomerate to challenge the ultra-scale-driven model of the four giant “holding companies” that dominate the marketplace. His private-equity fund, Stagwell Group, is still hunting for acquisitions after completing three since it was launched last year—public relations firm SKDKnickerbocker, research firm NRG anddigital creative agency Code and Theory.
Mr. Penn is no stranger to the ad industry he is trying to disrupt. He spent a decade in leadership roles at WPP, the world’s largest advertising company.
WPP was one of the giants created through an industrywide spree of deal-making in the 1980s and ‘90s that brought several large media and creative agencies under one roof. Owning several agency networks within a single holding company offers huge scale and the ability to service rival clients without a conflict of interest. A holding company has all the resources in-house to upsell a client to all types of marketing services from advertising to public relations to media buying.
But the model of big ad holding companies is now under duress -- with some arguing that the agency model is broken -- as marketers look to further cut agency fees, push for more work for less money, and shift ad budgets to less traditional mediums. Critics of the holding company model abound, claiming they move too slowly, have too many conflicts among the companies under the same umbrella, and are inefficient in how they charge for services.
Consulting, digital and technology companies are slowly encroach on holding companies’ turf, and Mr. Penn sees this as an opening to shake up the industry.
Stagwell’s current portfolio of companies is projected to generate between $140 million and $150 million in revenue this year, representing double-digit growth from 2015. Former Microsoft CEO Steve Ballmer is a core investor in the company.
Stagwell is one of several new players seeking to take on traditional ad holding companies with a nimbler and more digital-savvy model. The group has an eye for firms with a strong digital expertise, which could potentially give it a leg up on legacy structures trying to evolve, and firms with CEOs who aren’t ready to retire yet and want to stay on to help grow their agency. Stagwell won’t own multiple agencies within the same discipline, ensuring that operations aren’t duplicated.
“In a lot of the big holding companies, there’s so much competition among the companies that that gets in the way of collaboration,” Mr. Penn said. “I can never eliminate that totally, but I’m trying to minimize that in the planning that we do.”
The behemoths of the advertising business—dominated by WPP, Omnicom, Publicis andInterpublic—are not going to be easy to topple. WPP, for example, generated revenue of £12.2 billion ($17 billion) in 2015.
Stagwell aims to create “a Noah’s Ark with one of a kind,” Mr. Penn said, meaning that its holdings will offer services that complement rather than directly compete with one another.
With a résumé that boasts helping elect more than 25 heads of state, Mr. Penn wanted politics to be among Stagwell’s niche areas, along with entertainment and finance. Mr. Penn has worked as a pollster and adviser to politicians including Bill and Hillary Clinton and U.K. Prime Minister Tony Blair. Political mementos in his Washington, D.C., office include a framed a framed front page Washington Post story from 1999 with the headline “Clinton Acquitted,” signed with a personal note from the former president.
Mr. Penn co-founded market research firm Penn Schoen Berland in 1975 and sold the business to WPP in 2001. While at WPP, he became the CEO of the company’s Burson Marsteller public relations firm. Mr. Penn left WPP in 2012 to join Microsoft before launching Stagwell last year.
Mr. Penn isn’t the only advertising veteran looking to challenge the traditional ad holding company model. Darren Herman, a former Mozilla executive, recently said he is launching a new holding company described on LinkedIn as “the refugee camp for Madison Avenue.”
David Jones, the former CEO of holding company Havas SA, last year raised $350 million to launch You & Mr Jones, which invests in companies that will help brands better leverage technology in their marketing efforts.
“We are not setting out to replace or compete with holding companies,” Mr. Jones said of his firm. “Eighty percent to 90% of what they do, we don’t want to do.”
Stagwell, for its part, is looking to acquire firms that “have gotten to a reasonable degree of scale, primarily in the $40 million to $50 million range,” in terms of revenue, Mr. Penn said.
Before selling to Stagwell, SKDKnickerbocker had been pursued by large holding companies, but Managing Director Josh Isay said Stagwell offered a better cultural fit and leadership that understood the firm’s business. “Not having a bunch of competing companies all swimming in the same waters was very important,” he said.
Charles Fallon, a partner at SI Partners, which advises creative and digital technology businesses on mergers and acquisitions, said holding companies have an advantage as buyers because they have well-established resources and scale. The sacrifice may be the loss of an agency’s unique culture when it gets rolled up into an existing network, he added.
