TOC The strange case of the dog which hasn't barked Your Turn

April 5, 2011

Eric Pfanner's analysis of the prospects at Publicis is well researched (*). "As the advertising industry recovers from a deep downturn", the "turnaround has been uneven" with "digital advertising leading the way". Eric Pfanner proceeds to explain how well Publicis has positioned itself against its main competitors on the "new digital forms of marketing". "We invested in digital early on [...], we invested massively. It happens that we were right", says Maurice LÚvy, its chief executive. The facts justify him.

At least for now... Eric Pfanner is careful to quote "John D. Wren, the chief executive of Omnicom", advising his industry colleagues against turning themselves "into technology hopefuls, while Internet companies like Google and Facebook retain the real expertise". Consistent with this advice, Omnicom has struck a series of agreements "to gain direct access to the internet companies' consumer data", Tim Bradshaw reported last month (1). Now David Gelles tells us Interpublic "owns a stake in [Facebook] that is today valued at somewhere between $200m and $300m" (**).

Within these sharply drawn battle lines, why haven't we heard loud barking about eprivacy? After all, who has pointed out "[one doesn't] need to own the [consumer] data to have the most intelligence"? Not I. "Jonathan Nelson, Omnicom's digital chief", "to sidestep criticism around privacy". An approach, Tim Bradshaw warns us, which "could leave [Omnicom] vulnerable to internet companies revoking access to their data in future".

Has a crime happened right under our nose? May Google, Facebook et alii collect consumers' data as mere consumer data and tap it as theirs?

Before deriving any conclusion, we may want to continue our study of limits inherent to capitalism. Recall two of its foundations are the rule of the law and the limitation of investors' liabilities. If the latter allows companies to raise capital more easily, it also encourages investors to entrust it to agents acting as company heads. This has an unfortunate and misunderstood consequence. Systemic amorality.

Being humans, these agents may turn out to be regular rogues. But individual blindness is not the issue. More importantly, all are expected to behave like tennis players. Watch a game and see how the champions consistently send the ball near the lines lest the competition catch up and win.

The laws governing business activities are like the lines of a tennis court. The closer CEO's play to their limits, the better they are for investors.

Daring to "chair[...] a council on jobs and competitiveness set up by Barack Obama, US president" while "GE paid no taxes in 2010", "Jeff Immelt, GE Chairman and chief executive" declared "[his] company had always complied with the law", Stephanie Kirkgaessner reports (***).

GE's tax department is indeed acknowledged to be a true champion. But the more precise the laws, the more one can mock the morality they uphold as "the banker's progress" strip mordantly illustrates (****). His real career too close to Garry Trudeau's social comment for comfort, Sir Fred Goodwin does not even want to be called a banker anymore. British law may "prevent a newspaper from naming him as a banker", but due to a legal loophole the Financial Times gleefully printed just that in an editorial (*****). Poor Sir Goodwin emulates King Midas in more than one way.

In this corrupting context, no wonder individual agents lose all track of morality and vigorously contest their chancy shots are outside the lines. Read Ben Protess and Susanne Craig (******). After David Sokol was revealed to have bought shares in a company shortly before convincing his boss to buy it, "neither Dave nor I feel his Lubrizol purchases were in any way unlawful", the CEO of Berkshire, Warren Buffet, is reported to have said.

There my analogy with tennis breaks down. Nowadays the referee can publicly review whether a ball was out or not in a matter of minutes. However trying Raj Rajaratnam for insider trading, while the CEO of Galleon claims he acted within the law, is lengthy, costly and a gamble in itself.

But in the absence of fast, reliable feedback, how can a CEO decide she is recklessly violating the laws rather than vigorously taking to heart her shareholders' interest? Dick Fuld, Tony Hayward, Marc Zuckerberg and Eric Schmidt would all deny my counting them among rogues.

From this perspective then, individual ethics appears a sideshow next to systemic amorality. But this less than ideal situation increases regulatory risk, a very practical concern. Amorality teaches relativity. If your ball is out, just move the line so it is in. In a pronaocracy, laws happen to be on sale and regulation is but the continuation of economic competition by other means, i.e. the legally sanctioned trading of influence.

We are now ready to supplement Eric Pfanner's study of Publicis. While these fillips defend consumers' ownership of their data as a matter of high principle, Maurice LÚvy owes to his investors to consider eprivacy as an important regulatory risk and, as such, a matter of competitive strategy.

Even if they wanted to, it would be very hard for Google and Facebook to embrace eprivacy as a matter of hard fact rather than empty promise. Doing so would suffer from a lack of credibility, deflate current valuations and turn significant past investments to junk. Indirectly Omnicom and, to a lesser extent Interpublic, have a stake in the success of Google and Facebook. So all those companies have already bet to keep the regulatory status quo, a de facto absence of eprivacy hidden behind painless concessions and toothless measures.

If Publicis adopts the same cynical view of eprivacy, this surely cannot provide it with a competitive edge. Even worse since, as John D. Wren stated, it cannot hope to beat Google and Facebook at their own game, giving Omnicom the potential of tapping consumer data at a lower cost.

On the other hand Publicis could complement its digital strategy by investing in true eprivacy protection. For Jonathan Nelson's remark is truer than he thinks. Nobody but the consumer needs access to the consumer's data in order to use it. Implementing this approach, Publicis could also lobby for regulations making it more difficult for Google and Facebook to launder customer data for Omnicom. The former would decrease related regulatory risk, the latter would turn it into a weapon with which to cut off the data supply lines of its competition.

Today's digital advertising plans must account for smart phones. In a much tougher spot than Publicis, Nokia itself has a choice to make on eprivacy. As it woos Brussels, wouldn't it suit Microsoft were its two European allies (2) to bet in concert for eprivacy against Google?

If we hear the dog bark, the deed is not done yet. Eprivacy is not dead, a fact worth advertising worldwide.

Philippe Coueignoux

  • (*) ........... At Publicis, a Big Bet on Digital Seems to Be Paying Off, by Eric Pfanner (New York Times) - April 1, 2011
  • (**) ......... Interpublic discloses Facebook holding valued at up to $300m, by David Gelles (Financial Times) - April 4, 2011
  • (***) ....... GE chief backs Obama's call for overhaul of tax system, by Stephanie Kirkgaessner (Financial Times) - April 1, 2011
  • (****) ..... A banker's progress, by Garry Trudeau (Doonesbury.com) - April 3, 2011
  • (*****) ... Unfree speech, editorial (Financial Times) - March 11, 2011
  • (******) . Abrupt Exit For a Leader At Berkshire, by Ben Protess and Susanne Craig (New York Times) - March 31, 2011
  • (1) Omnicom in deals to target online ads, by Tim Bradshaw (Financial Times) - March 10, 2011
  • (2) Microsoft owns 2% of the Publicis Group according to Wikipedia and has been selected by Nokia to be its smart phone OS supplier.
April 2011
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