All right, let's get started. My name is David Karnovsky. I cover media, entertainment, and advertising at J.P. Morgan. Happy to have back at the conference from Omnicom, John Wren, Chairman and CEO, Phil Angelastro, exec VP and CFO. Thanks so much for being here.
Thanks for having us.
Great. John, I'll start with you. So recently, you've described Omnicom as a marketing and sales company rather than as an advertising and marketing company. That's a deliberate shift. I assume that's not just for investors, but for your employees and clients. So what's the key message that you're communicating here?
I'm gonna change the line. I changed it last quarter, and that's what you're referring to, and yes, it is for both external and internal. With the addition of Flywheel, we are a full funnel, basically. We go from the top of the funnel all the way through the funnel to the actual sale. The reason I'm gonna probably change my language is because in a meeting with Amazon last week, in a report that Flywheel had sent to them, Duncan, the man who runs it for us, used the term full funnel, and they ripped it off. They admitted to plagiarizing it, and their upfronts last week were very successful, so I'm probably gonna take it back.
We're the only ones that can go from the very top of the funnel through the bottom of the funnel and do it successfully, and it's not based upon talent or individual people or individual skills of people. It's based on the extensive and the amount of data that we have and the tools that we've built.
Maybe following up on that: so with Flywheel, you're approaching six months on the acquisition. Maybe discuss a little bit of the integration into the Omni platform. What has it meant to combine the data that you previously had with the data that sits in the Flywheel's commerce stack?
Well, the Flywheel commerce stack doubled the amount of data that we had. We used the waiting period that we had to wait in the U.K. to make sure that we were able to merge those files, day 1. So by week 1, we had that completed. It turns out that the Flywheel data and the information it brings actually, to date, is of more benefit to our branding and more traditional clients, but I didn't know which way that was gonna go. The integration has gone brilliantly. As of this morning, we're, we are on 51 joint pitches. Flywheel would describe, based upon their business, 8-10 of them are important from size and capabilities. But we're very happy with the pace at which we've been able to integrate.
Was it last week or the week before last, we held our annual shareholder meeting in their headquarters in Baltimore, and all their people are absolutely thrilled to be part of Omnicom, so it's going very, very well.
Just going back to a comment you made, you said that the Flywheel data has been more kind of valuable to the clients that care on the branding side. I guess you were saying you didn't know if it was gonna be the branding clients or the performance clients. Is that the-
I didn't know how to weigh it, but thus far-
Yeah
... it's made us more powerful. It's made us more powerful in terms of our ability to do targeting and to identify audiences on our more traditional type of media pitches. I think if you look at all the external four people that keep score on wins and losses, Omnicom's been number one and remains number one so far into this year. So it's been terribly beneficial. It's gonna only become increasingly beneficial as we go forward, because we've also applied. Rather than spend time dilly-dallying, trying to put these things together, we're able to do it so quickly that even though we've been using in the Omni platform AI for the last 15 years, with generative AI, we're able to bring large language models into it, and we're not ready to make any announcements.
But we already can do it with Open 3.5. I think the plan is in the next couple of months to go to 4.0, but we can then also ingest Llama, Claude, all these new developments as they're coming along, which is gonna make just the vast amount of this data and our ability to optimize it with large language models. It's gonna make it terribly more useful to the 40,000 people that have been working for us that have been credited to actually enter and use the platform. So to us, it's all going a little faster than we had, you know, we had cautiously planned for this integration. The integration's going at a pretty rapid pace.
How about the integration from a client mix perspective, right? When you announced the deal, I think Duncan had talked about Flywheel could gain access to verticals outside CPG, where it had been focused. Omnicom could move deeper into CPG, where it's historically under-indexed. Are you seeing, you know, execution.
Well, as I said, we came together on January the fifth. We're at May what? 20th, 22nd. We're in 51 active pitches. I take that from any acquisition with joint, and the teams are jointly working between preexisting Omnicom companies. They're jointly pitching for new business on 51 occasions. Flywheel doesn't have that many people. It only has 2,000 people. So you can imagine we're working at quite capacity, and it's been very helpful, especially in pitches like the Amazon pitch, which is going on right now. And we're only at the very beginning of this because as a sector, online purchasing, if you look at anybody's report, is expected to be a tremendous growth area as we move into the next 3 years, 4 years, 5 years. So.