Keeping and attracting talent is what Mr. Penn “found the most troubling” about the big holding companies. To address that at Stagwell, he has half-hour calls with the CEOs of each of his companies every week to check in on new business and operations and maintain a personal relationship.
“I’m trying to build something where the partners feel there is a home,” he said.
Brand USA Taps Code and Theory as Digital AOR Ahead of New Campaign
- Advertising Age
Brand USA has hired Code and Theory as its digital agency of record. The shop will initially be charged with redesigning the organization's website and supporting its upcoming campaign.
Code and Theory won Brand USA's account following an "aggressive RFP with some of the top firms in the country and some of the best in the business," said Brand USA Chief Marketing Officer David Whitaker. He added that Code and Theory impressed the organization with its presentation and prior experience. In 2015, the agency won the Webby Award for Best Website for an Association for its work redesigning visitcalifornia.com for Visit California, a Brand USA partner.
Prior to Code and Theory, J. Walter Thompson's Mirum served as the digital AOR for Brand USA. Representatives from the agency were not immediately available for comment.
Code and Theory's first task in its three-year engagement with Brand USA is to redesign the organization's website, which will include a new visual plan and user experience strategy. The site is expected to launch early in the fourth quarter. The shop will also develop a content management system to allow content to be published easily and with a sense of personalization for end users, said Michael Martin, managing partner at Code and Theory.
Brand USA has 14 international markets in which it invests in consumer marketing and branding, with websites in eight languages, so Code and Theory has to "make sure content can be localized from a language and SEO standpoint," said Mr. Martin. The agency is not creating 14 separate sites, he added, but one centralized site to house content while providing regions the ability to independently publish locally relevant posts. Mr. Martin said travelers from different countries, such as Germany versus Brazil, likely have different reasons for wanting to travel to the U.S.
"What we've challenged Code and Theory to do is build us this amazing product that feeds, fuels and delivers on the premise of a social-first strategy to educate, inspire and inform travelers," said Mr. Whitaker.
In addition to its work on the site, Code and Theory will collaborate with Brand USA's advertising agency McGarryBowen and media agency MediaCom on the organization's upcoming brand advertising campaign. Exact timing for the new initiative is still being ironed out, but it's expected to roll out in late summer or early fall, said Mr. Whitaker. He added that McGarryBown will lead creative on digital ads, but Code and Theory will work on the strategy of how they are displayed, shared and optimized.
With the new website and campaign, Brand USA is looking to create "the ultimate selfie experience," focused on inspiring consumers and visitors and teaching them something new or surprising about the U.S., said Mr. Whitaker. The organization also wants to garner user-generated content about travelers' experiences. Mr. Whitaker said the U.S. currently hosts about 80 million international visitors each year, and the goal is to surpass 100 million in the next four years.
Mr. Martin said the website and collaboration on the campaign is about more than just inspiring people to travel. He said it's about "the spirit of hospitality that the country is based on" and reflecting the U.S. in a positive and inviting light, even from a geopolitical standpoint.
Budget information on the account was not disclosed, but according to Brand USA's "FY2016 Objectives, Summary Marketing Plan & Budget" document, the organization plans on spending about $84.7 million on partner marketing services in the 2016 fiscal year.
At the beginning of the year, Stagwell Group, founded by former Microsoft executive Mark Penn, acquired a majority stake in Code and Theory.
Mark Penn: Evolving the Agency Model
- PR Week
Mark Penn: evolving the agency model
In a world where smaller entities compete with well-established holding companies, Mark Penn's new collaborative take on how firms can adapt today while better serving clients has more to offer than looking in the rear-view mirror.
The digital revolution has left major brands unsatisfied, unsure if they’re getting the most out of their marketing dollars. It has opened the door for smaller entities that are unencumbered by legacy business structures and are empowered by disruptive technologies, firms that can create groundbreaking work and compete with established holding companies for lucrative business from blue-chip brands.
That’s Mark Penn’s view of the marketing landscape and the impetus behind The Stagwell Group, an evolving holding company he founded last summer. He sees Stagwell, officially an investment advisory firm, as the challenger brand to the WPPs and Omnicom Groups of the world. He believes he can build a more collaborative, nimbler group of agencies.
"Stagwell is the new kid on the block," he stresses during our interview in his K Street office in DC. "We are putting together a group of companies in the marketing services area with leading-edge creativity, great analytics, and strong depth in digital."
