Monday, August 10, 2009

Agencies vs. VCs

William Charnock is the co-head of strategic planning at JWT, and recently presented his ideas on advertising’s new business model in this Adweek article.

Charnock says that a year ago, while attending TED people would ask him “Which clients do you work for?” He answer was “We don’t really start with clients anymore.”

Charnock writes, More and more these days, we look for ideas we think people will be interested in and help to get these up and running…Some of these we create from scratch and some of them we find in places like [TED].

He continues: Now, I know agency-generated and intellectual property is nothing new, and JWT is only one of many agencies exploring this business model as an alternative to working for clients and handing the intellectual property over to them. My recent experience with JWT’s innovation and incubation venture, called Sector 64. Had proven to me that we can successfully create intellectual properties which we license to clients, retaining or sharing the intellectual ownership of the idea.

And according to Charnock, the advertising industry is better equipped to handle this business than the traditional VCs.

We have access to funds through our clients and our media partners. But more than this we have interest in the strategic value and integrity of their entrepreneurial centure. One of the biggest complains about VC funding is that they are only interested in the financial multiples they make on a relatively short-term investment. VCs are also often criticized for their lack of “big thinking,” preferring to fund ideas that are similar in nature to toehr successful centures. Anything totally new, that has never been done before, forget it. The majority of VC’s are not that visionary.

This is where I think we have the competitive advantace. Advertising agencies that are exploring IP business models tend to be looking for genuinely new ideas that can help to differentiate clients who choose to license or sponsor them. These agencies have a vested interest in the strategic value, rather than just the financial value, of the idea. And unlike the VCs, it is important for us to create ideas with longevity and the potential for mass social and cultural impact. These are, after all, the kinds of initiatives that hold the greatest value, over time, to our biggest and most valuable clients

I like the idea of agencies vs. VCs. It’s a pretty bold step that makes a lot of sense. But it takes some restructuring on the agency side. In the mid-1990s, no one would have said Cliff Freeman & Partners and Draper Fisher Jurvetson should be coloring at the same table.

I can’t find much about JWT’s Section 64 online. But the mention of it confirms my belief that there are two chief forces working to evolve the industry:

  1. Big, firmly established corporations that have the funds to dabble in innovation. (e.g., JWT’s Section 64, Crispin Porter + Bogusky’s purchase of Radar Communications, and Wieden + Kennedy’s new Platform)
  2. Small companies that have no regard for what an advertising agency is supposed do and be. (e.g., Poke)

An agency crawls onto VC turf.

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