There was a headline last week. I think Forrester had named Omnicom a leader in commerce services. Can you tell us a little bit about what was announced there? I think that relates to Flywheel.
No, actually, it doesn't really relate to Flywheel. Because we would've been even further. We're, we're—Forrester does-
This is pre-Flywheel.
Yeah.
Yeah.
This was pre-Flywheel. It basically takes all the service providers, all the people in our industry, and speaks to their competence and whether or not, you know, how they rate against each other. We were a leader. There are one or two other of our competitors that also fell into that same category. That was all done prior to Flywheel. We fully expect to be even further up to differentiate ourselves the next time that a Forrester or Gartner comes in and does a report like that. So we're very happy with it.
Yeah, the leader category is the top category in Forrester's terminology, which they're very particular about what you can and can't say regarding, you know, press releases, et cetera, when the rankings come out. But certainly, we're pleased with you know, how we performed last year. I think we weren't even in two or three years ago, when they did the first one, we weren't even in the report in that category.
Maybe you could speak to what they were, they were focused on, and, and how does that tie out? Or maybe just rounding out the, the conversation on commerce, you know, how does Credera tie in here? Can you speak to the growth of that unit as it relates to business transformation separately? I think one of the, the kind of standout comments I thought from the earnings call was how many employees Credera is up to now.
Mm-hmm.
I didn't realize it was 4,000.
Mm-hmm.
Yeah. I've been doing the talking all morning. I. You wanna talk, Phil, and I'll add to you.
Well, you know, certainly, precision marketing, you know, is a discipline that we certainly have a lot of confidence in terms of its growth prospect. Credera is a big part of that. We acquired Credera several years ago, did a few acquisitions to supplement, you know, their offerings. They've got a business or businesses that play in the business transformation space. Obviously, they have a lot of deep capabilities in, you know, the various marketing stacks that our clients use, whether it be Adobe, Salesforce, et cetera. They've grown quite well. And, you know, I think the commerce offering and the commerce capabilities that they have from a consulting perspective and a CRM perspective, have been very helpful.
We expect that'll continue to be more and more of a differentiator as they get integrated on pitches with Flywheel.
They've also added an AI consulting practice as well. That's nascent, but it'll grow over time.
How about the market for kind of the big digital transformation projects that had paused at some point last year? How does that kind of look in terms of the traction?
You know, we were, I think some of our competitors complained about that. We didn't. We had, in the beginning of last year, there was a pause in some budgets. By the second half, they were already being restored, and we don't see anybody holding back now. So, you know, especially we've made quite a number of additional investments in, doubling down on our expertise in Adobe, Salesforce, and other commonly used platforms, by our client base, and that's what we're looking to do. And, they're all preparing themselves for how they're gonna put AI and generative AI into their systems.
Yeah, I think if you, if you look at, to that specific question as well, the component or the percentage of our revenue that comes from tech clients, it's been pretty consistent over the last two years, quarter to quarter. So, while there was a little bit of a, of maybe a delay, and a lost client in last year's results or the first quarter of last year's results, you know, we haven't experienced what other, what our other competitors seem to have experienced in that category.
The broader digital business transformation business, even aside from tech, seems pretty healthy.
Yep.
Yep.
Yeah, it's doing just fine. I think, I think it's probably not as robust as it was back in-
Pandemic
... you know, 2020.
2021, 2022, coming out of the pandemic, but the business is performing well.
Okay. John, you said before 51 active pitches. Sounds a little accelerated to maybe recent activity. Is that, is that the case? Is that all media, or are you seeing acceleration on, on the creative side?
