So news is out that Publicis may be having problems meeting its spend commitmment with Microsoft. When the original deal went through last year for an estimated $530 million, it was viewed that together with cash and shares there was also a media spend commitment put in place. Publicis (or its media agencies) would agree to move money across to Microsoft’s media busines (predominatly display and search) to sweeten the deal.
I imagine the media negotiators were suddenly cock of the pack. The only downside is that trading on big commitents works well with TV, press, radio and some elements to online. The issue comes when direct response comes into play. Probably 75% of display and more or less all of search budget is feeding off direct response cash.
The simplicity of direct response is that it self strategises. What works works and gets more money and what doesn’t doesn’t and gets cut (this being the reason why Google’s could scale beyond any previous model seen – it worked!!).
This being the case Microsoft had to perform if it was to remain on any media schedule – if it didn’t the media agencies would be having some fairly awkward conversations with their clients why Microsoft stays on the plan when it isn’t washing its face and as such making a commitment with direct response money a fairly high risk business.
A tough one and its really beggars belief looking back that any media commitment was openly admitted.
Now I don’t know the whole picture and it may well be that Publicis would have brought a couple of clients into the deal “We use our money and your money and we both share in the upside”, now that would be innovative and honest and transparent.