The publisher of Branding in Asia recently sat down for a Zoom call with Sir Martin Sorrell, the Founder and Executive Chairman of S4 Capital, to discuss a range of topics including the effects of Covid-19 on the ad industry, the disruptive growth of digital, what’s ahead in 2021 for both S4 and the industry, and more.
Sir Martin previously founded and led WPP, which he grew into the world’s largest advertising and marketing services company.
Following his departure from WPP, he went on to launch digital advertising and marketing services company S4 Capital in July 2018. Since its inception, S4 has seen impressive growth — even in 202o amid the hardships brought about by the COVID-19 pandemic.
You can watch the video of the interview as well as read the transcript below.
Bobby McGill: We are happy to sit down for a chat today with the Founder and Executive Chairman of S4 Capital Sir Martin Sorrell.
Launched in 2018, the digital advertising and marketing services company has experienced rapid growth since its birth. Already in the first two weeks of the new year, S4 Capital has announced three new acquisitions which see its ranks expand to about 4000 people based in 31 countries. We’re fortunate to sit with Sir Martin at the start of the new year and learn a little bit more about what’s to come, as we kick-off 2021.
Sir Martin, thank you so much for joining me today.
Sir Martin Sorrell: Thanks, Bobby. They’re not acquisitions, they’re mergers. An important distinction. It sounds a bit semantic, but we’re looking for people to join us on this mission of creating the new advertising and marketing services model and disrupting the old. I want to get that straight out of the traps, as they say. We’re very much determined to create something new and disrupt the old.
Bobby: Pardon my little stumble on semantics. It does bring up an interesting point. The other day, following the Tomorrow acquisition, on LinkedIn, the founder of Tomorrow had mentioned how over the past year he had been approached by all of the major network agencies and had turned them all down, but with S4 Capital he said specifically, “It felt right.” I’m curious what do you think it is about the workplace culture, the workplace model, that makes people want to join?
Sir Martin: I think it’s what I just said. We’re sort of men and women on a mission. We have about nine investment analysts that follow the company. Exane BNP do an interesting analysis, comparing us to the holding companies. I have to say I don’t think the comparison to the holding companies is right. It’s like comparing apples with oranges. We’re different. That’s part of the reason why you saw those comments on LinkedIn.
Firstly, we’re on a mission, as I described it, to create a new model. Secondly, we’re there to disrupt. Thirdly, we’re basically founders and entrepreneurs who want to build a significant business in our industry.
And being purely digital, being built around data, first-party data, and the signals around content, around digital media, and data, and analytics, being faster, better, and cheaper, going to market faster, better, cheaper, and last, but not least, having a unitary structure, one P&L, without conflicting silos and conflicting, fragmenting earnouts, because we don’t do earnouts as well.
We found at WPP that that created fragmentation. You see it still at WPP. It’s a company that is divided, and split, and pitted against one another, rather than one firm. They claim they’ve simplified it, but I think that’s just simply not true. They’ve probably made it more complicated by really enforcing the silos and building them into the bigger ones.
So, I think, for all those reasons, we’re different, and I think that’s why companies, such as Tomorrow, there’s an empathy there, there’s a common mission, there’s a common understanding that makes us very different, and we have to make sure, as we grow, and we’re growing quite violently, we’re growing quite strongly, both organically, analysts are looking for us to grow in a Covid year last year, like-for-like by 15 to 20% it will be at the north end of that.
So, we’re growing violently, organically, and we’re growing violently, if I can put it like that, by merger, by consolidation. I think that entrepreneurs and people who really are interested are really taking risk in the company. People who run the holding companies have nothing at stake. They have their positions at stake, they have their jobs at stake. That’s why they fire the soldiers, and the generals just sit there, sending emails to one another. Used to be paper, but it’s now emails to one another, with increasing magnitude, it seems, if you look at the numbers.
I think it’s a very different approach, it’s a very much more modern, totally digital. We took a risk, really, because we said we wanted to focus on digital, which many of the clients would have to either coordinate traditional and digital themselves, or they would leave it to us to do that. Digital is now half of the market. It will be 70% of the market. The market’s about $500 to $550 billion last year.
