Ad agencies good, research not so good – but will WPP’s Sir Martin Sorrell heed the lesson?

WPP has just produced its trading update for the first quarter of 2011 and says its revenues are up 6.2 per cent, a bit less than last year’s 6.5 per cent.

Shareholders won’t be too impressed by this as it’s likely to lag the growth rates at rivals Omnicom, Publicis Groupe and Interpublic.

Reading between the lines, the problem seems to be research, or consumer insight as WPP prefers to call it.

WPP also announced the purchase of 70 per cent of which it says was Brazil’s biggest independent digital agency. F.Biz employs about 200 people and works for Unilever among others.

Here’s the relevant bit from WPP’s statement on the performance of different disciplines.

By communications services sector, advertising and media investment management continued the strong growth seen in the first quarter, with constant currency revenues up well over 12% in the first four months, followed by branding and identity, healthcare and specialist communications (including direct, digital and interactive) up well over 7%. The Group’s public relations and public affairs businesses were up 5% in the first four months, on constant currency basis. Consumer insight revenues were up just under 3% in the first four months, with gross margin up over 3%, a slight reduction on the first quarter, with slower performance in the United States, the United Kingdom and Japan.

So research is lagging the field (consumer insight margins falling etc) despite WPP CEO Sir Martin Sorrell’s oft-rehearsed view that data is the future (it’s the stuff that clients have to buy) and decision to spend £1.1bn buying research firm TNS in 2008.

Advertising, by contrast, is doing well with 12 per cent growth although whether or not this will continue is arguable, with WPP’s US agencies Young & Rubicam and JWT losing huge accounts recently, Sears and Microsoft respectively.

WPP is taking steps to try to fix its research operation with Kantar boss Eric Salama (Kantar is the group company for all it research operations) moving in to try to sort out TNS.

Because of its size, the world’s biggest marcoms company with thousands of companies in its orbit, WPP has almost become a kind of investment trust for advertising and marketing. You buy the shares if you think ads are going up, you sell if you don’t.

But shareholders haven’t seen a real rise in value for a decade now.

Sorrell’s big bet on research hasn’t paid off, so far. In the meantime his ad agencies, the most profitable bit, are losing ground to the other networks (including privately-owned outfits like Wieden+Kennedy) and the new indies that are popping up all over the place.

Maybe Sir Martin needs to love his ad agencies a bit more.

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About Stephen Foster

Stephen is a former editor of Marketing Week and London Evening Standard advertising columnist. He wrote City Republic for Brand Republic and is a partner in communications consultancy The Editorial Partnership.