BUSINESSWEEK ONLINE : MARCH 27, 2000 ISSUE
COVER STORY Q&A with Omnicom Group's John Wren "We're the people who can take cosmic dust and turn it into a brand" Omnicom Group is hardly a household name, and John D. Wren wouldn't have it any other way. As president and CEO, he prefers to see the spotlight shine on Onnicom holdings such as BBDO, DDB, and TBWA, its three global ad-agency networks. Then there's the attention generated by its Internet investments, which include Razorfish and Agency.com, as well as the marketing-service companies and niche agencies that make up its DAS (Diversified Agency Services) unit. All this has helped the publicity-shy Omnicom charge to the top of a booming industry, with a 41% increase in fourth-quarter earnings to $120 million. Business Week's Diane Brady recently met with Wren to ask where he goes from here. Edited excerpts of their conversation follow: Q: To outsiders, you must look like a kid in a candy shop. After so many years of growth, what more could you possibly want? A: I guess we've had 34 consistent quarters of year-over-year double-digit growth. But there's a lot more to do. The company can really be looked at in three major components: general media advertising, marketing services, and the whole digital environment. We're clearly leaders in the first two for a lot of reasons, and within each of those, there are individual strategies for growth -- things that we've yet to do, as well as things that we want to do and will do in terms of product-line extension and geographic extension. Then there's the whole digital area, where we have about 20 pure-play Internet companies, and we're probably making investments at about two a month. We're something of a secret, in that the usual competitors in that space are companies like CMGI and Internet Capital. Because we got in as early as we did, making serious investments back in '96, that opens an enormous number of opportunities for us. That's more like the Wild West, and there's an awful lot more to come from that area. Q: Five of those 20 companies are now public. Have you ever thought of spinning off the whole thing as another holding company, like a mini-CMGI? A: The name of the game is shareholder value, and we continue to study the best way for us to bring the value of those investments to our shareholders. We are constantly looking at all of the alternatives -- all of the things that others have done, as well as the things they haven't done. Presently, since we've done so well, we've been able to keep pace with the investments that we want to make and still do them within the Omnicom structure. Q: So, no desire for a spin-off? A: We continue to look at our options very carefully. It's a whole other level of infrastructure, and I suspect that we would have to get to a situation where we thought the value of our ability to invest, plus the strategic value of having us as a partner, was being outpaced by people who had a digital currency. To date, we haven't felt that we lost out on any investments because we didn't have that. But with the level that we're building the division and the pace at which we're building it, things might be different six months from now. Q: Let's step back to the present. Even the more bullish analysts said they were surprised by the strength of your fourth-quarter earnings. What happened there? A: In each one of those categories that I described, we experienced a little bit better performance in December than we anticipated. We couldn't tell what impact Y2K would have. Good news abounded, and it was across the board, as well as across the globe. Q: Over the long term, would you attribute your success mostly to breadth and a good business climate? A: It's not just that. I believe we have the very best in each one of the individual brands that we have. I also think we've been ahead in getting to new areas and getting there in a meaningful way, before everybody else discovered that they should be heading there too. Look at the advertising sector, where we had two global agencies in 1990, making up 70% of our revenues. Now, just in this category, we have three global networks, four national agencies, and two global media brands. There's been a lot of consolidation in this segment, to the point where there are probably 10, maybe 12, advertising brands that could service a client with global requirements. We own three of the very best. So we have a very good chance to do very well whenever any global opportunity arises. Q: Advertising now makes up less than 50% of your revenues. Why did you make such a heavy push into marketing and other services? A: As a company, we really started DAS [Diversified Agency Services] in 1990. I was responsible for setting it up. I have a more entrepreneurial background than many of the people who populated the industry at that time. We looked at the way our blue-chip clients were spending their money, and that led us to make investments in other areas. Take pharmaceuticals. We saw that the world is aging, and there would be more need for services there. In direct response, we saw the benefit of one-to-one communications. The recession in 1991 taught us that, as people stop spending money on brand advertising, they spend more in sales promotion. Most of the major advertising agencies at the time didn't hold those disciplines in high esteem. We were able to find the leaders and make the investments early on. The same thing applied to the Internet in 1996. Q: What first intrigued you about the Internet? A: I don't know if you remember that "proof-positive" campaign from MCI, where they would take your telephone bill and compare it to AT&T. That was a personalized ad, but the only method of delivery was the U.S. Post Office. The big limitation was the delivery system. It made you imagine where digital communications could go. The Internet doesn't have that limitation. At the time, investing in Internet companies was a gut decision. We could have never anticipated the valuation that Wall Street would put