This year probably will be about 550 to 600 billion. Traditional media will continue. There’ll be a bounce back, but traditional media will continue to grow far more slowly than digital. Digital this year will grow by about probably 20% globally. Last year, if the advertising media market was about 500 to 550 billion, digital media was about 250 to 275. This year it will grow, as I said, by about 20%.
It’s a more risky environment. The other thing is, I think when you sell to a network, you sell. When you merge with us, you take quite respectably about half of your investment, or the value of your investment, off the table, in cash. The other half you roll into S4 Capital stock. We’ve done well, obviously, from two years ago, from zero basically. We’re now about three billion pounds, about four billion dollars.
We’ve grown quite substantially. We’re thinking that will continue to be the case. And so, entrepreneurs like the system where you take half, you bank half in cash, and the other half you let run in the growth of the company. With the unitary P&L, we very much unify the way that we look at things and the way we do things.
Looking Ahead at 2021
Bobby: You described the growth as “violent,” so I don’t feel so bad about using the word “acquisition.”
But, getting back to you announcing three mergers right off the bat for 2021, is this indicative of what we can look forward to being an aggressive acquisition, I’m sorry, merger strategy for 2021?
Martin: We’ve done a lot since we started. We started with nothing, and with a vision about building this new age, new era advertising and marketing services model, and disrupting the old. We started our core deals around MediaMonks content, and data, and digital media. Then we added eight companies over the last couple of years to MediaMonks, and seven to MightyHive. Actually, it’s more than that now. It’s nine and seven. Nine around content, and seven around data and digital media. We’ve created these two practices which we’ll launch in 2021.
Looking at 2021, we have three objectives. The first is not around expansion by merger.The first is to bed down these very significant client wins that we’ve had, BMW MINI in Europe, and Mondelez globally, including Europe. The task is to bed those down, because those are what we call ‘whoppers’.
“The comparison to the holding companies is not the right comparison, because we’re tech-born, digital-native.”
We have five clients with revenues of more than 20 million dollars. The first is Google. Considerably more than 20 million. The second is a well-known telecommunications company, which we’re NDA’d, which I won’t talk about, you already mentioned it in this session. The third and fourth will be a BMW MINI and Mondelez. We’ll see how that pans out in order. And the fifth is Facebook.
Because we have a number of very large digital clients – Uber, Amazon, SoFi, ServiceNow, HP, Robinhood – they all toss out to about 55% of our revenue. That’s why the comparison to the holding companies is not the right comparison, because we’re tech-led, tech-born, digital-native. It’s not even digital-first, it’s totally inbred, we’re tech people, rather than agency people.
Bobby: Which makes you more attractive to tech companies as well.
Sir Martin: Yes. The first objective this year is to focus on organic growth, and bed down, as I said, those big wins, because those big wins, I think, are emblematic and iconic for clients expansion. In Germany, for example, we won a bank called N26 on the back of BMW MINI. We’re in a big, global pitch at the moment, off the back of that, arising from Germany.
So, that’s number one. Number two is to cement our unitary branding. We’ve always been unitary, one P&L, seamless, not the BS that you hear from the holding companies. This is real stuff. We work together seamlessly, and the branding is going to follow that. You’ll see that very shortly.
The third is the inorganic, or growth by deals, or mergers, which we’ve started off strongly in 2021. I wanted to do that because that’s a signal around Brexit. If I can be sort of grand about it, there’s a sort of a new mercantilism that is necessary around Brexit for the British. Otherwise, we’ll be increasingly marginalized.
“If I can be sort of grand about it, there’s a sort of a new mercantilism that is necessary around Brexit for the British. Otherwise, we’ll be increasingly marginalized.”
We have the devolution question around Scotland, Scottish independence, driven in part by what’s happened over Europe, because the Scots wanted to stay quite clearly in Europe. The UK is going to be under pressure economically, not just because of the impact of globalization and technology, but because of COVID-19, sadly of course, and because of Brexit.
