When ±±¾©Èü³µpk10 visited Zone’s smart London home last autumn to see its founder James Freedman, it looked like a digital agency ready to be bought.
North-London-born Freedman didn’t give away anything about a prospective sale. There was, however, a prosperous, thoughtful feel to its hushed offices in a renovated former goods warehouse in King’s Cross, with thick carpets, huge windows in the vaulted ceilings and spacious meeting rooms furnished with sofas and armchairs.
More importantly, Zone’s work on mobile, ecommerce and payments, for brands such as Aviva, Marks & Spencer, Greene King and central-heating start-up Boxt, was likely to appeal to a consulting or technology company looking to enter the marketing-services arena.
Now, just a few months later, Freedman is welcoming ±±¾©Èü³µpk10 again, having sold his 220-strong agency in October to an IT giant, for an undisclosed sum.
The surprise buyer was Cognizant, a $46bn, US-listed, Indian technology company with 265,000 staff, which is virtually unknown in creative circles.
‘We’re not doing TV ads. We are here to help clients digitally transform’
Once upon a time, Zone might have been expected to sell to one of the big six ad agency groups, but Freedman feels the balance of power has shifted decisively, as chief marketing officers look beyond advertising. "The whole customer experience has become absolutely a boardroom priority," he says.
Now, according to Freedman, chief marketers are thinking about all aspects of digital communications and how they fit into their wider business in an era when every sector is being disrupted by technology.
"If you want to buy a 30-second TV commercial, I wouldn’t be talking to us," Freedman admits, sitting alongside Sanjiv Gossain, senior vice-president and head of Cognizant Digital Europe.
"But if you feel the force of technology, if you’re worried about your lunch being eaten, if you’re worried about your business still being around in five years’ time, if you feel that you need to make a massive change to the technology that runs your business, if you’re looking at your content management system, your CRM system and your supply chain – and as the CMO becomes more central to these things – are you going to talk to your advertising agency about it?" he asks. "Or are you going to talk to someone that really gets your back-end systems, understands your technology, that can talk the language of APIs and CMSs and business processes?"
Freedman, who has retained his role as executive chairman of Zone and kept its offices in London, Bristol and Cologne following the sale, has called the market right before. He is a serial entrepreneur who built a customer-publishing business that produced the Manchester United magazine and other titles, before selling it in 1999 and departing print.
He launched Zone a year later because he was convinced that "the internet was going to change the way brands communicate with customers", but he has still been surprised at the level of disruption in recent years.
Joining Cognizant means Freedman’s team suddenly has access to a huge, global client base and a vast range of capabilities in technology and consulting that goes beyond marketing. "They have deep expertise, which is exciting," Freedman says. "This isn’t [just] a digital marketing play."
For Cognizant, the attraction of moving into marketing services is that it also gets to tap into new client budgets in an era when the chief marketing officer’s spend on digital might be bigger than that of the chief technology officer. As Gossain says: "The CMO is becoming a much more important person in the procurement of services like ours."
And, if Cognizant is going to appeal to chief marketers, it needs the creative input of an agency such as Zone to understand the creative process and how to build an emotional connection with consumers.
"Customer experience is no good without preference," Gossain explains.
Other consulting and IT companies have been acquiring creative, design and digital agencies. Accenture has led the way, while Deloitte, Capgemini, IBM and others look like they are playing catch-up.
Cognizant, which reported $13.5bn in global revenues, including $1.2bn in the UK, in its last annual report, started acquiring agencies a couple of years ago.
"We recognise this market is moving really quickly," Gossain says, pointing out that Cognizant has noted strong demand for "customised" and "personalised" content. "More clients are asking us to manage the operation of their content," he adds.
The Zone deal follows a handful of other acquisitions by Cognizant. These have included Idea Couture, a Canadian digital innovation and design agency, Mirabeau, a Dutch customer experience agency, and Netcentric, another experience agency, based in Switzerland.
"We are growing organically and taking advantage of [merger and acquisition] opportunities," Gossain says.
Freedman adds that there is no plan to move into media buying, despite the content push, because other agencies do it well.
Tristan Rice, partner at mergers and acquisition consultancy SI Partners, points out that the contribution from the agencies will probably be a "rounding error" for a group of Cognizant’s scale – at least for now. But they should help access chief marketers’ budgets. "It could be the tip of the spear," he suggests.
Tom Daniell, retail and brand marketing director of Aviva, is a client of Zone and believes its merger with Cognizant makes sense: "If you think about that relationship between technology, marketing and product, it’s narrowing. This merger should bridge that gap between the CMO and the CTO."
IT groups know how to build infrastructure, he says, but "what they’re less good at is [answering the question] ‘how do you fill it?’ and that’s what I think this combination will be good at". That has implications for ad agencies. "I want to start with the ‘below the line’ and the consumer engagement and then use the ‘above the line’ to make it famous," Daniell explains.
Zone has now begun working for The Football Association, a Cognizant client, on user experience and digital content, and landed BMW Group’s retail marketing account, which includes apps and other customer experiences.
Marc Nohr, chief executive of Fold7, who acted as an adviser to Zone Digital until its sale, believes the deal shows how the market is rapidly changing.
"It comes out of the same chapter in advertising history as Accenture buying Karmarama," Nohr says.
Industry observers wonder whether Cognizant’s motivation for moving into marketing services is the result of an activist investor, Elliott Management, pushing the board to diversify. Gossain declines to comment, but notes Cognizant began its acquisitions before Elliott became active.
The pushback from creative people around such deals is that the magic will become lost or forgotten inside a consulting or IT giant that knows how to make marketing "collateral" but not "culture", as David Golding, a co-founder of Adam & Eve/DDB, has put it.
Freedman says Golding has a valid point, but Zone is not trying to create culture: "We’re not thinking about doing a 30-second commercial – we’re not doing a John Lewis ad. Adam & Eve does that very well. We are here to help clients digitally transform and help them compete."