Publicis CEO explains why startups in the US and Israel crush Europe

Maurice Levy IGNITION 2015Business Insider IGNITION 2015Gilt Groupe chairman and founder Kevin Ryan interviews Publicis Groupe chairman and CEO Maurice Levy at Business Insider’s IGNITION 2015 conference.

Maurice Lévy will retire in 2017 from Publicis Groupe, one of the largest advertising and communications organizations in the world, after being with the company for 46 years. And for the past 30 years he served as chairman and CEO of the company. At IGNITION 2015 last month, Lévy sat down with long-time friend and Gilt Groupe founder Kevin Ryan to talk about the advertising landscape in the digital world and how France plans to jump start its technology startup scene.

(Edited for length and clarity.)

Ryan: Let’s start off by talking about the overall environment for a second. So I think if I took a poll of everyone in this room, they would say that they think that mobile’s going to grow very quickly, online’s going to grow quite quickly, print’s going to do badly, TV not so great. There’s a conventional wisdom that people largely agree with. Is there anything in there that you think is going to be stronger than people think or weaker than people think?

Lévy:It’s a $1 billion question because there is a lot of money behind this. I think the conventional wisdom is vastly true. There will be a huge growth in mobile, and this is something we are witnessing every day. So that is something which will remain quite stable. For the internet, digital will take over television within two or three years. And what is also interesting is when you look at data we believe that the value of data is not what will make the value. Take the example of oil. We all say data is the next white oil. [Owning the oil field is not as important as owning the refinery because what will make the big money is in refining the oil. Same goes with data, and making sure you extract the real value out of the data.] These are the two things which I believe will happen in the future.

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Ryan: You have such a global company. Do you see things differently region by region? Are there things dramatically different in South America? On a different note do you see different trends from the conventional wisdom of what’s going to happen in all of these regions?

Lévy: Clearly we see that China is now very often ahead of the US. And there are new trend spots clearly between social networks and commerce. And the combination of social and commerce is something which is quite mundane and working extremely well. The other thing is the development of the mobile wallet with the mobile phone. And this is something that we see in India. And we see in Africa it is quite common to see the people with their mobile phones going to buy bread, to pay taxes, to have petty cash, which is on their mobile wallet. So these are trends which are very strong. And they are using their mobile wallet much better that we are doing it in European markets. These are the key trends. We know that Latin America is far behind in terms of penetration. India is very much behind except for some specific areas in some towns. China is clearly moving very fast. And every single day there is something new coming from this Israel.

Ryan: I was at a conference and there was a speaker from Africa, and he said, “I have to remind myself when I come to your conference,” which was in London, “I have to remind myself to bring cash because you’re still in a society where people actually use cash and are lower tech than we are.

‘I have to remind myself to bring cash because you’re still in a society where people actually use cash and are lower tech than we are.’

And the WiFi doesn’t work very well.” And all of sudden we thought, ‘wait a second, how did Africa come up and have a higher tech situation?’

Lévy: Yes they are leap frogging us, which is generally what’s happened. The reason why Nokia has been built in Finland is simply because Finland was very far behind in terms of infrastructure, so it was relatively easy to implement new technology. And this is the reason why they have been so far ahead during a long period of time. And in Africa we see exactly the same. It’s difficult to carry the money, it’s difficult to have a banking system with tellers, with distribution of cash. So they are using their mobile phones.

Ryan: When you think of southern Europe, so France, Italy, Spain, combined they are roughly half the size of the United States from a population point of view. And yet Israel, which we’re very close to as well, probably has more successful technology startups with their 8 million people, in technology, than those three countries. How worried are you?

Lévy: Definitely, yes.

Ryan: And France does better than Italy and Spain, but are those countries going to pay an enormous price in the next 20 years for that?

Lévy: First, [this happened because some people] invited the few investors and venture capitalists who said ‘ok we’ll back you so we’ll invest and if you lose money in 10 years time we will make up the difference.’ The reality is, is that [the investors] have so much money that [the company] didn’t have to pay one single penny. In France the issue is very different. We have very careful mathematicians. And we have three or four things that are missing. The first thing which is lacking is the nucleus, some place where you have all the people together, like Silicon Valley, or what we see in Herzliya. Between Tel Aviv and Herzliya you have all these startups. In France they are all spread out and there is nothing to stop the spread.