So, we’ve had this troika of things, this triple whammy, that is hitting the country, and there might be a fourth. The continued problems around devolution, not just the Scots, but the Northern Irish as well. We have to see what happens.
I think, for the UK to prosper, if you think about the UK was on a growth track, as a result of Brexit on top of growing, we’ve fallen off that growth track, particularly Brexit, it will take us five years to get back on that track and go beyond.
Ultimately, I think we’ll be resourceful enough to go beyond where we would have been if we had stayed in Europe, which I believe we should have done. But the die is cast, the electorate have made their mind, we had our referendum, and we’re out. Now the uncertainty has been removed by the deal being done, which, I think psychologically was good. I don’t think, materially, it made much difference. Now we’re on our way. And I think what it needs is an aggressive, Germanic approach. Get off your backsides and export whether it be goods and services, high-value manufacturing services, whatever.
“We’re very keen to expand as aggressively as possible. Partly, that’s because probably 2021 is going to be a rebound year, and we see this as a very big opportunity.”
In a way, what we were trying to do is to signal that this is a new era. UK is less than 10% of our business. It’s not important, commercially for us. North and South America are very important, commercially. We’re 70% North and South America, we’re 20% Western Europe, we’re 10% Asia-Pacific, and we want to get to 40-20-40. Countries like Vietnam, where you are, will become more and more important for us over the years.
Tomorrow was important because it doubled our size in China. We now have about 500 people out of 4,000 in Asia-Pacific. Asia-Pacific is going to become more and more important to us, particularly as India, and China, and Indonesia, and Vietnam, and other parts of the region become more and more important economically.
Growth in 2021 Focused Primarily on Organic
Secondly, the objective is around the unitary branding, and the third is, not to diminish its importance, but the third is mergers. You’ll see more from us, as I’ve indicated in the announcement of the Decoded Advertising and the Metric Theory, I indicated to do more, while the first of those was Tomorrow, and we’ve got a couple of other things coming shortly, one in Western Europe and another one in Asia-Pacific.
So, we’re very keen to expand as aggressively as possible. Partly, that’s because probably 2021 is going to be a rebound year, and we see this as a very big opportunity.
“We now have about 500 people out of 4,000 in Asia-Pacific. Asia-Pacific is going to become more and more important to us, particularly as India, and China, and Indonesia, and Vietnam, and other parts of the region become more and more important economically.”
And China, of course, it’s quite incredible that China has grown in 2020 by about 2%. The GDP forecast for last year was about 2%. The world will probably grow about 5% this year. People are getting nervous about vaccine coverage and about new mutant strains of the vaccine, but I think by the second quarter we will be largely moving out of this.
I try to run a business, and I think you have to be on the optimistic side. I don’t think you could be a Moaning Minnie about what’s going on. You have to look at what’s happening and try and be realistic about it with your people and clients, etc.. Having said that, you have to have a view as to when things are going to improve.
Big companies generally tend to be conservative in their forecasting because they don’t want to get called out by the market by the street or by the city. They’re naturally, and probably rightly, conservative. I think we’ve been a little bit more realistic about the prospects.
Growth in Asia
Bobby: Speaking of Asia, you have the Tomorrow merger. Last year you had the Datalicious Korea merger, which, I think, is the best agency name I’ve ever heard in history. I don’t know why you didn’t keep the name and name the whole organization Datalicious.
Sir Martin: They wanted to keep it.
Bobby: I don’t blame them, you should put that name on the auction block. So, how important is Asia in the expansion strategy in the next few years?
Sir Martin: Well, as I said, it’s 10% at the moment, and we want it to be 40%. So, very important is what we want. I said in the Tomorrow release that I’ve always be a raging bull on China. I can modify that to: I’ve always been a raging bull on Asia-Pacific. We had dramatic success in both China, and India, and Vietnam, and Indonesia, and ASEAN, Southeast Asia.
