Dave Penski | Publicis Groupe | Media in the Age of AI | Part 1

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0:22Dave Penski:Welcome to CMO Confidential, the podcast that takes you inside the drama, decisions, and choices that go with being the head of marketing. Hosted by five-time CMO Mike Linton. When is the last time you researched something on a website? If you're like most people, AI did that work for you. And that raises a question. If AI is doing the work, what is your website really for? This behavioral shift means AI bots are becoming your most important new visitors. A challenge our sponsor, Scrunch, is taking head on. Scrunch is the customer experience platform that helps you understand how AI agents experience your site, when and why they show up, and what's blocking them from being retrieved, trusted, or recommended.

1:13Scrunch shows you the content and citation gaps and technical blockers and helps you fix them so your brand shows up when consumers start with AI. because your most important site visitor might not be a human. For our listeners, Scrunch is providing a free website audit that uncovers how AI sees your site and how you're showing up in AI versus the competition. Run your site through it at scrunch.com slash CMO. Welcome marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite.

2:03I'm Mike Linton, the former chief marketing officer of Best Buy, eBay, Farmers Insurance, and Ancestry.com, here today with my guest, Dave Penske. Today's topic, media in the age of AI. Now, Dave has been in the agency business his entire career, including positions as the CEO of Zenith OptiMedia, Chief Operating Officer at Publicis Group, and as the CEO of Publicis Media twice, a job he currently holds. This is his second time on the show, and full disclosure, Dave and I have known each other for a few years, and our past, also crossed recently when he ran Zenith and I was working as the CMO of Farmers.

2:48He has, in my mind, one of the best seats to see the tectonic shifts going on in the agency business and the media markets. Welcome back, Dave. Thank you, Mike. Appreciate it. All right, Dave, let's start. Give us a quick overview of the business marketplace, not even just the media marketplace, but the overall business marketplace and what you are seeing today? So this is a great question. I mean, it's definitely, I've looked at it much more by vertical. So how our QSRs are doing, how a farm is doing, how about insurance, and you've worked at a couple of different verticals. So I don't think it's a simple answer on any of those, but I would say overall, it's a tough marketplace.

3:28I think that we see it across. We see it some on the stock market. We see it some on the earnings that have been coming out. It is a challenge marketplace. I think that we have a lot of volatility and just how we have lack of consumer confidence. We have a lack of advertising confidence and business confidence in what's happening. And it's not a political answer. It's what's going to happen with tariffs. They were shrunken down and raised all in one day. I think certainly those dollars could end up going back to companies and going right back into advertising, which would be very good for the advertising marketplace.

4:02At the same time, I think as we go into this midterm election, there's a lot of different promises of positivity and there's a lot of promises of challenges. So I think that we're going to continue in this kind of what we've been on for the last year, which is a very challenged marketplace. I'm sure you're going to ask me some AI questions coming up. I think one of the things that we're seeing that's really come through over the last couple of years are the amount of companies coming between our clients and their end consumers. So whether that be what used to be much more direct to consumer, whether that be retailers and retail media, whether that be the delivery services and the QSRs, whether that be the aggregators in the insurance business, there's just quite a bit of disruption.

4:55and I think the media marketplace is becoming more and more fragmented. So, you know, it used to be, you know, people say, you know, it's 20 years ago, we were, you know, you'd be a brand manager at a large CPG. So, you're not going to get fired for buying TV and search. And then it was, you know, you're not going to get fired for buying Google and Meta. And now we're seeing that not even those guys are getting interrupted by a much more fragmented marketplace where an advertiser might have spent 50 % of their digital money between meta and Google, those numbers are going down. Now, their total spend is going down.

5:31This means Google and meta spend is going down. But their percent of their digital dollars is decreasing because there's just so many more options, whether it's Snap, whether it's TikTok, whether it's a new test in the different LLMs. It's just a very fragmented market. And at the same time, you have a very challenged market of clients looking for business results that are outside their competitive set. So I have, if I parse all your comments, what I hear you say, you have uncertain companies. Yes. Consumers that are on a little bit of a roller coaster ride and a volatile marketplace where you can have things like the Saspocalypse any minute from a fake research report.