It's primarily media, but Flywheel is very helpful-
Okay
... to all of our client relationships. I mean, you can take a client that we have a media relationship with, but I mean, excuse me, a creative relationship with, that we don't necessarily have the media because the client's selected to separate the two. Amazon brings a whole other. It brings the sales department of a client. It opens that up to us, rather than simply the chief marketing officer, and so we're able to leverage off of those relationships. And in a non-challenge, for a client that's, to date, suggested that they want to keep media and the rest of marketing separate, we honor that, but that doesn't preclude us from bringing Flywheel in because it's a new sales channel. And so it works across the whole platform of expertises that we offer.
There's been closer relationship, obviously, and there's more of those 51 pitches are associated with media pitches that are going on.
Are those all opportunity? Is there anything on, you know, defending in there?
Well, this has nothing to do with Flywheel. The only thing that, of any size, that we're defending this year is VW, and VW will scheduled to be decided by June the sixth, and so we're very hopeful that we'll be reappointed. And all the other pitches that are out there, and there are quite a few, are all opportunities for us.
Okay.
Yeah, the 51, David, is not-
Yeah
... it's not 51 pitches that clients have come to us on. These are-
Yeah.
You know, it's some of them are pitches, but most of them are target lists that we and Flywheel are jointly going after, either with existing Omnicom clients or existing Flywheel clients, as new opportunities grow for both of us.
Great. Maybe just following up, one, on, on new business, I was curious. We saw Gap retained Omnicom for media. They did shift agencies, right, I think to OMD from PHD. What, what's usually going on under the surface in a situation like that?
You know, yeah. What, what's the Rod Stewart song? But, that changes, it's just a change in personnel, change in management. Once they put it into review, they had a change in management, and it was more than simply a defense. We were defending a small part of that business, and we extended to having it all at this point. And there's a new CEO in there, by the name of Richard Dickson, who's just recently been appointed. I think there was an article on him in the Wall Street Journal this past weekend, and, he comes from Mattel. He's the guy behind Barbie, and he's sent in to reinvent the company. Part of that, he's starting with his outside vendors, and through a very arduous, long process, he selected us.
Okay.
So at earnings, you raised the bottom end of your organic guide. You're now looking at a range of 4%-5%. Obviously, macro, year-end project work play a big role in how the year turns out. But John, maybe you can update what your conversations with clients are like, what you're hearing in terms of their level of investment, anything incremental by vertical, that you could say?
Well, we're very confident in the guidance that we gave.
Yeah.
I'm not planning to change it here, so-
I'm not expecting to make news.
Anything on the conversations?
No.
Yeah.
Clients are all obviously cautious because of the consumer and how much debt the consumer's run up. Having said that, they're all very focused on their brands and growing their revenue. So, you can go sector by sector. There are different attitudes, nuances, concerns, but when you measure the concerns with the opportunities, I'd say on balance, they're all optimistic. Now, that's also benefited, by no small manner, in the fact that this is an election and an Olympics year, and so the economy historically has always performed very well through an election. And even though the Fed's been locked in to raise, I think people are beginning, I mean, to cut, people don't expect any increases in interest rates, and they're becoming more and more comfortable with the current rate environment.
Now, thankfully, we're not in the mortgage business or the selling of new homes. If we were, then we'd have an industry we could talk negatively about, but on balance, we're fine.
Anything to call out by verticals?
No. I mean, our auto business is strong, not for the reasons I would've suggested it would be strong September of last year, because electric cars haven't taken off the way that people expected them to, but they have all adjusted. Travel is still growing very strong. Healthcare has been strong, continues to be strong. I don't see anything let up in that. Tech, for us, has been strong. It's an opportunity, more than anything else.
I don't think there's anything else that really stands out that's notable, from a negative perspective, certainly.
You talked to the cyclical events. You know, Olympics with the events. You have the political consultancies you had added to that last year. Say anything about how that's tracking? Phil, anything on what the cyclical contribution is expected to be?
Well, you know, I think certainly the businesses we expect to perform better in an Olympic year first, are experiential businesses primarily. Are tracking as we would expect. We expect them that they're gonna have a good middle of the year, given it's a Summer Olympics. You know, what happens in the fourth quarter with those businesses in this type of a year, most likely they'll be a, you know, they'll tail off a bit. But certainly they're tracking very well, as we would expect. And the PR business, you know, we expect it to ramp up, in particular, in the second half of the year. They're doing fine. And the new acquisition has been integrated quite well.