VCs are lacking because we have resistance to taking risks. And the connection with the universities is very difficult. It’s starting to improve but university is sheltered from the business world and they think they should not have any connection with the businesses because maybe the business is dirty or not very good. We are in a socialist country with a socialist history, and the business people are not smelling very good.

We are in a socialist country with a socialist history, and the business people are not smelling very good.

Now things are changing. In the past 10 years there have been a lot of efforts and a lot of progress has been made. But it’s very hard to get the labs of the universities to work with companies and startups. It’s very complicated to get this to happen. This is still an area where we have to make progress. But we have a lot of progress in VCs. It’s complicated, but we are making progress, and we are optimistic because there are a lot of new ideas. And the young generation, the newcomers are not quick to sell and are ready to take some risks. So there are some positive areas.

Ryan: I’m surely less optimistic than you are in France, or Italy, or Spain. I think over the last 10 years..

Lévy: You are like Donald Trump

Ryan: I’m definitely not like Donald Trump, but I’m less…

Lévy: But he said we are scared to death, I heard him saying this.

Ryan: So I’m not here to defend Donald Trump at all. But I am concerned that in France the cost of hiring people is still so high. So people like me and the hundreds of French entrepreneurs who are in New York City came here because they don’t want to start companies in France because the costs of hiring is just too high.

Lévy: Yes you’re right. But it’s not only this; this is something you can navigate through. It’s very hard to hire and to fire people. When you are a startup you need to hire very fast, and sometimes you have to restructure very fast. And the French laws haven’t adapted. So it’s a bit complicated but there is some progress. We have a young Minister of Economy, Emmanuel Macron who is making a lot of reforms and efforts in order to ease the creation of new corporations. And French tech is starting to take off. By the way, as you give me the floor for that, we have decided in order to help to create this fusion and also kind of ignition of startups, we have decided that we would organize, at the end of June, a big event around startups, VCs, professionals, and platforms, in Paris. It will be an event, which I hope will be successful, the kind of event that we already organized in the past, I hope so. So clearly we know that we are not fast enough. We know that we don’t have the right organization and the right laws. But we are addressing this issue. And I hope that we will be successful in addressing these issues.

Ryan: Let’s talk about Publicis a little bit. It’s always been an extraordinary success over the years. You’ve got a $13 billion market cap, $7 billion in revenue, not growing as much as it used to, in the whole industry. Are you so big now that it’s just hard to grow bigger than the market? And do you see five years from now Publicis being as it is right now, but bigger? Do you see things being split up among the holding companies? Is it going to go bigger or smaller?

Lévy: We unfortunately faced what we could call ‘a perfect storm’ in the last 18 months. We had a few issues which came all together, and we have been hugely impacted by those issues. We’ve remained one of the most profitable companies in the field and I believe that pretty soon we will be able to outperform the market again. We have been historically the best performer of the industry. And they believe, probably second quarter or third quarter next year, that we will surprise the market with the kind of growth we will be able to generate. We have been hit big time. We were pitching for the media account that we’ve been handling since 1997 for P&G and P&G has chosen another agency. So that’s one of the difficulties we’ve had to face.

Ryan: But do you think overall that five years from now the large holding companies will still be in the same rough structure? Because GE 10 years ago was GE and now they’ve decided to get rid of a lot of different things to be a little bit more focused.

Lévy: Yes. But if you look at Publicis we are already a different kind of animal from the other players. And when you look at the top four, WPP, Omnicom, Publicis, IPG, we are all different. Not only in the way we are operating but also what we represent. WPP has a big chunk of its business which is market research. We have no market research. Omnicom has a big chunk of its business which is field marketing. We have no field marketing. We have a big chunk of our business which is about technology and transformation. [We are different in our investing strategies too] we think that instead of investing in areas which we believe will be hugely impacted by digital we should invest in things that will matter most in the future.