6:14So what you have is it's really tough to figure out what to do. And the segmented market that is getting more and more segmented is making that even harder. Those are all very accurate. Thank you for saying it much cleaner than me, Mike. I do appreciate it. Well, I got the chance of hearing you. So I just condensed it on the show. So let's put the agencies in this. Talk about the agency landscape. It looks like a really tough market. it's a good day to be publicist today so I can't complain so I think obviously it's a pretty seismic shift in the agency marketplace right now we have ourselves an Omnicom and I'll speak for a U.S.

6:54perspective we've become you know far larger than the other competitors you know both are over a third of the of the market and you know it's it's a we're we've taken two very different strategies. Our strategy has been about growing through more M &A and investing back into our people, into our company, and into investing, really taking our dollars to reinvest back in. You guys have reinvested a lot in data and the back end before anybody did, right? Yeah. So over the last 10 years, we've invested about$12 billion. I know the euros have to think about the translation today might be a little different.

7:39So over$12 million into from Sapient to Epsilon to the influencer companies. And really what our point of view of what we've been talking about is the view of connected media. We believe in the end is that the connected identity is at the center of this and that we need to have an identity solution that allows clients to understand who are their prospects, who are their current customers, how to target them, and how to target them across paid media, CRM, influencer, and commerce. And what commerce means for certain clients is different, whether that means on Amazon, on that, or does that mean through other commerce plays?

8:20Like it could be if we're talking to a QSR, is it through DoorDash and Uber Eats? So all of those ability to go across those platforms is really important. So we've made a number of investments. We've bought a large commerce agency in Mars United. We bought the two largest by revenue or cost in influential and captivate in the influencer space. And we're making those all kind of stick together with the the the Epsilon identity spine. And then the other probably through line. And it's interesting, some of the companies that you've worked at and certainly we look at one of the more AI proof things out there is sports.

8:57So we've also made a couple of different sports acquisitions, and we've been open that we are continuing to be open for business and looking for places to continue to invest. If it helps us and our clients do those kind of five things. So the four plus sports are really where we are looking to be investing in the future. And so our competitors have taken a point of view of doing stock buybacks, which is not what we were trying to do. So it's a very. Your IR people will be so proud of you for this. Yes. Yes. So fantastic. I want to make sure everyone I want to go back to the just general agency landscape in a minute.

9:34But when you say connected identity, I think we all know what it means. But you should be really clear what exactly when you. Yeah. Connected identity. Yeah. So for us, we want to make sure for each of our clients and for us that we're able to look at. We'll talk about I was talking about from a U.S. perspective, but it's global, too. There's some different rules by market, but this is from a U.S. perspective that we understand who every person is. So we've connected. We use Epsilon as our core identity partner, and we own them. So it'll be clear that we have 255 million unique IDs where we have address, home address, email address, phone.

10:13We've caused that resolution to go down. We know by device, how many devices, if you have five or six devices in your household, how do we actually know it's that one person? How do we target them from a CRM standpoint? So we can do a match. So if a client has a CRM file, we can match with them on a one-to-one basis. We can do this with both PII and non-PII matching. We're able to do that across paid media. So if someone runs an ad on Hulu and we can see if we then expose them through an influencer, that we have tracked all the influencers. We then can track to see if they actually made that purchase.

10:48And we can also look to see, are they part of our current CRM file and their current customer, or are they in new prospects? We start looking at audiences. How do we go about doing that? So that is what we have been focusing on. And that's a really important part of our differentiation between us and our competitors. I think that Omnicom is starting down that path on trying to get an identity solution with Axiom. And WPP came out and said they didn't need identity. Now they've kind of said they do need identity. I'm not sure of the latest WPP positioning on this identity. But I think that most of our clients have certainly come to the conclusion of if I can reach these consumers through CRM that are my current customers, or I can reach them very efficiently through influencers.

11:33I can reserve more of my paid dollars to reach my prospects who I need to convert and who might be more difficult to convert over. And that's been something of how do you then, you know, all of our clients have a limited amount of spend. I don't care if it's a billion dollars. Everyone feels their budget should be bigger. So how do we then use those limited dollars? Except the CFO does, never. That is accurate. Now let's take a short break from our discussion for a word from our sponsor, Scrunch. Over the weekend, I asked AI to do dozens of things for me. Please help me make this dishwasher start working.