There are self-implied dictates: No rosters of PR or marketing agencies doing virtually the same thing while competing against one another. Stagwell’s firms must be digitally driven. And agency CEOs must not look forward to retirement; rather, they must prove collaborative and work with sister shops in an era when household name brands seek their own version of cross-agency groups such as WPP’s Team Detroit.
The collaborative model
"The idea is to avoid situations that occur in holding companies," Penn says, "where you can have PR firms six deep all fighting for a single scrap of business. That doesn’t really create a model of cooperation. It creates a model of competition.
"We’re trying to create a collection of good firms that can work together and maintain their character and quality. There are more clients that will use a group of firms, and there is more of a common culture that will be created across the firms."
The former Burson-Marsteller CEO says he is eyeing three industries as specialty areas for Stagwell: the campaign-driven worlds of politics and entertainment, and finance. Its first three agency acquisitions fall in line with that strategy.
In October it bought SKDKnickerbocker, a powerhouse public affairs firm with politicos including Anita Dunn and Hilary Rosen who, like Penn, have roots in the Democratic Party and considerable experience with corporate and brand entities. A month later Stagwell agreed to acquire National Research Group, an analytics firm with offices in Los Angeles and London that works with Hollywood studios. And at the start of this year, it took a majority stake in New York–based Code and Theory, a digital creative firm with clients such as Burger King.
"Code and Theory is a good example of a digital-first agency," Penn explains. "It was born digital from start to finish." He then adds that SKDKnickerbocker is "a very strong firm with great leaders and one of the two or three go-to agencies here in Washington, DC."
The holding company, backed by former Microsoft chief executive Steve Ballmer for one, has hit benchmarks of 500 employees and $120 million in revenue. At its founding, the group raised $250 million in capital and had the capability of spending $750 million. Penn declined to speculate on whether he will sell the firm in the future or take it public.
Assembling a new holding company
Penn made headlines in moving from Microsoft to Stagwell, but executives who have worked with him say that his moving into a role where he could build a company from the ground up came as no surprise.
"That’s his dream," says former business partner Mike Berland, now the CEO of DJE Holdings shop Edelman Berland. "When he was at Penn Schoen Berland, he was always building businesses. He learned a lot at WPP, watching it assemble companies."
Penn contends that Stagwell will be different from the big four holding companies — WPP, Omnicom, Publicis Groupe, and Interpublic Group — in leadership experience, both at the holding company and agency levels. He touts his own experience as a campaign strategist, agency leader, polling shop founder, and Microsoft’s strategy chief. The "big holding companies are run primarily by accountants," he told The New York Times last October.
Penn stops short of saying the holding company model is broken, but explains Stagwell is looking for a more dynamic type of agency leader.
"It may be right for certain types of companies and we may be better for others," he says. "If you are a big, global, mature company and the owners and founders are looking forward to retirement, a holding company is probably the right thing. If you’re a creative company with young, energetic founders, we’re probably the right case."
Can Stagwell lure accounts from established agency networks? Observers say it’s unlikely the company will catch up with WPP or Omnicom in terms of sheer size anytime soon, but it could win campaign-driven business from clients willing to look past its relative lack of scale.
"In the tech world," notes Pivotal Research Group senior analyst Brian Wieser, "there are a lot of companies that raise capital against an idea, then build out a business to support it. Agencies tend to be very dependent on locking down revenue. You don’t build too far ahead, in part because you are operating basically as an outsourced extension of your client’s companies, until you’ve been able to build out your business and get confidence from a client that is willing to overlook the lack of scale. That gives you the opportunity to build something bigger."
Noting that Stagwell already has a star under its umbrella in SKDKnickerbocker, Penn says he could turn his attention to buying a consumer, healthcare, digital, or analytics shop or a firm focused on the U.S. Hispanic market. He contends that marketers are not reaching that demographic adequately.
"The Latino community is not being marketed to specifically enough," Penn notes, "there is [not] enough specific digital PR and communications, considering its growth over the past few years. We are going to look for agencies that can reach into those communities. If you look at the smartphone technology market, you will see Latino and African- American households are at the front of the line."
Though Penn has recently had the ear of CEO Satya Nadella and fellow Harvard alum Ballmer at Microsoft, he is best known for his work as a political strategist. His résumé includes some of the highest peaks — copies of the State of the Union and an inaugural address by President Bill Clinton hang on his office wall — but also stinging defeats.
Penn has advised leaders such as Clinton and U.K. Prime Minister Tony Blair during hard-fought campaigns, as well as Hillary Clinton’s initial run for the Senate. Yet he also took much of the blame after her defeat in the 2008 Democratic presidential primary.