Japan – we tried. Japan, I must admit it was not easy. South Korea we did well. I’m talking about WPP days. Of course, Australia and New Zealand. Having said that, I think times have changed. Particularly in India and China, the existing model is an opaque model. There’s a lot of mystery to it, there’s a lot of behind the arras, there’s a lot of opacity there, that needs to be dealt with.
I think transparency is going to be the key. Our model is transparent. We can’t say totally transparent. For instance, I noticed what happened at T-Mobile in the US this week, it’s sort of interesting that Publicis was pushed out. The business was put into IPG. I think IPG over the past couple of years, particularly since the ANA transparency crisis, if I can put it like that, around 2016, has based their proposition more on transparency and an open book.
“I think Tomorrow will be the first of many moves, I hope, in China and elsewhere in Asia-Pacific too.”
That sort of approach is going to become more and more important, particularly in the Chinese and Indian markets. President Xi (of China) has put his foot down on corruption. There are still things that go on within the media markets that need to be dealt with, I think.
And I think the government probably is in favor of dealing with that in the most constructive way. I think the same thing applies in India. There is a lack of transparency that needs to be dealt with. I think clients will welcome that.
So i think there’s some opportunities for us on the digital media side. On the data and analytic side, there’s huge opportunities in all markets. And on the content side, there’s huge opportunities.
I think Asia-Pacific, for us, is Scott Spirit, our growth officer, Michel de Rijk used to be in Xaxis, joined us as CEO of Asia-Pacific. They know what they have to do. They’re both based in Singapore. I think Tomorrow will be the first of many moves, I hope, in China and elsewhere in Asia-Pacific too.
The Working from Home Era
Bobby: I was hoping to ask you a management question, especially in this era of the work from home culture. I don’t know if you saw today, the head of Unilever said that it’s going to be “old fashion” to work 5 days a week (in the office). Jack Dorsey from Twitter last year said that if employees wanted to avoid the office “forever,” they could. Moving forward, what lessons have you learned that you think you’ll carry forward post-pandemic? How will it affect the work culture at S4 Capital?
Sir Martin: To some extent, we’re different. We’re different certainly to the holding companies, and we would be different to a Unilever, probably not dissimilar to a Twitter, but by virtue of the nature of our people and our origin.
Being a digital-only company, working from home, remote working, flexible working, flexible commuting, in and out of the office, because we have three basic models – the outsource model, the embedded model, for example, we have 100 people in Mountain View, sitting opposite Google [unintelligible], but across the freeway, and they’re there to work as closely as possible as they can. We call that the embedded model.
“To some extent, I’m a little bit amused when people say, “Wasn’t it wonderful that we managed to go to virtual working when COVID hit?” when we were already set up that way.”
And then we have the in-house model, with in-house sprint of Harvard Business School case study. We’re now doing it for the parent companies, T-Mobile, in-housing client INFAMA was voted the in-housing client of the year last year. We have very different models. Working from home, flexible commuting, flexible hours, dispersed living was meat and drink for us before. All that COVID has done, and it has done terrible things, is accelerated that process.
To some extent, I’m a little bit amused when people say, ‘Wasn’t it wonderful that we managed to go to virtual working when COVID hit?’ when we were already set up that way. Actually, COVID, for us, has helped us accelerate. We’re probably in about 50 cities around the world. In some cities we have multiple offices. We’re going to consolidate those into one.
For example, in Buenos Aires, we have about 450 and 500 people, and we’re going into one building where we were in three. So, what COVID did was it gave us the opportunity to get out of leases and to move out of leases. What we’ve done actually is zero-based in a way. We had the opportunity of jettisoning our existing leases, going to point zero, zero-based, and deciding what is the best structure.
If there is a modification in our pattern, which I think there will be when the vaccines have kicked in, let’s say, in Q2 of this year, or late Q2 of this year, what you will see at S4 is people probably spending about two to three days in the office, having the option, the configuration of the offices being different in terms of more meeting space, probably less office space, more meeting space with clients, more meeting space with our own people, flexible commuting hours, distanced living.
