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How WPP is moving towards a data-driven future

Date posted: 24 February 2015   |   Posted in: Blog

Over the past few weeks we’ve written a number of times about WPP being a potential buyer for Tesco’s data house, Dunnhumby.

Things have moved on in the past couple of weeks – as they are wont to do in this dynamic industry.

First of all, there were rumours that Tesco had decided against selling off Dunnhumby after all; instead, according to a widely-circulated report from Reuters, the troubled supermarket giant was considering other options – including selling off a majority stake.

According to the Reuters report, which cited “a source familiar with the situation”, Tesco did not want a “100 per cent exit from Dunnhumby”. Instead it was “looking for a trade or strategic buyer, or private equity buying a majority stake and Tesco keeping the rest”.

I’m guessing that the thinking behind this would be that Tesco would benefit from another party investing in the company to develop the industry’s next wave of data, plus a decent pile of cash for itself (a rumoured £1bn). A partial sale would also allow Tesco to potentially veto Dunnhumby working for direct competitors such as Asda, Sainsbury’s, Aldi or Lidl.

Had WPP bought (or if it indeed still plans to buy) Dunnhumby outright – and the Reuters story has been neither confirmed nor denied by Tesco – the idea would probably be to slot it into the Kantar market research, data and insights division, creating one of the world’s biggest data analysts. Along with an £800m cloud data deal WPP signed with IBM at the end of last year, this would be an indication of Sir Martin Sorrell’s determination to be industry leader in Big Data and data analytics.

Whether or not a Dunnhumby deal goes ahead or not, it seems that Sorrell’s data ambitions remain undiminished.

Shortly after the Reuters story broke, WPP (or more specifically, Kantar) announced that it was acquiring a stake in ComScore.

ComScore is a company many readers of The Drum will have heard of. It’s one of those highly successful firms that was founded before the first dot com bubble burst in 2000. Unlike many of the casualties of that crash, however, it survived – and flourished as time went on – because it was built around a simple and compelling idea: the creation of a very large consumer panel on the web to track online commerce.

This was not in itself a new idea; the problem was that the traditional methods in which companies were tracking online behaviour would not work in tracking commerce, because of the lower incidence of buying online. Normal panels tracking online behaviour would be around 20,000 and, with less than 2-3 per cent of the population then buying online, the panel size needed to be at least a million (preferably two or more).

ComScore’s founders decided to build a very large panel using more aggressive recruiting methodology and managing for the error by using advanced statistical methods and controls. Years and tens of millions of dollars went into finding the best ways to measure online buying and other behaviour, at the level of accuracy required for Fortune 1000 companies who would be ComScore’s best clients.

Starting in 2000, ComScore began buying, beginning with the assets and (crucially) customer base of PC Data, one of the first online measuring companies; and two years later, MediaMetrix. In 2008, it became one of the first entrants into mobile data with the acquisition of M:Metrics. Since then, it has become one of the leaders in its field.

As part of the deal, which has officially been described as a “strategic alliance”, WPP will buy up to 15.45 per cent of ComScore shares at a price of $46.13 per share and ComScore is buying Kantar’s audience measurement business, covering some markets in Europe.

The deal is expected to be completed later this year, and it works out to be around $243m (about £158m). From where I’m sitting, that looks to be a decent deal for WPP, even if ComScore makes a small GAAP (generally accepted accounting principles) loss, and WPP will not have a seat on the ComScore board (nor will it have privileges that other investors do not). ComScore is one of the best outfits in its field, and the deal came just as ComScore announced its quarterly results: $90.1m in revenues were up by 19 per cent on a year ago.

What’s most important for WPP, however, is that the deal allows the company to expand and extend the high-margin business of collecting and analysing digital data for its better-known businesses in advertising, marketing, PR and other marcomms disciplines. Better still, it allows the group to measure and analyse across a wider range of platforms than ever before, although it will have far greater implications for Kantar’s activities outside the US (or ComScore’s within it).

What’s really important too is that through Kantar, WPP will be able to offer clients the opportunity to properly evaluate how effective their increasingly large online spends are. Measuring the effectiveness of ad spend has always been difficult (even, despite common perception, online).

I suspect that it will almost certainly have been spearheaded by Sorrell himself, as it is his oft-stated vision to put digital and data at the heart of everything WPP does.

So what happens next? The deal won’t be concluded until the end of the year, and it’s unlikely that, within the foreseeable future, WPP will up its stake.

A problem Sorrell faces is that some clients may not take kindly to data analytics and measurement coming from the same firm that buys media (TV, radio, out-of-home, mobile, online etc) for them. It could quite legitimately be seen as a conflict of interest – how does a client know that a rival isn’t getting a sweetheart deal? I don’t think this has, or would ever, happen, but it could certainly put off potential clients in a pitch. When it comes to measurement, you have to be whiter than white.

This complex deal could turn out to be another very astute one in Sir Martin’s long career.

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

Source: Drum


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