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12:57Now back to our conversation with Dave. I'm going to make sure I'm getting this right, because one of the things I hear you saying is you guys are leading actually, I know it's not exactly media, but if I say media is my ability to reach the target with the most certainty yes the entire company is kind of leading with that first is that a way to think about it yes we want to be able to know who we're reaching with and certainly when we get into it is i think where we have some of our largest upside we've had a great we had a great year and we've we've posted this you know i can talk about you know previous results um you know we actually had one of our best years ever on creative and production and we've seen an ability to not only know who that person is uh know where they live what what actually motivates them and putting the right content in front of them and if you look at what we're able to do from an identity standpoint with not just from a media perspective but that actually then produce the correct asset to put in front of that that customer is is very important So, yeah, absolutely.

14:02So let's talk about everybody that's not you. Yes. Publicists. I try not to bash my competition, but I'll do my best. But go ahead. All right. Well, just in general, the rest of the forces, we know all the forces on the agencies. What's your take on these forces on the agencies? And then in general, all agency economics. Yeah. So, you know, we just went through our earnings. Obviously, we've shown a very positive margin and growth of last year. We ended up just below 6%. We've forecasted growth between 4 % and 5 % this year. We've been on this trajectory for quite a bit. This is, I think, year four or five of this kind of growth of this or higher.

14:50And it's been a certainly we've seen it. we've announced to our employees a very positive bonus to go along with that. And certainly I think most of our employees will be very happy with those results. And I think that's something that we feel very positive about, that we want to pay our people fairly. We want to make sure that we're rewarding those that have helped us deliver these incredible results. And I think some of our competitors, I think the WP was yesterday, they're showing that it's going to, They were minus a bunch last year. It'll be minus a bunch again this year. Whether it's going to be high single digits, around high single digits, it's going to be a challenge.

15:31I think it remains to be seen on Omnicom exactly where they stand. Their fourth quarter is their first quarter together. It was a bit of a confusing announcement. And one of the things that's going to be challenging is we report net and gross. They report only gross revenue. So there's a lot of pass-throughs. a lot of deals there. I think it's hard to really show. But certainly, we have a much higher growth rate and certainly a much higher number of what we believe will be. And we just had Pete Imola on. He's a former CEO of RPA, a big independent agency in LA. And one of the things he talked about was, other than publicists, agency valuations have really taken going to hit.

16:21And insourcing by a lot of clients was happening, even when it might not be the best thing for the client. Can you talk about those trends in the agencies and then also the insourcing move? Well, the valuations are, you know, we always, I must probably say this in a politically correct way for us, but I think we are the nicest house on a bad block. So I think that is a challenging situation in valuations. We, of course, believe we should be valued far higher. I'm sure all of our competitors probably feel the same way. You know, we've been grouped as a category with some AI losers. I haven't really seen that.

17:09I'm sure we'll get into that in a minute. But the value, we actually see a lot of positive on the AI side. But having said that, I think that the valuations are the valuations. Whether we think they're fair or not, it's what the marketplace is showing. It's a little bit confusing because of the amount of debt that sits on, you look at the total market valuation of WP, it's not as low as the, you know, as you look at the market cap, I think it's 3 billion pounds today. It's low, but there's still a lot of debt in that business and there's some other things going on there. So it's not exactly a fair comparison, but, you know, certainly we would have expected our, after pretty stellar results for a number of years, a much higher evaluation.

17:57Now, Omnicom has gone up from a stock price because they're they're pushing a huge amount of buybacks into the system but that's not bringing your market cap up it's just bringing up the stock price so right that's going to be interesting to see um you know that's not something we believe is a long-term strategy is you're going to keep cutting yes you can't buy back your stock forever and you can't just keep cutting to growth so i don't think cutting 20 000 jobs is going to bring you growth and i also think that we'll get into the client question in a minute, but, you know, a number of our employees, now they, of course, had synergies, so there should be some value to bring these businesses together.

