Starcom, P&G and Eric P Lefkofsky

Ever heard of Eric P Lefkofsky? If you’re in the agency business you soon will . Because 38-year-old Lefkofsky, software entrepreneur and former carpet offcuts salesman, is at the heart of a fascinating experiment affecting some of the biggest global advertisers – among them Procter & Gamble, Wal-Mart, Coca-Cola, Kraft, Kellogg and Miller Brewing .

All the above are clients of one of world’s largest media buyers, Starcom MediaVest Group (SMG): an operation whose profitability is, in turn, critical to the success of Maurice Levy’s Publicis Groupe, which owns it. At present, Lefkofsky’s company MediaBank is propping up all Starcom’s media-buying activities in the US, a task formerly performed by software specialist Donovan Data Systems. That’s no mean feat. MediaBank’s technology must be able to guarantee that: advertising is bought on time, ads are appropriately placed and monitored, clients are billed and media owners paid. Billions of dollars are at stake.

A colourful character
You would think a reputation for reliability would be critical to any such appointment. Yet MediaBank is virtually unknown and its founder and driving force, the aforesaid Lefkofsky, has – shall we say – a highly colourful background. So colourful, in fact, that an article last year in Barron’s, the respected business magazine owned by Dow Jones, just stopped short of branding him a crook. “He’s left a trail of burned investors and fraud allegations” and “Potemkin technology trappings” give the flavour of the piece.

How did one of the world’s most respected marketing services companies ever come to put its destiny in such hands?

It’s a complicated story, but at its core is a simple emotion: fear. Traditional marketing services companies, such as the global agency networks, are worried that they will fall behind in the fast-changing world of digital communications. And if that happens, their clients will go elsewhere to spend what is undoubtedly the most rapidly appreciating part of the communications budget.

Enter Starcom. Like most buying behemoths, Starcom has long relied on Donovan (DDS) to provide the software used in placing and managing its clients’ traditional media. DDS continues to hold a dominant position in this niche but vital market. Over the past few years, however, a slew of small competitors have grown up which claim to have an edge over DDS in the internet-based and new media area. Among these is an obscure company called MediaBank.

DDS, naturally enough, resents the suggestion that it has lost its edge. It says its iDesk technology, launched in 2006, is the match of anything the specialist digital competition can throw against it. And certainly there is no visible evidence of rapid erosion in DDS’ market share. The lost US Starcom business has already been replaced with a chunk of WPP’s MediaCom. Ironically, MediaCom was previously using the proprietary technology now being wielded by MediaBank. But back to the story…

An alleged conspiracy
Last year, things turned nasty between Starcom and DDS. With only a matter of months to run on a four-year contract (which expired on December 31, 2007), DDS came out with a sensational accusation. It said that not only was its client Starcom plotting, contrary to the spirit of the agreement, to replace DDS with MediaBank. But that MediaBank and Starcom had actually conspired to copy (effectively ‘steal’) pieces of its proprietary software with a view to exploiting it to their own advantage.

Not surprisingly, both Starcom and MediaBank have vigorously rebutted the charges. But the important point is DDS regarded its allegation as sufficiently well founded to cut off Starcom at the knees.

Because Starcom had ruptured the contract, DDS decided there would be no 18-month grace-and-favour transition period to the new supplier, MediaBank. Support would stop dead on the chime of midnight, New Year’s Eve.

Lest this be considered an uninteresting technicality, here is what Starcom had to say in a New York Supreme Court action aimed at overturning DDS’ decision: “If DDS makes good its threat to cease providing its software and related services to SMG (Starcom) as of December 31, 2007, SMG will be irreparably harmed.” Starcom also admitted it had had to spend well over $1m since October in putting new orders for media purchases not only into the DDS system but the parallel media buying system it had developed with MediaBank.

Evidently the judge agreed with DDS, because Starcom’s petition was struck down. About half of Starcom’s worldwide operation now rests on a substantially untried system, without the benefit of an 18-month transition arrangement. No wonder Maurice Levy is keen to get into bed with Google as soon as possible.

I wonder what conclusion Starcom’s leading advertisers will draw.

Stuart Smith

†