I think it’s going to be very different. I’m trying to remember the company that was welcoming distanced living and were encouraging people to do it. It was a traditional company. I think it was one of the banks actually that was encouraging it, it was Ken Moelis of Moelis saying that their bankers, which is a boutique, mid-sized investment bank, successful bank, saying if their bankers wanted to work from upstate New York instead of the city, Manhattan or downtown Manhattan, Wall Street, then that was perfectly okay.
I think you are going to see significant change. But at S4, because of our roots and our origins, we were different anyway. That’s what people don’t quite get.
By the way coming back to your first question, I think it’s the reason why, or one of the reasons why we do so well, because we are so different to the traditional model.
Bobby: And you’re still getting the job done.
Sir Martin: We’re getting the job done faster, better, cheaper, is what we say. Faster and with more agility, because some of the companies that you mentioned don’t have the agility and prize the agility, and agility gets the job done.
Better means understanding 20 or so companies – Google, Facebook, Amazon, Tencent, Alibaba, TikTok, depending where the international operations go, Apple and Microsoft, Adobe, Oracle, Salesforce, IMB, SAP, Twitter, Snap, Pinterest, LG, Samsung, Epic, JB.com, Spotify, Netflix, Xiaomi.
These companies are the sorts of companies that we have to understand because what we’re doing effectively is deciding where our clients should place their bets.
They have a budget and if, as a result of the terrible events in America around the capitol building a week or so ago, the elements of the social media rise or fall, we go with it. What we do is analyze what’s going on and advise our clients in probably an increasingly complex world what to do. That’s what we try to do. That’s essentially what we’re doing.
“We look at in-housing, if clients within in-housing works and we agree, what we do is work with them to do that, and then there are two services afterwards, which are very important — advising the client on changes in technology, and advising the client on people.”
We’re really evaluating the strength of hardware companies, software companies, and the platforms. That’s what we do. We’re not aligned with one rather than the other. We work evenhandedly, agnostically, with all of them. The trouble with the agencies is they have a vested interest in their own model, which is a service model. They’re not really in favor of the in-house model because they see it doing themselves out of a job. We don’t worry about that.
We look at in-housing, if clients within in-housing works and we agree, what we do is work with them to do that, and then there are two services afterwards, which are very important — advising the client on changes in technology, and advising the client on people, because people generally don’t like to work in one vertical or in narrow verticals.
There’s often churn when you go in-house, and we can provide hands-on keyboards or we can provide advice on people, which can be very helpful. So, we have a different approach.
“The trouble with the agencies is they have a vested interest in their own model, which is a service model. They’re not really in favor of the in-house model because they see it doing themselves out of a job. We don’t worry about that.”
A Changing Competitive Landscape
Bobby: I’m curious. We can contrast the newer disruptive model with the holding company model. As far as your peers who are also pursuing the same path as you are, who among them would you consider to be your biggest competitors, and what separates you from them?
Sir Martin: Accenture is clearly the one. We see the holding companies, we don’t see them as one, we see bits of them. It might be an RGA, or a Huge, or an AKQA, or VML, or an Essence. There are three levels of competition. There are the specialists, like Jellyfish, which is now owned by a French conglomerate, WEBIDIA, which is their subsidiary in digital. They might compete with us on digital media.
“There’s continuous disruption, there’s continuous disaffection, there’s continuous gloom. It’s very difficult. If you’re not growing, people look at their boots, they don’t look at the sky.”
Then you might get OLIVER on the content side, part of You & Mr Jones. The FIMALAC and You & Mr Jones model is like an investment trust, or investment fund. FIMALAC is a private holding company. So that’s sort of the micro-level. The second level you have the holding companies, or bits of the holding companies, and the third level, I think most importantly you have the consultants.
And within the consultants, it’s really Accenture. We come across PWs and Deloittes occasionally, but the big strategic consultants is not McKinsey, Bain, BCG, are not who we come up against. If you take Mondelez as an example, we competed against Accenture. They got kicked out in the first round, then WPP and Publicis.