I believe that most of our clients, if not all of our clients will be impacted by digital and they will have to transform themselves. I’m using the word Uberization because I think that there will be a disruptor that will come and may change the business for any of our clients, and they will be surprised. So we have to have the capabilities in order to help transform them. Today they want to transform yesterday. Before we bought Sapient, they had to transform themselves and they would have had to work with a consulting firm, a technology firm, and an advertising firm. With our acquisition of Sapient they can have a continuum in the service. We can do the consulting. We have Sapient consulting. We can do the job. We can implement the new platform and help them to change their marketing and organization, and then we can deal with the brand and the sales through all their operations. [We are the only one capable of providing the continuous service.] I believe that we will have more of the same tomorrow. And we will probably continue to invest in digital, in technology, and in consulting. [These are services] which our clients desperately need.

Ryan: Could you see yourselves doing more acquisitions in that area? Or mostly internal growth.

Lévy: The first thing that we have to do before going [acquiring a company] is to prove that our system is working and that we see decent growth and [eventually] outperforming growth. Once we have done this we can think again about acquisition. But for the time being we focus on resuming growth and on outperforming the market. And this is something that we have to do because our credibility has been impacted by the fact that 2014 was a good year. The end of 2013 was not great. And 2015 is definitely not at the level of what people should expect from us, and what we can deliver. We have not delivered, and we have to deliver. That is my task, making sure we are delivering on this.

Ryan: So in roughly a year and a half you’ll be stepping down as CEO.

Lévy: May 2017.

Ryan: Is there anything specific you want to accomplish by that point? This will be an incredible change after 30 years at the helm of the company.

Lévy: Yes. What I would like is to celebrate the 30th anniversary of my tenure as CEO.

Ryan: That is quite extraordinary. There are not many people who have done that.

Lévy: I have never thought of legacy or what I want to achieve. I have always been obsessed by the company and making sure that the company is the most contemporary, the most modern of all the players, and delivering the most accurate service for our client. And this requires us to stay on our toes permanently to try to invent and reinvent, to create and recreate a lot of things, before thinking about legacy. Legacy doesn’t mean a lot because once you have left, even if you are one of the biggest individual shareholders it only means [a small amount of influence]. But it’s something I’m very pleased about. And you have to accept that the new team that will take over with it’s own view and can demolish what you have built. It has to. That is something which I believe is extremely important. And I hate the idea of watching over their shoulders. I don’t like that. They have to be free. We should not inhibit the team. What I will be doing is to make sure that they can run the show the way they feel it, how they feel it, and build a better company than what I have been building.

Ryan: One comment, in the beginning of doubleclick, which was 1996 so I was 32 and you and Martin [Sorrell] at that point were very old, 20 years older, which is exactly how old I am now, and you both were leaders in the industry and everyone else is gone of that generation and the two of you are still going into things I would say if a client emails you or Martin, you guys are on it. I don’t know how you both do it with 50,000 employees. But there’s a reason these guys are running things because they are totally focused and totally committed 20 years later, and it’s impressive to see for the rest of us.

Lévy: Martin is better than me.

Ryan: I see it, you both are very good at that it’s very impressive. Let’s talk about some of the trends underneath that. One that you deal with, and we at Business Insider deal with, is ad blocking. Give us a quick answer on what’s going to happen there and how big of a problem it is and does that go away, and what the solution is. I call it content stealing but that’s just me.

Lévy: Ok I have an example because, you know, ad blocking started in Germany. And there has been an answer made by Axel Springer, which is ‘ok if you don’t want to receive my ads you have to pay a subscription.’ You always have had people in our industry who don’t like advertising. If you look at the population of the world you have roughly 15% that will always be resisting advertising. Fifteen percent of something which has not yet been reached. And the other aspect we have is we have as advertisers and advertising agencies and all the small companies which have been doing programmatic have a huge responsibility in the development of ad blocking, particularly the newcomers because they were in such a hurry to show that the system was working and to grow and they were pouring a lot of ads to the point that people feel that it was an intrusion in their private lives. There was so many. You open GMail, boom an ad. You want to go to another one boom an ad. I understand that people can start to say stop it, let me have a break and look at my emails without having an ad pop up. And the same goes for when they are looking for something on their mobile phone. So we have to be more reasonable in the way we are communicating with the people. We should not submerge them with too many ads. And many of them are not working. So to be more accurate, more precise, to give the information people need at the right time when they need it is something which is important. It’s something which they will be grateful for. And when you are distributing tons of ads they say ‘ok come and stop it I can’t have it anymore.’ So we need to be reasonable. So that is my point of view. I don’t believe that ad blocking will be a huge huge problem.