It got personal in postmortems of that campaign.
Penn, its chief strategist, was accused of not understanding the delegate process. Staffers protested his straightforward style in not-for-attribution quotes. As Clinton geared up for a second presidential run, with Penn officially on the sidelines, Mother Jones ran an article under the headline, "Hillary insiders say they won’t work for her if she hires this man."
The 2008 campaign had high and very low points for Penn, who continued to serve as Burson’s CEO. He masterminded the influential "3 a.m." ad, depicting Clinton as the best-qualified candidate to handle an unexpected crisis, which helped push her to victory in crucial primary states.
Yet in April that year, he resigned as her chief strategist after reports emerged he met with representatives from the Colombian government, a Burson client that was at odds with the campaign’s stance on a free trade issue.
Asked what he would do differently, Penn says he should have taken a leave of absence, but notes that WPP leadership didn’t want him to step aside.
"[The Colombia issue] came and went and didn’t have any impact," he contends. "In retrospect I would have taken a leave. There was too much confluence between clients at Burson and the political campaign."
Four years later Penn was widely reported to have helped Bill Clinton craft his blockbuster speech at the 2012 Democratic National Convention. And he advised Hillary Clinton in 2012 to consider resigning as Secretary of State after President Obama’s missile defense comments to former Russian President Dmitry Medvedev were caught on a hot mike and became public when the State Department released her personal email correspondence.
Although Penn says he was happy in the top role at Burson and not looking for wider responsibilities at WPP, he resigned in mid-2012 to join Microsoft and brought the edginess of campaign politics to the tech giant. While critics assailed its Scroogled campaign targeting Google’s data-collection practices, he contends the push is a model for other companies to straightforwardly take on competitors instead of doing so from behind the scenes.
"It raised some very important public issues around privacy. In fact, we got 250,000 people a day coming to the website, and it kicked up the dust it was supposed to," he says. "It’s an interesting model in terms of how you raise issues in the confines of commercial advertising and be very upfront about it."
Penn also helped Microsoft strike a less confrontational tone with its 2014 Super Bowl ad showing how its technology helps those with severe medical problems or handicaps, the first time he helped to craft a spot for the big game.
He isn’t swearing off campaign politics — "never say never," he says, while pointing out his focus is on building Stagwell. But don’t expect him to give up the role of strategist in favor of the traditional role of a holding company principal.
"I enjoy what I’m doing," he insists. "I enjoy marketing itself. Marketing to me, whether in politics or in general, is helping people be satisfied and learn about new products and things."
He'll ask the questions
Penn is often referred to as a "pollster," a role he has played since high school. At age 13, he polled Horace Mann’s faculty on how they felt about race relations in America, finding they were more progressive than the country at large. Not as well known is that he also polled fellow students at the New York City prep school about their experiences with sex and drugs, which outraged its board of trustees.
Penn continued polling in college, which led to a long-term business partnership with Doug Schoen instead of a career as a lawyer. "As a hobby it seemed much more interesting than what looked like a boring career in corporate law," he says. Penn also built Penn Schoen Berland’s first computer, an alpha micro that gave the firm a competitive edge for years.
He’s now trying to get the next generation interested in the increasingly complex world of polling, having served as a visiting lecturer at Harvard University’s School of Government this spring after teaching at George Washington University in the fall 2015 semester.
The Stagwell Group, president and managing partner
Microsoft, EVP and chief strategy officer
Microsoft, EVP of advertising and strategy
Microsoft, corporate VP of strategic and special projects
Hillary Clinton for President, chief strategist
Penn Schoen Berland, CEO
Penn’s Stagwell Buys Digital Shop Code and Theory
The Stagwell Group, the private equity fund of pollster Mark Penn, has acquired New York-based digital agency Code and Theory.
The 14-year-old firm has 300 staffers in New York, Atlanta, London, San Francisco and Manila, the Philippines. It has conducted major digital overhauls for Bloomberg and the Los Angeles Times, in addition to brand work for Dr. Pepper, Burger King and Maybelline, among others.
The acquisition follows Stagwell's buy of SKDKnickerbocker in October and Nielsen NRG in November. Penn has said the firm could use its $250M in capital to leverage and build a marketing holding company.
Like its previous acquisitions, C&T will continue to operate under current management as an independent entity. "We're looking forward to working with Stagwell to take our company to the next level," said partner, Brandon Ralph (right), who co-founded the firm with Dan Gardner (left).