And, you know, we certainly still expect some good performance from both of those disciplines around the Olympics and the elections. I think, you know, the Olympics and the elections don't really meaningfully impact the other disciplines, generally positive, not negative. But they don't really drive the growth-
Yeah
... on a one-off basis.
Yeah. It's. If you went back 15 years, I would've said it was a tailwind. Now it's a breeze. You know,
Well put. Advertising has been a leading discipline for you going on several quarters, media in particular. You don't break it out, but, assuming, you know, if we assume by the growth in third-party costs, that principal media has been a nice contributing factor. John, maybe you can speak to that, the strength you're seeing in your media offering, how that's resonating with clients.
Sure. Well, if you go back, we do have a Principal Media business. It's about the third of the size of, say, Publicis' business in the same area. If you go back five or six years, it was a controversial topic, because it's an opt-in product. And five or six years ago, when the problems were first raised, Martin Sorrell was the head of WPP, and he took a little bit too much liberty in how he was using it. What we learned from that experience is we still do an opt-in. The client has to agree to utilize that product. They utilize it when it's to their benefit. If we took any learning away from that experience five or six years ago, where people were somewhat critical of it, it was compliance.
So what we've put in since then is a compliance department, because you could hire me today as a CMO, agree that this is a good product, you wanna opt in, it's in the contract. The average tenure of a CMO is about 3 years, 9 months. So 4 years from now, I'm gonna be dealing with somebody else who didn't sign that contract. So we put a compliance department in, which basically says not only every statement of work has to be signed off on, quarterly, we compile it, we do a separate report. That separate report is then sent back to the management to say, "You've opted in every which way but loose on this, and here's confirmation of what you did last quarter.
You always have the ability to opt out if you choose to." And, so we're very confident that whereas five or six years ago, there was fuzziness around it, and there was some controversy, clients utilize it, and they, they utilize it for, because it helps them mitigate the inflation costs that they have in, in media. And every once in a blue moon, I think recently there was some articles about the ANA-
Yeah, they can now-
... resurfacing this. But if you can imagine you're Marc Pritchard, I'm not saying anything bad about Marc, P&G, they don't use it, stands up on stage and complains about it. And all of you are CMOs who do use it, you're not gonna stand up and say, "Marc, shut up. We use it. You don't use it," because you don't want Marc to know your business. So we do have constant compliance with it. Also, laws have changed in the United States, laws have changed, especially in Europe, during that period of time. So making sure that we have proper compliance of opt-in is fundamental. So this is. It was a big nothing when it first came out. It's something that I'm terribly confident about as we sit here today.
Probably the one reason we're a third the size of what I think Publicis is in this area is we kind of cap, and it's our own internal control measures, how much of this product we'll offer to a particular client, because if a client puts this account in review, I don't wanna be recovering from too much, having to recover too much principal product. So having had a bad experience in that three or four years ago, so I think we're conservative at just about every point you can bring up on this subject.
Yeah, it's, I mean, it's another tool in the toolkit of services that we offer, but the only reason we offer them is because the clients want them, and the clients ask for them. And the clients are well aware of the services that are being provided to them. And the media business itself is robust. The assets we have, the people we have, the platform we have, and Omni, and now adding Flywheel, those are really the driving reasons for the good performance in the media business.
Just sticking on advertising for a second. Creative has been a laggard. That's true for the industry, though. Phil, I think you said at earnings you expected an improvement to the year. Just wanna follow up on that, see what the drivers of the better performance would be.
Sure. It's not a laggard in the sense that creative is our IP.
Right.
We're known as an advertising and media company. Advertising, which used to be 50% of our revenue, is now general media advertising, is probably 20%. Technology has stripped revenue from those agencies. When you take a look at the various forms of media that you can. If you come up with a great, great campaign, you can utilize that. Four years ago, five years ago, if you wanted to change the medium that it was originally designed for, you had to send it back to the agency to be recut, re-edited or whatever. We now have dynamic content tools that when a campaign is created, it's tagged, it's put into a computer, and we can reconfigure it instantly, right? For TikTok, for YouTube, for whatever the media is selected that we wanna reach.
