mp3dod2: Agency Holding Company Of The Future? Check Out ...

mediamath-agencies Last year MediaMath Sales VP Charles Cantu approached his CEO, Joe Zawadzki, to give his notice. He had gotten a competitive job offer that included a major pay raise and the opportunity to manage a team.

Zawadzki asked him, "What do you want to do after this?"

Cantu replied, "I want to run my own thing."

Zawadzki came back, "Then why don't we skip this step?"

The result of this exchange was Huddled Masses, a small agency ? or, if you prefer, "boutique trading desk" -- of five people that is funded by Zawadzki and uses the MediaMath platform to develop optimized digital ad campaigns.

Huddled Masses isn't the only such firm. MediaMath and Zawadzki have fostered a growing family of service-based companies that are built on its platform. Some are run by former MediaMath employees (Kepler Group) and some by former customers and partners (Big Lens). A few have direct investments from Zawadzki and a new entity called MediaMath Ventures.

John Wren and Maurice Levy, the CEOs of Omnicom Group and Publicis Groupe, would do well to keep their eyes on these young firms, which represent a new and agile source of competition to large media agencies. The proposed mega-merger of the holding companies has been read by some as a response to the rise of "big data" and the primacy of software platforms. But that theory takes for granted that innovation in the "service layer" already exists in-house at one of the two holding companies, or at their competitors (Interpublic, Havas, Dentsu, MDC Partners).

That's not necessarily the case.

"Innovation tends to come from the edges, because creative destruction is hard," says MediaMath's Zawadzki. "For a big agency that may have 11,000 people trained around the old model, it's going to take time to roll out the change. You can't say, 'You used to have these tools now you have this one.' Everything takes time."

MediaMath's TerminalOne ad platform has licensing relationships with about 650 agencies globally. Among them are holding company agencies and trading desks (such as VivaKi AOD), large independents (Mediasmith, Merkle), regional agencies and "boutique trading desks." You can debate the semantics of the word "agency," but all these businesses are predicated on the idea of a services offering directly to an advertiser ? or in some cases, another agency ? and are usually billed on a media margin, or percentage of spend.

Let's meet a few of them.

Huddled Masses

Zawazki doesn't care what kind of agencies use MediaMath, but he clearly sees an opportunity for very small shops to do more with less.

"The holding companies' centralized trading desks are saying, 'Let us learn this stuff and we'll lend it out to our operating agencies,'" he said. "And you've also seen it from the outside, where you may have a team of 50 specialists. Now all I need is one person and a platform, and I can deliver optimized programs from Fortune 1000 advertisers without the investment in staff."

Hence a number of the young agency companies building on MediaMath are very small ? some between two and five people.

Huddled Masses is one such company. After accepting Zawadzki's investment (worth 20% of the business) and becoming CEO of his new firm, Cantu began casting around for new business. Two accounts came from MediaMath directly.

"Outside of that everything has been biz dev, past relationships with Sony and other folks I've known for a long time," Cantu said.

Part of the goal was to grab test campaign budgets that were flowing to MediaMath, but which MediaMath didn't want to manage. The demand-side platform receives considerable inbound interest from clients with small budgets or those wanting to run $10,000 or $20,000 experimental campaigns.

"MediaMath really is a tech company, so there's an opportunity for a sales and service organization to home in on clients and help them grow their business," Cantu said. "We can function as an agency. The truth is we don't very often. I'd rather work with small and mid-sized agencies and be their solution."

Huddled Masses works with 30 advertisers, of which three are direct relationships. The rest are agencies. Most clients spend in the realm of $20,000 per month.

On performance, he said, "It's very easy for us to walk in the door and increase ROI by 10%. If we start adding other layers like dynamic creative, remarketing, first-party data, attribution partners, then we can start talking about 60% lift ? We've also done some hacks and created best practices around smaller budgets."

In terms of revenue model, "It's all margin. We are starting to have conversations about marking up private exchange deals, but we haven't done that yet."

Cantu's goal in two years is for the company to make $40 million to 60 million per year. "If someone wants to buy us, great. If that means we keep trucking along we'll do that too. We love what we do."

What help, if any, does Huddled Masses get from MediaMath? "They help out when it comes to marketing and press."

Huddled Masses pays MediaMath a flat margin. Cantu calls it the "family rate."

"The beauty of Joe Zawadzki is he is invested in his people when they are inside the company and when they are outside the company," he said.

