WPP Calls U.S. Indie Digital Agencies 'Overpriced'

Independent U.S. digital agencies and startups hold little appeal as acquisition targets owing to their exorbitant prices, at least in the view of WPP. But this highly acquisitive holding company sees considerable opportunity outside the U.S., as well as in non-interactive agencies here.

In its trading statement to investors today, the U.K. ad giant said, "There is still a significant pipeline of reasonably priced small and medium sized potential acquisitions, with the possible exception of digital acquisitions in the USA which remain over-priced and Brazil, where the market appears to be over bought."

Among WPP's recent acquisitions in the U.S. are Rockfish Interactive and Blue State Digital, which has worked for Barack Obama's two presidential campaigns. It also made a number of investments, including one in Buddy Media, a social ad platform aligned closely with Facebook. Overseas, it bought Vietnamese agency Who Digital and Brazil's F.biz. Digital and direct accounts for approximately 29 percent of WPP revenues so far this year, up from 12 percent in full-year 2000. The company's goal is to have interactive revenues reach 35 to 40 percent in less than five years, CEO Martin Sorrell said.

In a parallel that Sorrell says is not accidental, revenues from developing regions - including the Asia Pacific, Latin America, Africa and the Middle East, and Central and Eastern Europe - also represent approximately 30 percent of the company's total revenues. As Sorrell (pictured) told investors, "The twin peaks of new markets and new media [are] absolutely key."

Despite that, the company cut its forecast for the year owing in part to slower growth in the U.S.

Among holding companies, WPP has been the most aggressive about building and acquiring independent ad technology platforms to complement its core services businesses, buying ad platforms such as 24/7 Real Media and developing others, such as its Xaxis digital media hub. That strategy may be paying off. In its earnings call today, execs said WPP has recorded more than $1 billion in digital spend on proprietary WPP platforms.

"Not other people's platforms, our own platforms," said Sorrell, per SeekingAlpha's transcriptof the earnings call. "And we have both internal and third-party technologies integrated by 24/7 Real Media and greater flexibility to use this data, across media, across clients, and across research." /p>

WPP says its Wunderman digital and direct network will cross $1 billion in spending in the current quarter, and OgilvyOne has crossed $900 million already this year. Considered together, its other three important digital businesses - 24/7 Real Media, GroupM Search, and Xaxis - together accounted for $330 million.

As much as the company has already spent on proprietary technology, it plans to spend more. Asked whether this could create a conflict with major technology companies like Google, Sorrell said, "The technology companies are basically media owners. Therefore we should have an independent platform."