Well, that technology has replaced some of the arms and the legs that used to be in that 50% of advertising, but it hasn't changed the necessary need for the creative talent, for the, where the real IP is. It's just taking some of the hours when we were paid fee for service out of that particular P&L center. And people like me haven't changed the P&L centers, to necessarily reflect all of that. And so when you look at it, when we report it, that's why we report it as one. It's always gonna be our IP-
Yeah
... no matter what technology does, because if it was just technology, technology doesn't bring emotion, empathy, and influence to a particular problem to distinguish you as a client from your competitor. It's that IP, it's those people, those knowledge workers that make all the difference in the world. So at some point, I'm not quite ready for it now, we'll force you to change how you refer to us, but, but we're not there yet, so.
Got it. Fair enough. GenAI, a continual point of discussion for you and your peers over the past year. Paolo, your CTO, had an interesting comment. He said, "GenAI is a co-pilot today. Eventually, it moves to a true partner at the creative and strategic level." John, what are the steps to implement from here, and why are you better positioned than your peers?
Well, we've been at this for 15 years, number 1. Number 2, the addition of Flywheel doubled the amount of data that we have and which data that we own. We've been able to increase, and we're always improving our optimization tools. We've introduced large language models, which makes it more useful to a larger group of people, and more intuitive for people to use. Currently, it works off of Chat 3, 3.5. We're planning to convert it to 4.0 in the coming months, but we can also use Llama, we can use Claude, we can use whatever gets invented next week, too, because the platform was built to adapt itself to that.
Now, the difference is, it's the vast amount of information that we have, it's our ability to optimize it, but it's also that 15 years of ingrained training and intuition about: how do you cross-examine or interrogate the database that you have in order to get the best, most effective plan for a client? So it's not only pick an audience, it's pick an audience, and what time of the day should I message that audience? What is the medium that I should message them from? What's the tone of that? What should the creative be? All of that, no matter how good the technology is, all of that has to be intuitively built into the people that you have working for you and be part of the system in order to make a difference.
Otherwise, you can buy something off the shelf, and if you're selling skin cream, you'd have the same media plan as the next guy who's trying to sell skin cream. That's what's gonna do, the two things that are gonna differentiate us is, one, we're not building it, we actively have the people that have built it engaged in improving it constantly. Two, we have a workforce that is used to and they're certified to use it, and they know how to interrogate it for the benefit of the client. All these improvements just make my knowledge workers more efficient, more powerful, and along the way, we're able to measure ourselves increasingly because of the technology.
So we know that if a dollar spent should yield $1.29 or $1.39, and increasingly, as we can do that through the services that we offer, that makes us terribly important to our clients. Because if I can prove to you that if you spend a buck with me, I can get you back $1.29, the woes of the economy and, you know, ups and downs are not gonna be affected if you can prove what you're doing.
So you're alluding to a performance-based model?
Yeah, and increasingly.
We're moving towards that. I mean, what Flywheel brings to us is Flywheel gets paid based upon gross sales that it brings to the platforms that it operates on. It doesn't get paid for the services that it provides to those clients. So that's the biggest single chunk of our company that's outcome-based. But increasingly, as these things improve, we're starting to interrogate things that we can do, where we used to be paid purely fee for service, where maybe we can segment those KPIs and get intelligent clients to talk to us about it. A simple example: I'm building a brand for a big car company. Great. I'm gonna wanna be paid for the creative people and things that I bring to that. If one of those elements is how many people can I get into your dealership, I'm actually.
If you wanna segregate that as a KPI, I'm willing to do that at a pure risk basis, right? Because if you wanna pay me $X to get people in, I'm happy to do that. As our tools get better, as our optimization gets better, it's not gonna be a giant leap towards this fantasy of getting paid only on outcomes, but we're increasingly learning how to segment these things and move closer and closer to that. And the day that we can get there, that's when this will be just an incredible business with incredible growth. But it's a journey.
Got it.
So.
Good note to end on. Thanks, John. Thanks, Phil, for being here.
You're welcome. Thanks.