18:35But on the other side, you know, a majority of our clients are in an FTE model that you can't keep cutting because then you don't get paid. So it is a, there is a part of this that, you know, it's, we're going to see how clients react to these massive cuts. And if they're going to client, those savings are going to be passed on to the clients versus being kept at the holding company level. And that remains to be seen. But I'm certain if I was a client and my holding company was cutting 20 ,000 jobs, people were coming off my business, I'd want the money back. So I think that's a reality that we're up against.

19:10And you guys have been rolled into, and you mentioned it, the nicest house on a bad block, I think. Yes. That whole verticals are thrown under the, this is an AI negative or this is an AI positive. The agency business has been thrown into the AI negative camp. Yes, absolutely. And then you throw in the company's insourcing thing on top of that. Tell us about the AI effect. I will answer the insourcing one first. And then I will. And the insourcing thing has been going around for a long time, but there's been a lot of like we make these huge announcements and then like nothing happens. I remember I was actually speaking at a public board meeting not that long ago and someone asked me a similar question.

20:03I said, you know, in 2004, I was told that would be the last upfront. The last upfront was going to be the 2004, 2005 upfront. and uh i just saw a meeting on my calendar for the 26 27 up front so obviously that's 24 years off on the prediction of that was the last up five uh so i think often we make these predictions and that we don't it sounds great but then there's there's a long time between that prediction and reality and on the insourcing i would say we're in year 10 of this uh where there's a significant amount of clients that have brought stuff in we also have what we call out housing which sounds better than it is which is bringing it back to us uh so i don't know if we want to call it out housing maybe we come up with a better name you're the cml mike that may be out of different words rehousing anything but rehousing doesn't sound very good either mike but uh so so we have a combination and i would say if we have 300 enterprise clients we have 300 different setups.

21:09There are clients that will be in-housing small amounts that they think that their belief and may be correct actually is in order to do their larger data models, they need to own the data contracts. So they bring the data contracts in. Some clients are bringing the hands-on keyboards in. Some clients are bringing in almost all of the investment. Others are bringing all the investment with us and keeping more of all the strategy going in-house. I think we, our point of view is we want we've not fought this we decided we're going to support clients in each way they do it um we've lost almost zero clients in this process in terms of the bring the whole thing in house and what we've noticed is it's a bit of a give and take we're often because we want to bring this in house they want to hands on keyboard and then they go well we don't want to do the bill pay and we don't want that that was terrible or we you know we'd like you to do that part also So, you know, we can't get people to stay.

22:02It's hard. And, you know, very often they might not have a great, you know, person comes over, does a year ago. Well, I want to be promoted. Well, we don't have any other jobs. This is this is it. This is it. So now we're going to do the peak of what I hear you saying between the. Yeah, so I'm not, it is a rounding error for us on a yearly basis, the amount of revenue we lose from in-housing and don't make up from rehousing, out-housing, coming back. I think it ends up being a pretty flat number. And often clients that want to bring things in-house, we have other services that we might sell them on.

22:42Hey, we can train your hands on keyboards. We can do that. So it's not a, this is not a drain on our revenue that I think we probably would have thought it was ourselves, by the way, 10 years ago going, oh my God, we're going to have to reduce all this. And we really have not, have not seen that as a thing. And, you know, if you look at our revenue, it plays out that this has not been a huge effect. And beneath this, I hear you also saying there's no roadmap for all the housings, in-housing, out-housing, whatever housing you want to say. And so there's no playbook that actually has caught on what there is as a bunch of effort.

23:18There's a lot of effort, and we get to AI, a lot of pilots. And whether or not some large enough clients, there's certainly some value that can be had. if you're using the in-housing strategy for a larger business strategy or you are truly a marketing company. For companies that aren't marketing companies and they're bringing stuff in-house who have no experience doing it, it can be very challenging. But if you're a marketing company who might have a large retail media business as part of your overall business and you're running an advertising business, then it makes sense to bring a number of these things in house because it's actually part of you now becoming or part of your core business versus is a client that might be, you know, as you were forming an insurance business, I don't think insurance business is going to start a retail media business.

