Sapient is a company with many faces, and revenue sources. About 70% of its business comes from the SapientNitro digital agency. Another 25% derives from Sapient Global Markets, which serves the capital and commodity market needs of clients in the financial and energy sectors. And 5% is in government services, where it has done work for the Library of Congress, National Cathedral and others.
Even within the SapientNitro agency, there are many angles. The company bought an above-the-line agency, Nitro, in 2009. More recently it has acquired firms (IOTA Partners, Second Story) that do work around digital experiences for retail stores and other physical environments. One of its big clients in this area is Vail Resorts, for whom it created a robust experience built around RFID chips embedded in season lift badges. Such place-based executions can spin off all kinds of data that can be used to customize future media and creative.
Sapient also recently bought MPhasize, which provides mix modeling capabilities to support media investment decisions.
These investments come at a challenging time for digital agencies, many of which are struggling to escape their primary client association as web development shops, ill equipped to take the lead on creative branding assignments or on global media execution. But Sapient appears well positioned, according to financial analysts.
"We continue to view SAPE as one of the best-positioned agency stocks...as peers begin to follow SapientNitro's lead in e-commerce platforms," BMO Capital Markets analyst Dan Salmon wrote recently. "And with the IT services businesses ramping back up, investors can now look out and see an accelerating revenue story again."
Many traditional agency businesses, and some technology consultants, are embracing Sapient's way of doing things. In a recent AdExchanger interview, WPP CEO Sir Martin Sorrell said it views itself as increasingly competitive with "the Sapients and Cognizants" -- i.e. companies that embrace an integrated approach to marketing and technology.
In the below interview, CEO Alan Herrick talks about Sapient's recent M&A, its plans for media, and the future of marketing technology.
AdExchanger: What role should technology play in the agency model? And how does SapientNitro tackle this question?
ALAN HERRICK: This goes back to various beliefs that we've held for probably 20 years. When you look at the role of technology in people's lives, it often fails. When you look at technology done well, the creative element and the technology elements are inextricably woven together. That has been one of the key tenets in our thinking for a long time -- how this whole ecosystem around storytelling and experience and technology and kiosks and tablets comes together.
It's all about, how do we get the creative and technology together to really help tell a participatory, interactive, compelling story that goes on in perpetuity? That's been a core part of our ethos for a long time.
As it relates to competitors, we've seen a lot of interesting moves. Rosetta [acquired by Publicis] had a lot of technology capability, and now you see WPP doing something with an Argentinean firm [Globant]. We take that as a great compliment.
You go back four or five years ago and people didn't believe in what we were doing. They said, "It will never work." We said it's got to happen because if you look at how digital has disintermediated all those boundary conditions it just makes sense.
How do the different parts of Sapient work together, including the government and global markets businesses?
SapientNitro is obviously very focused on helping clients in consumer markets lever experience and marketing and technology. If you look at our Global Markets business that's really helping different clients, financial and energy clients, leverage know-how around capital and commodity markets around the world. Sapient Global Markets is really a business-to-business play, while SapientNitro is really all about digital distribution and new-age consumerism.
The government business is a historical business that we're migrating into SapientNitro [services] over time. You'll see more work in "Open Gov" -- how the Coast Guard Academy communicates, for example. We did a physical experience redesign for the Library of Congress. We did the National Cathedral. Both their online presence and the physical space was reinvented through touch and crowd management and those sorts of things.
There may be some statutory things around why we might have to count that separately but over time government becomes the same type of business as SapientNitro.
Are they all distinct businesses structurally? How much exchange of material is there between the cell walls?
They are barely permeable walls. They're designed largely on different target markets. There are certain processes that are shared. There's obviously recruiting and hiring leverage that is shared. The place that they come together in the market is around things like wealth management. In the financial space and the energy space, where the Global Markets team has some great know-how and SapientNitro has great know-how on consumer issues as it relates to that, that's where you might see some combination.