on it, but we knew it would be important. Q: Do you still see a lot of room for growth in that area? A: Ten years from now, everything that can be digital will be digital. Now, the world is as far away from you as that machine. You can't see or touch the goods, so the value of the brand becomes increasingly important. You're not going to buy a shirt unless you understand the quality and the brand. You're also not going to go to napkin.com unless you know what it is. We're the people who can take cosmic dust and turn it into a brand. More importantly, we're the ones that promote the value of the differentiation, the qualities of a brand. So this whole marketplace feeds directly into our expertise. Q: How do you make sure that all of your companies, dot-com or otherwise, are leaders in their category? A: It's the old GE/Jack Welch desire. We don't want to have the fifth and sixth players in a category in our portfolio. They don't have to be No. 1 or No. 2 on the first day, but there has to be a strategy to get them there. Last year, we closed a company called Product Plus. It was a premium development company, and we decided it would never become dominant in the area. Between 1987 and 1990, we sold off quite a number of companies that we felt would never be the top players. We did all that cleansing before we started on this period of expansion.... It isn't brain surgery, it's just discipline. Q: Some of your competitors speak about the benefits of an integrated strategy. That's hard to carry out when you have, say, three agency networks. A: The brands that we hold are competitive with each other. These guys all compete fiercely. They respect each other professionally, not because we own them but because they respected each other before they became part of Omnicom. But we also complement each other. It's very much been a goal and objective. We try to cooperate as much as we can, respecting the rights of the individual brands. In Communicade [the Internet unit], they try to do it. We're educating people all the time about different services that complement our clients. When we were doing all these acquisitions, we were doing it with an eye toward the companies that already serviced our biggest clients. DAS or Communicade target for gaps. They're not limited to recommending one company. They can recommend three of the very best. We want to be comfortable that if the client didn't ask our advice, they would come up with our picks. Q: So what's the role of Omnicom itself? A: We're a financial brand. We're here to support the success of the brands that make us up. I don't believe for a second that there's ever been a client that hired Omnicom. They've hired our individual companies. Our competitors -- their Wall Street brands -- are much more connected to their clients. The decisions on the product, the decisions on the client are made at the brand level, not as this level. Q: Where does your brand resonate? A: Omnicom absolutely means something in the financial community, and it's gone beyond that to people who feel that they want us as a strategic partner. We don't only represent money. We represent the brands that represent the 4,000 largest companies in the world. Once you're part of Omnicom, there are systems in place to help sell your services to those clients. We have the ability to pay for things but, more importantly, to support them. If you knew that we're interested in your company and you knew that we only wanted companies that were one, two, or three in your market, you would know we'll be supportive to get you to that position. Q: But not in a loud way. A: I've been able to stay real quiet. And it's simply not me. It's the management teams that we have devoted to these areas. It's a partnership with very smart people. We all contribute to the ideas of where we're going. There's an openness in the way that we reach decisions. We believe Omnicom should be involved in every aspect of advertising, marketing, and the communications and support of those activities. Q: Where do you go from here? A: Across the board, I think there's room for more acquisitions. But we judge them carefully. In DAS, we turn down five companies that we see before we do a single deal. In the Internet space, we turn down 12. In advertising, we've had such success with the national advertising agencies that we could justify doing the same thing in the larger markets outside the U.S., such as in Germany or England. We would love to strengthen our existing networks in those markets, primarily through acquisitions. With the large brands, we may look at acquisitions for geographic extension. Media represents a huge opportunity for us. We're restructuring there to be more competitive for the changes going on in the marketplace. And in the digital area, we're as open as we were in 1996 or more. We're going to make a lot of investments in what we think will set the tone for the future. There's a lot more to do. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The 50 Best Performers COVER IMAGE: The BW 50: The Best Performers TABLE: The 50 Best Performers TABLE: Total Return TABLE: Sales TABLE: Net Margin TABLE: Earnings Decline TABLE: Earnings Growth CHART: The Fast-Changing BW 50: A Breakdown by Industry TABLE: Return on Equity Follow the Leaders CHART: Beating the Indexes--Again Great Performances, and How to Spot Them Sifting for Clues TABLE: How to Pan for Gold TABLE: Business Week's Performance Rankings of the S&P 500 (.pdf) TABLE: Business Week's Industry Rankings of the S&P 500 (.pdf) TABLE: Alphabetical Index (.pdf) ONLINE ORIGINAL: Q&A with Biogen's Jim Vincent ONLINE ORIGINAL: Q&A with AOL's Steve Case ONLINE ORIGINAL: Q&A with General Dynamics' Nicholas Chabraja ONLINE ORIGINAL: Q&A with MBNA's Charles Cawley ONLINE ORIGINAL: Q&A with Pfizer's William Steere ONLINE ORIGINAL: Q&A with Kansas City Southern's Landon Rowland ONLINE ORIGINAL: Q&A with Omnicom Group's John Wren INTERACT E-Mail to Business Week Online

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