Ryan: I agree, I think it’s solvable. I was in Cuba last week they have no outdoor advertising. It’s not so bad actually. Programmatic is another big one of probably big fundamental trends. Do you think it keeps growing and taking market share? And does it have a negative impact on your business? Does it take away some of the things you used to do for clients in terms of media buying?

Lévy: We created the first platform programmatic with Google in 2008. And we were transparent with our clients. They know how much we charge, the cost of each, and our commission. So all of this is fully transparent. There have been a few other platforms which we have been developing either with competitors or independently. And the issue with the development of these platforms is what I was talking about.

Firstly, you have a thirst to develop fast and you are pouring too many ads, and this is something which is working against the interest of the client. The second is that there are now a lot of robots who can open clicks. And they can click instead of human beings and this is damaging the confidence and the trust that the client has on programmatic. And the third aspect is that all the algorithms are not of the same quality. And sometimes you believe that you are targeting a 25-35-year-old young woman and you see that there is a crowd of 78-year-old people who are coming to buy some underwear, so it’s not exactly the same kind of underwear that you have to sell. So we have to be extremely cautious with some developments which are made in a way which is not in the interest of the advertiser. And also something which is extremely important is that we have to be extremely cautious. Either we are in charge of buying for the advertiser, in which case we have role, or we are selling, we are a supplier. But when you are doing both, you are the supplier while selling to yourself with a margin and then selling to the client, the debts start to become real and the client is starting to be suspicious about the way you are treating them and what’s happening. So we have to be extremely cautious with this. Programmatic is a great thing. Let’s be clear there’s a zillion websites. It’s extremely difficult to address messages. Having cookies is good provided you are very cautious with the users of cookies. But at the same time we have to work within some ethical boundaries. We have to accept the few rules which are extremely important.

Ryan: You mentioned violation of trust. There’s the potential investigation right now in the US by the ANA of perceived kickbacks to ad agencies for ad buying. And not everyone knows that France went through this years ago.

Lévy: It was 1992.

Ryan: And laws were passed and companies had to change their behavior it was quite a big deal and a restructuring of the entire industry in France based on that. What do you think is going to happen here? And is there any risk of that happening here?

Lévy: First of all, in France what was happening in those days is exactly what I’m criticizing, which is there were some players, it was not the whole market; we were not doing it. Some players were buying media in bulk and like a wholesaler. It’s like OK, give me a ton of pages. A ton is maybe too much; maybe we’ll buy only 500 kilos of pages. I pay in advance but pay only 20% of the price, and then they are selling on retail exactly as a wholesaler to two clients. And they say OK, you want it for 50% of the price, so they were making 30%. So it’s a different kind of job.

This is banned by law because we have to buy for each client at a price that has to be transparent for the client. This rule already exists in the US. What has been a little bit embarrassing is that there is this programmatic where some players are on both sides. They buy it at price and they sell it at price and there is a difference. There is nothing wrong with this. It is not dishonest, provided that it is transparent. But it’s not how clients like us to work. So we have preferred from day one to not do that. There is another aspect that we are not involved in, which is called bartering. And bartering is, for example, when the media needs to buy office space and they pay in advertising space. They give that advertising space to a barter firm which then provides the media with this and then they will sell the space in exchange for product from clients that they will sell to other countries. This kind of business is generating a lot of opacity and people don’t understand exactly how this is working. And that is also one of the reasons why there is this suspicion around the business. But the vast majority of the dealings are extremely clear. And in the US the boundaries have been always extremely strict. There are no kickbacks.

Ryan: So you don’t expect a big change.

Lévy: I don’t expect any change. And I don’t expect any law to be passed.

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