But overall I don't think Global Markets is really pertinent what SapientNitro's doing.
Your Nitro acquisition in 2009 was the first and maybe only time a digital agency has bought a global branding agency. How did that purchase fit into the overall M&A strategy. And what do you think its legacy has been?
There are a couple of things of things that are different about us. One is, we're episodic in our acquisitions, versus serial. The reason we're episodic is because we have a thought process on how we drive strategic augmentation of what we do.
If you add up all the acquisitions which isn't a ton if you go back Planning Group International  to Nitro to a few recently. It's five or six over that time frame. Most of the capability has been organic because most of those acquisitions have been small. Our first creative acquisition was in 1998. People forget that. "Oh, that was a technology company!" Really? Pay attention to the history.
Our first creative acquisition was Studio Archetype, led by the founder Clement Mok who came out of Apple. They needed a great strategy, great creative, and great technology to build these online businesses. That's what that day and age was about. Obviously a lot of that was right but was very interrupted in 2001. Ancient history at this point. All that was predicted to happen back then largely started to come through in 2003‑2004, because bandwidth got cheap and it got wide.
The genre then was, "How do we get our arms around digital business creation?" Today's genre is, "How do we have a business model that operates in an always on world?" That's a very different business model. Our thesis has been along those lines for probably longer than people understand.
We reignited our thought process in 2004‑2005 because a lot of this was happening. We extended into digital marketing creative skills, which was the PGI acquisition. Then we extended into digital marketing. As we did that, we said, "Look, if this thing's really going omni‑channel, we need to be in that strategic discussion."
If you look at the Nitro acquisition, the real idea there was access to senior clients across the "C"s. How do you make sure you're in a conversation with the CMO, the CIO, and the CEO? We needed more access to the CMO, which was really a big strength of Nitro's.
Nitro was 300 people at the time. There were probably 4,000 at SapientNitro. But who was sitting in the room with senior clients? Legacy agencies. Nitro brought us access and over the following three years we've gotten tremendous access to that conversation.
Obviously there's been a lot of media about Nitro over the years, as you've probably noticed. Certainly that was challenging for many reasons.
Why do you think it was challenging?
The challenge from my perspective was [reconciling] the way we started a conversation strategically with the way a traditional agency... started a conversation. This probably applies to many agencies. There's a bias that when you're doing creative strategy, there are some things that are always required and there's a place that something always starts.
With a lot of creative agencies that are above the line, that have done very well for many years, you usually start with television. It is required. Whether that was explicit or not, that was part of our challenge. If you go to somebody that's more digitally oriented and thinking of the disruption they can bring to the market place, those assumptions are not the same. The assumption we had is that great ideas can come from anywhere. We don't care where the beginning is. We care what the result is for the client.
Ultimately your creative agencies do care about the result and they do care about great work, but there is an inherit bias and an inherent conflict between those things. If you review [the difficulty with integrating Nitro], I would say it was more ideological. It wasn't the idea of integrating "creative" in general. We're packed with creatives. We had 155 creative awards in 2012. That's not something that's on my mind. There are other things on my mind. You have technology and marketing converging, and communications and commerce converging.
When you buy a company, is it about talent, technology, or scale? What's in the front of your mind?
It's really about new innovation. Science and data become very important in this equation over time. Being able to understand how a Skittles package travels through the world. Do people eat it out of their hand? Do they pour it into their mouth? How long does it last? Where does it move to?
When you think about physical experiences, one of the things that hasn't changed, we believe, is that physical space is flat. If you're a venue, if you're a sports stadium, if you're a retailer, you have to make your space an advantage or you're going to be a real estate company. It's a full change. You've got to make this space something that people will come to see and get great utility and value out of.
We think there will be an experiential explosion in physical spaces all over the world. You've seen us release some things on fan experience and NASCAR, and some of the work we've done in airports and retail environments.
One of the things IOTA (acquired last fall) brings is the ability to instrument those experiences. What is the value a consumer gets from an engagement? The other part is, how do all those experiences and physical precedents report back to the manufacturer of that product?
