ByCandice Krieger, Candice Krieger
WPP boss explains why his firm is forging an alliance with a major competitor Advertising-industry leader Sir Martin Sorrell is keeping his friends close but his enemies closer.
With online advertising posing an increasing threat to the communications business, the WPP boss is forming an alliance with arguably the market's major nemesis, Google.
As the biggest web-search provider, Google's power and influence has been the focus of mounting paranoia within the advertising world as it expands into new formats.
"Much has been said about the threat that key [online advertising] players such as Google pose to our existing business," Sir Martin acknow-ledges.
"They're creating advertising and they've hired creative people to create advertising. They're threatening to compete with us by setting up electronic platforms to buy and sell media."
Yet today, WPP is Google's largest customer. "We spend $150 million [£75m] a year with Google," he says. "We should see them as both a friend and a foe - a ‘frenemy'." An arrangement has been outlined whereby WPP clients will work with Google where it is mutually beneficial.
According to Sir Martin, embracing the digital revolution is the biggest challenge facing the communications industry.
He tells JC Business: "Online advertising accounts for seven to eight per cent of total advertising spending, but this is likely to gradually rise to 20 per cent over the next few years." This is a shift Sir Martin is happy to embrace.
"We have a database of clients that new players such as Google don't have. The important thing is that our traditional agencies must make a transition to acquire more digital skills. If we can acquire these skills, then I think the future is bright."
Spurred on by Google's intention to buy Double Click for $3.1 billion (pending a federal investigation), WPP last month acquired online advertising company 24/7 Real Media for $649 million. "Ignoring digital is not an option," he stresses.
Sir Martin has presided over WPP for over 20 years, during which it has grown to an almost £8 billion empire. Started from a one-room rental in London, it has expanded to in excess of 2,000 offices in more than 100 countries with a total of 97,000 employees.
Not bad for a man who began his entrepreneurial life by borrowing $1 million to invest in supermarket basket manufacturer Wire & Plastic Products - the foundation on which WPP was built.
Educated at Haberdashers', Cambridge University and Harvard, Sir Martin got his first job, aged 23, as an associate at Glendinning Associates in Connecticut, working as an analyst on the HJ Heinz, Bristol Meyers and Philip Morris accounts. He recalls analysing a franchise opportunity for Clairol - a Japanese wave-making machine located in Phoenix - which was "an absolute disaster".
After further experience at Mark McCormack's International Management Group and James Gulliver Associates, he joined the Saatchi brothers, Maurice and Charles, in 1975, becoming their first finance director.
On turning 40, he was ready to risk his own money. Thus in 1985, while still working at Saatchi, he bought Wire & Plastic Products. "I wanted to start my own business," he recalls. "I went through [Investors Chronicle] looking for a manufacturing firm with about £1 million market capitalisation, no debt, freehold property and a management that was mature without being senile."
He began to disengage from the Saatchis, formally stepping down in 1986.
The original premise for WPP was below-the-line services - using less conventional advertising techniques, typically direct mail, public relations and sales promotions, for which a fee is agreed upon and charged upfront.
In the two years after striking out on his own, Sir Martin completed 15 take-over bids in the below-the-line sector. The acquisitions sent WPP's market value soaring from £1.4 million to £134 million.
"We are a multi-brand company and we grow through acquisitions," he explains. A further spending spree brought the additions of marketing business Ogilvy & Mather, the J Walter Thompson advertising agency and Young & Rubicam to the company's portfolio.
Anyone shrewd enough to have put £1,000 into WPP in 1985 and ploughed back all their dividends would have over £21,000 today.
The boss himself is also well-rewarded. Last year, he was reported to have banked £17.1 million. This year, even his basic salary - before bonuses and share options - hit £1 million, up from £840,000, according to the WPP annual report.
Throughout his business career, he feels he has profited from the focus and determination instilled during his time at Harvard.
"The hothouse atmosphere has stayed with me. Fear of failure drove me. But I was made to feel that you could run the world."
He is a Chelsea Synagogue member and a keen supporter of Jewish Care activities.