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February 11, 2009

Revenge of the Nerds? Why Madison Avenue Is Going Tech

In that 1984 classic, Revenge of the Nerds, a group of outcasts and misfits fight back against their better-looking, "cool" rivals, ultimately winning the girls and glory.

I was reminded of the movie over breakfast this morning with the CEO of one of the major ad agencies.  Just as you'd expect a high-powered agency executive to be, he was smooth, smart, suave and urbane.  But his industry is under siege from the Nerds.  On one side, he has techno-media companies like Google, Yahoo and MSN using technology and data to eat into the traditional ad agency value chain.  On the other side, he has advertisers like P&G, Ford and Coca Cola demanding more sophisticated targeting and effectiveness for their incremental ad dollars - no longer accepting the old way of doing business over a three martini lunch.  The stakes are getting higher:  Think Equity estimates the global online advertising market will be north of $40 billion in 2009 and still growing at 15-20% per annum while TV remains flat and radio and newspapers suffer.

And so Madison Avenue's chic "Mad Men" are under siege.  And the Nerds seem to be winning.

But the cool guys are fighting back.  If you can't beat 'em, join 'em.

They are buying technology companies (witness WPP's acquisition of 24x7 and Publicis' acquisition of Digitas) and embracing the digital world in spades.  This CEO, for example, talked to me about three Nerd-like priorities:  striking the right technology partnerships (typically with start-ups, like the new one I'm funding in this space), hiring the right in-house technical resources, and wresting control of the data from the publishers.

This final point struck me as a very intersting one.  Ad Age reported this week on the gauntlet that has been thrown down by GroupM, WPP's major media buying organization.  The agencies are wising up to the value of the data in online advertising and are trying to regain control over it.  In many cases, the data can be more valuable than the actual served ad itself.  Thus, Group M and other agencies are changing their contracts to tighten up the ownership of the data and prevent ad networks, publishers and the techno-media firms to use the data for their own profit purposes.
Soon, agencies may disaggregate buying media from buying data - in other words, there may be data insertion orders placed right next to media insertion orders.  This would put a specific price and explicit rights control on the data.

But the cultural change required is perhaps the most difficult one for these large ad agencies.  How will the agencies compete for great technical talent and recruit and retain innovative entrepreneurs?  Will they be able to outsource some of the technical capabilities that their clients are demanding (e.g., with the likes of digitalArbor)?  And who will win in this battle to own all this incredible data being collected on consumer behavior?

If I remember correctly, the Nerds won in the first movie, as well as in Revene of the Nerds II.  Maybe Madison Avenue needs to make a third sequel:  "Revenge of the Mad Men".


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Good luck they have a long way to go...

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