We look for acquisitions that will push the edge. Second Story was all about immersive experiences using Kinect technology and crowd design. Crowd design and stadiums. Crowd design and retail environments.
Then think about Mphasize. If I look across all these new-age things, how do I really understand, how do I place my investments as a marketer? How do I measure those cross‑channel interdependencies effectively? It's a lot of new math.
Those are just examples of the current ones but all our thinking is along those lines. What pushes the edge of what's next? If you can get a really smart set of people that have a great idea on pushing that edge, that's really what we're looking for.
How do you integrate acquisitions?
We look for cultural fit up front, but we often can't fully understand the culture of the new company until we're six to nine months in. A lot of their ideology is embedded in how they work and what they do. We have a process: let's make sure we understand the work we need to do on values, behavior, vision. Make sure that we can align completely before taking the next step to make them fully integrated. It's an investment in the thinking, the workflow, and the capabilities.
From my perspective the agency model is such that if you open it up there are [many] companies. They're kind of structured by office. If you open up Sapient it's really one company, and then offices have different capabilities and some offices may have all. A lot of our strong capabilities tend to be in one place, and then we essentially distribute work to that spot.
We may have some production capability that rests in a few offices. Our social capabilities, there's a little bit everywhere, but some offices that are really big. It's more of a capability network than it is an office network.
It's very important for us to have shared incentives, so as the new teams and the new leaders come in everybody is responsible for their success, both emotionally and financially. Everybody -- all 10,000 people.
Could you talk about media planning and buying for a minute? Describe SapientNitro's media business? In the present tense, and the in the future tense.
Our focus is more on planning. That's where we put the most attention over the last three or four years. I do think there's some innovation in the buying. We do a certain amount of media buying across the companies that we track. It has not been a strategic point of emphasis for us. Doing the right amount of media planning for our clients has been.
Do you see that changing? Are you going to do more buying?
It's a timely conversation, as you can tell by how I'm answering it. To the extent that buying would make you a better planner and help clients be more informed strategically? We might do more of that or we might have more defined partnerships.
Automation is a big theme in the media world. I think in the creative world it also has relevance. Any thoughts on the role of data and marketing automation?
The whole ad tech space is moving pretty fast. You have an incumbent set of media players that have a certain set of tools and then you have a lot of startup challengers from six or seven years ago that are starting to become very important that offer either new science or new analytics or new ways of looking at media and channels.
This is where I look at our Capital Markets business and say that the trading process has become all technology. Your ability to have an efficient market around a buy-and-a sell of some structured advertising seems to me to be inevitable. That would make a lot of sense and add a lot of value to all the industry participants. A few kinds of companies might die but other kinds will get created.
At Sapient we've got a mash-up of industries, right? We've got to figure out who should cover us on Wall Street because we've got cross-category coverage. If you think about that whole mash up, it happens because people are trying to figure out who eventually has the real advantage here.
There are the Accentures and the IBMs, and now WPP is doing some kind of partnership with Infosys, right? McKinsey and Boston Consulting Group? We bump into them all the time. This is fascinating stuff.
The biggest thing that will continue to give us huge legs is the mosaic of capabilities.You come back to this idea of one company, one culture. A lot of these competitors are 100 companies and 100 cultures. When you really look at what needs to be done to solve these problems and take advantage of these opportunities, you do need connected thinking and capabilities. The great ideas will start everywhere.
You also need the bias that we believe in technology and creative, broadly speaking. You can look at all the detailed things from user-centered design to experience to digital marketing to above-the-line marketing to front-end technology to back-end technology. We believe strongly that those things need to be tightly connected in the teams.
Our teams that engage with clients are lead strategy, lead creative, lead technology, and lead program manager. Those four domains all sit in one client team. With that philosophy you can be far more accountable to the client. As this industry collapses, a fragmented approach to capabilities does not allow you to be accountable.
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