Kepler Group

The best known of MediaMath's offspring is Kepler Group. Formerly the direct-to-client managed-services unit at MediaMath, it was spun off a year ago as its own data-centric agency led by former MediaMath-er Rick Greenberg.

Since that time Kepler has doubled its clients, from nine to 18. Its headcount has tripled from a base of six, all former MediaMath employees, to 18 today. It's now going after consulting and cross-channel budgets.

That acceleration is possible because clients have begun to feel their legacy media agencies are moving too slowly on programmatic, Greenberg told AdExchanger.

"You've got this confluence of forces everyone's aware of," he said. "The agency/advertiser model hasn't evolved quickly enough, particularly at the traditional agencies."

(More in our recent story on Kepler Group)

Big Lens

Washington D.C.-based Big Lens is even smaller than Huddled Masses. The agency is run by CEO Beth Wallace, a seasoned digital media exec with experience on the client side. Her CV includes a marketing role at AOL, where she was among the first to buy exchange-traded media from Right Media founder Mike Walrath. She has strong personal ties to Zawadzki.

As with Charles Cantu at Huddled Masses, part of the reason Wallace launched her firm was to pick up business that was being "dropped on the floor" by MediaMath. But while MediaMath was meant to be the main source of leads for Big Lens, that hasn't turned out to be the case. Rather, Wallace has relied more on her own network.

Big Lens' biggest client is Neustar, which uses it for several campaigns. ?Her firm employs three other people and outsources creative services and other functions.

MediaMath didn't fund Big Lens, or spin it off. Rather, Wallace said, "They support me. There've been some campaigns they've run as a managed service for me. And I get some help with marketing."

Big Lens's website bears a "powered by MediaMath" tagline.

"The only reason I can have a media agency is because of the platform," she said. "I'm not empire-building here, which I think is hard for Joe to understand sometimes. I want to take on as much work as I and my team can do well."

"And I want to have fun," she added. "I'm not looking to be Kepler."

Merkle

Baltimore-based CRM agency Merkle first partnered with MediaMath in 2010, early in the development of its digital media practice. It built its own technology around MediaMath's, according to VP/GM Display Media Megan Pagliuca.

"We get all the data out of MediaMath, run our analytics and push it back in," Pagliuca said. But, she insisted, "we don't want to compete in the technology business." It's all about building a custom solution around the MediaMath platform.

Merkle runs the majority of its display business with MediaMath, but it's not an exclusive partnership. It's begun using Turn on behalf of one client, and DoubleClick Bid Manager (n?e Invite Media) on behalf of another.

"We have a very sticky relationship with them because of how much investment we have around their platform. There's a certain degree of stickiness relative to other platforms," Pagliuca said.

There was a hiccup in the relationship last summer, when MediaMath spun off Kepler. Prior to that, Pagliuca and her colleagues had viewed themselves as a preferred agency partner ? i.e. a recipient of business leads from large clients. "There was concern originally over how that would play out," she said.

That concern turned out to be unfounded, as MediaMath continued to refer business to Merkle. This would often take the form of a "programmatic RFP," triggered by a client call to MediaMath.

"They will make introductions to us, to Kepler, to all the other agencies on the plan," she said. This referral and RFP process has happened several times already this year for Fortune 500 companies.

Turn is doing a premium reseller program for agencies that enables the same kind of referrals. If you're certified as a reseller, Turn will recommend the business.

Adroit Digital

Adroit Digital deserves a mention in this story, even though it's internal to MediaMath and not a standalone agency company.

After the spinoff of Kepler Group, there were still some managed-services people left at MediaMath. Zawadzki didn't want that. So when it bought Advertising Decisioning Solutions (ADS) from Akamai, the company merged that new division with the rest of its trading services and managed-services teams.

That new unit became Adroit Digital, and has roughly 60 employees. ?While owned by MediaMath, "They're another separate entity? We're not providing managed services at MediaMath," Zawadzki said.

Zawadzki is clear that his priority is building out the MediaMath technology, and that his motivation for spinning off and funding agency companies is not to compete with established agencies but to sustain that focus on the platform. There are good entrepreneurial and financial reasons for pursuing that strategy, including that SaaS businesses earn higher multiples in an eventual sale.

Which of these new agency and trading desk companies is Zawadzki pulling for?

"I want all of our customers to do well," he said. "I think there is so much innovation that's happening right now, in terms of different ways of affecting change and rolling out innovation that there's not going to be a single answer."

He added, "It's like kids. You don't have favorites. You want them all to be successful, and they're all going to be different."