If you look at BMW MINI, again WPP got kicked out in the first round. Then we got to Aegis, Cognizant, Dentsu, Aegis IPG, and Accenture. I would say, on client-side, it’s Accenture, and on deals, it’s really very little competition from the holding companies. They’ve sort of gone to sleep for whatever reason, because of strategic pressure on their business, lack of resources, whatever it happens to be.
They may awaken again. Accenture on the deal side. They’ve gone a bit quiet recently. They’ve shot their bolt a little bit. The big competition on deals, on mergers, is private equity, that’s where there’s huge competition, so I would say, in summary, it’s Accenture on the client-side, and private equity on the deal side.
Bobby: If we see the pulling away from traditional advertising and see more digital-facing advertising, are holding companies on a precipice here? Is there going to be some big shakeup, some evolution, that’s going to happen industry-wide? I imagine that they’re trying to hold on to their model. What’s going to happen?
Sir Martin: You saw Publicis were reported to be in negotiations with a big private equity company in Europe. They deny that conversations were going on when the spokesperson was asked, but it begged the question quite clearly as to whether discussions have gone on before.
If they had gone on before, which it sounds as though they had, it seems to me that what that was signaling was that the Badinter family, which is the biggest shareholder, they own about 11% of the voting rights. You know, in France you have this system, if you hold the stock for two years, you get 50% more voting rights. It sounded as though the Badinter family and Maurice Lévy were throwing in the towel of being a public company. I don’t know what that would have meant for (CEO of Publicis Groupe) Arthur Sadoun. It might have been curtains for Arthur Sadoun, if that was to happen. So, he’s probably relieved that it didn’t happen.
To the point of your question, that’s a good example of one of the holding companies being under pressure. WPP is slightly bigger. It’s less slightly bigger than it used to be, but it’s slightly bigger. Omnicom is the biggest. Journalists and analysts forget that Omnicom is the biggest by market cap. WPP used to be, but is now number two. There’s Dentsu as well. Actually, before COVID it was rumored as a private equity candidate.
“It sounded as though the Badinter family and Maurice Lévy were throwing in the towel of being a public company. I don’t know what that would have meant for (CEO of Publicis Groupe) Arthur Sadoun. It might have been curtains for Arthur Sadoun, if that was to happen. So, he’s probably relieved that it didn’t happen.”
As private equity started to expand in Asia, I remember there was an article saying what are the companies with market caps over a billion, or whatever it was, that will be vulnerable to private equity intervention, and Dentsu was in the article.
Very difficult to do in Japan because of the corporate etiquette or all the corporate culture, which is a bit stultifying, but having said that, I think change is coming. I think COVID buys weak management a little bit of slack, they get a little bit of slack, excuses, “COVID is disruptive to our business. Give us a bit more time.”
But I think the answer to your question is that they will be faced with continuous pressure on the top line, and they’re not positioned. They have the analog albatross around their neck.
You take WPP. When I left WPP we calculated that 40% of our business was digital. It still is the case, according to their latest numbers, still 40%, so I don’t know why it hasn’t grown. I would have thought it would have grown a bit. It’s only 40%, which means you have 60% which is analog and not growing.
They talk about simplification. They probably are going to have to complicate their organization in order to break out of the growth track that they’re in. So, I think the answer to your question is continuous pressure and probably continuous decline. They’re firing, or they would have fired, about 50,000 people, according to Forester, in 2020.
“When I left WPP we calculated that 40% of our business was digital. It still is the case, according to their latest numbers, still 40%, so I don’t know why it hasn’t grown. I would have thought it would have grown a bit. It’s only 40%, which means you have 60% which is analog and not growing.”
There are a lot of people. As usual, it’s the good people that, when they get upset, start to move. They’re not necessarily the people who have been fired. As I said before, it tends to be the soldiers, not the generals. It’s good people who are on the march. We’re seeing a continuous flow of good people.
Bobby: And they’ve been coming to organizations like yours? With the disruptive models?
Sir Martin: Yes, there’s continuous disruption, there’s continuous disaffection, there’s continuous gloom. It’s very difficult. If you’re not growing, people look at their boots, they don’t look at the sky.