24:07And so bringing in something in house to build out a large in-house buying. And I think what the biggest challenge becomes, often the job is tougher than it looks on paper. And if a consultant comes in and tells you you can save money, then you get into the details of can you really save money? And also, are you getting i think one of the things that we've seen is do year one your talent's great uh year two who's going to retrain them who's what what is their career pathing what is you know and often you're dealing with very you know we're used to dealing with a lot of under 30 talent now you have this large group of under 30 talent that has to figure out a way that they want to get promoted they want to get more money they want to figure out their career and how are you then going to keep them you know if you have a larger mortgage we have clients you know like walmart who are not not only great marketers and great retailers, they're also quite an advertising company.

25:01Same with Amazon, Target, and I'm not picking on any of mine versus others, Best Buy, Lowe's, Home Depot, they all have incredible marketing, retail, and advertising businesses that they're running. And for those companies, a lot of it makes sense to do in-house because it's part of their core business offering. Or if you're an entertainment company or wherever that would be, it starts to make sense. So I think there are places where it makes sense, But even all of those companies, half of those are clients, half are not. And we've helped all of them in terms of that. And none of them have brought all of it in-house.

25:33And that's something. And a number of our clients that brought some stuff in-house six years ago are now in the – because it's funny. You look at it, you're like, well, we have all these – you start looking at it. We've now – often happens, as we've all done this, we've done it too, is you hire 25 people to do a job. And all of a sudden, you've noticed in the last six years that 25 people has ballooned to 80. how do we have 80 people doing this well let's bring it out and then you go we could we're paying these current people 20 million what will you do it we'll do it for 10 we'll do it for 10 we'll move it back out and then all of those conversations are happening i think that's something that is um going to continue to be part of the ecosystem but again this is not something that it's we we want to solve these problems for clients and work with them and i think the one thing we decided 10 years ago is we were not going to fight it.

26:23We were going to do the opposite and say, this is what you want to do. We'll support you. Here's a bunch of our tools that you can still use. Here's a bunch of our things that you can still work with us on. And here's ways that you can, if you decide to change your mind, we have a way to help you change your mind too. And that's been a very

26:41positive outcome. So let's flip to the AI part, the second part of the question, And agencies and AI. Yeah. So a couple of things. You know, we have thousands of AI pilots going at any one time and different agents that are being built. And I have a lot of positivity in terms of this being able to transform our business in the next few years. I do think that the roadway, just like the upfront, hasn't been dead for 25 years. their roadway will sometimes take longer, especially when you get into legal on some of these things. And I think there's an article from MIT that 95 % of the pilots failed in the first two years.

27:26And there are some of these things that are going to take longer. There are, there's a huge, I think we're seeing probably the two pieces of massive disruption is on the creative and production business, the ability to create assets. And, you know, the old Don Draper is beyond over where you go send 15 people to work for two weeks on a project. They come back to the ideas, go back and forth. That can take 30 minutes. There are incredible tools that we are building, that we've partnered with. It's not my exact expertise, so I won't say the wrong names here. But we have certainly, what I've seen us been able to do, any of you who are listening, and we've what you're able to do on a personal level on a chat gbt or other language models and you can imagine the ones that we're using for this are even better and the ability to produce high quality static especially video not quite there but getting there the ability to produce those images and ideas at speed and the ability to produce tens of thousands of assets to be across that the only thing that i would say is you produce 10 000 assets the negative to the fact that you can produce 10 ,000 assets for the cost that it used to cost us to do 50 is often it can become off is very convoluted to the actual end customer that they've now seen from one company, 14 different ads and different styles, because they're all trying to hit in the right place.

28:53So there does take some discipline and work to do that. But so that's been one place. Everybody is using AI, AI becomes the average creator. And so, you know, which works for maybe a lot of the creative, but maybe not the breakthrough creative. So this is super, a super interesting evolution. Yeah. And I think that very often as we've used many different tools over the last 20 years, they've all been additive. This one though, does feel different, especially in that place. The second part where we're seeing a massive advantage is the ability to do things much faster. So one of the things that you came to me and said, hey you know what we need to do a budget cut and it could be anywhere between 25 and 100 million dollars and that is okay so why don't we come up with a 20 the 40 60 and 80 100 million dollar cut plan i can give you fully detailed plans of all of those now in one day where that might have taken a team two weeks to do one of those plans right and a big team that's not like two people and that So the ability to do it more accurately and faster are dramatic.