The Drum Awards for Marketing - Extended Deadline

-d -h -min -sec

Marketing deals: Are we entering an era of leg-ups rather than outright buys?

Author

By Barry Dudley, Partner

June 21, 2013 | 7 min read

While much of the marcomms industry has been sunning itself in Cannes this week, a really interesting deal has snuck out, almost unnoticed. Which is odd, since the deal involved WPP, whose status within the industry means that its every move is pored over and analysed.

AKQA chairman Tom Bedecarré

The story goes back to last year, when WPP swooped for AKQA. Very shortly after acquiring AKQA, WPP quietly set up WPP Ventures, an investment vehicle that sat within its digital operation and which is – significantly – based in Silicon Valley. Although Sir Martin’s firm have long dabbled in investment (only last year it invested $10m in the e-commerce site mysupermarket.com), WPP Ventures is slightly different in that it was set up to explore early-stage investments in technology companies that could, in the words of the corporate blurb, “deliver innovative services to WPP and its clients”.

WPP Ventures, which is run by the AKQA chairman Tom Bedecarré, has until very recently been rather quiet. But it’s now becoming clear that someone has been very busy behind the scenes.

This week it has made its first two significant investments: taking a minority stake in the micro-blogging platform Muzy, and putting money into the YouTube network Fullscreen.

Muzy has been one of the quiet growth stories of the past couple of years. It’s a mobile microblogging platform (similar, in principle at least, to Twitter) that sets content out in a Pinterest-style grid. It’s actually quite neat – neat enough to gain 20 million users with little publicity, promotion or marketing. It’s apparently gaining one million users a month and has been backed by no less a duo than Marc Andreessen and Ben Horowitz.

No wonder WPP was interested. It ticks all the right boxes: mobile, social, growing, close by (it’s based in San Francisco) and is backed by men with a track record of picking winners. I think the growth is particularly impressive, and attractive for someone like WPP, especially when you consider that Muzy was only founded in 2011.

Muzy is led and will continue to be led (this is one of the great advantages of taking a stake, as opposed to taking over) by co-founders Andrew Chen (CEO) and Matt Rubens (CTO). Chen has had a lot of experience in management, while Rubens, an engineer, has worked at Amazon.com, among other places.

According to the official press release, the company will be using the funding to staff up — it currently employs less than 10 people — and to “build out the suite of creative publishing tools for the Muzy platform".

At the moment, when you go to the site, you can choose from some 50 widgets to publish content into your page, with a particularly strong emphasis on photos but also incorporating text, games and other content. It’s the app-within-app facility that sets Muzy apart from other platforms focused on content creation and self-expression, and could be one way for the company to go longer term, as it seeks to differentiate itself from much larger entities like Pintrest or Tumblr.

What’s really interesting about this investment – the price for which hasn’t been disclosed, but is rumoured to be $4m – from a WPP point of view is that Muzy can be monetised. For example, widgets or channels (or pages themselves) could be sponsored by brands.

It’s a well-known fact that consumers find online display advertising – banners, skyscrapers and rollovers especially – intrusive and annoying and they’re becoming increasingly desensitised to it. New formats like Muzy are immensely attractive to agencies and brands because they offer a way – or at least an opportunity – to get users to engage with marketing.

Like all big agencies and groups, WPP has to protect itself against the decline in traditional media like print (although the oft-predicted “death of the TV ad spot” still hasn’t happened) and has for some time been investing in emerging areas like digital, mobile and data. In 2012 WPP digital revenues were over $5bn, some 33 per cent of its total revenues of $16.5 billion, with a target of deriving 40 per cent of its revenues from digital by 2018.

According to the website TechCrunch, which spoke to Bedecarré about the deal, WPP may start trying to leverage Muzy almost straight away.

“WPP clients are looking for access to the next new social platform, the next big mobile app,” he told TechCrunch earlier this week. “I can’t wait to introduce Muzy to our clients and experiment with using their content publishing tools to create brand engagement.” As long as WPP is sensitive about its new investment, and Muzy’s user base, this could be a very interesting development – could WPP be shifting from making outright buys to giving start-ups a helping hand?

Even more excitingly (given past events, to which we’ll come to very shortly) WPP Ventures also took part in the $30m first round of funding for the Fullscreen global digital network, alongside former News Corp president Peter Chernin’s investment company, The Chernin Group, and Comcast Ventures, the VC arm of Comcast Corporation.

Fullscreen says it generates more than 2.5bn monthly views and claims to have more than 150 million subscribers. The YouTube channel operator will use the investment to support its domestic and international expansion, including content (generally content creation integrated with distribution is more profitable than just content distribution), technology and sales, prioritising fast-growing markets such as Brazil, India and Russia.

YouTube channels are getting to be big business and could one day pose a real threat to traditional broadcasters. Launched in January 2011, Fullscreen is based in Los Angeles, the world capital of film and TV, and started out as a network helping video creators like NBC Universal and Fox, and brands including McDonald’s and General Electric, manage more than 10,000 Youtube channels. While profitable in its current incarnation, Fullscreen has made no secret of its desire to solidify its position as a media company - and that means a deeper investment in the expensive business of creating original content.

The amount WPP put in is likely to be relatively small but could prove very profitable in the mid-term. Last year Buddy Media, a social networking business in which WPP had a minority stake, yielded WPP $62m when it was sold to Salesforce. The size of WPP’s original stake? A paltry $5m.

That’s a pretty healthy return on investment…

Barry Dudley is a partner at Green Square, corporate finance advisors to the media and marketing sector.

Trending

Industry insights

View all
Add your own content +