July 23rd, 2007

Owning the Ad

By Douglas MacMillan
Business Week

Ad agency Anomaly is pioneering a new model whereby it provides its creative services in return for a take of the profits. It's a high-risk strategy that could change the industry

Marketers have little reason to care about the performance of a campaign after the client doles out their fee. Take graphic designer Rob Janoff: Working for Silicon Valley marketing firm Regis McKenna in the late 1970s, he created the corporate logo for fledgling tech startup Apple Computer (AAPL), a simple, rainbow-striped apple with a bite taken out of it. For Janoff, it was another day’s work; but for Apple, the logo helped forge an iconic brand that today has an estimated worth of over $9 billion. “I got a nice trip for me and my family to Disneyland,” says Janoff of his compensation, adding that “It would have been great if I could have gotten some stock [in Apple].”

Taking stock in a brand you help to create is the concept that helped inspire ad industry veteran Carl Johnson to leave a top post at TBWA Worldwide in 2002 to co-found Anomaly, a New York ad firm that opened its doors in 2004. Already, projects for clients like Coca-Cola (KO), Bluetooth headset maker Aliph, and airline startup Virgin America have earned Anomaly credibility on Madison Avenue and more calls from big advertisers. More traditional campaigns for clients like Coke have seen Anomaly acting as a jack-of-all-trades marketer: designing bottles and producing 30-second TV spots. But the agency’s unconventional approach of treating marketing campaigns more like intellectual property to be licensed than commodities to be sold could disrupt the long-held model of a nearly $150 billion industry.

Casting Call

Johnson is one of eight partners at Anomaly, many of whom were once senior directors at big agencies like TBWA, Weiden & Kennedy, and Saatchi & Saatchi. Each heads a different area of concentration for the 90-person company, such as business strategy or digital creative work. One partner is designated as the “creative catalyst,” another is the “head of innovation"—the cutesy titles one might expect from an agency claiming to do things differently—but Johnson is adamant that free collaboration throughout the company is encouraged from inception through launch. And rather than passing assignments down a chain as is more typical in advertising, every new project is put before the entire team, who then “cast” the combination of partners best suited to take the reins.

“We surround what we see as the business issue, rather than ‘the need to do an ad,’” says Johnson. Often this means acting more like a chameleon than an agency, tapping in-house pools of expertise in brand strategy, print, TV, digital, outdoor, and product design.

Sometimes, serving the “business issue” simply calls for a roving, creative mind with a keen eye for new trends. Partner Johnny Vulkan is head of innovation, a job that has recently seen him waiting in line four days for the Apple iPhone; having lunch with blog world royalty Arianna Huffington and Nick Denton; and taking a photographing trip to downtown Tokyo. His experiences might yield a promising new partnership, or just introduce the design team to a funky aesthetic they hadn’t considered—he’s the in-house trendspotter, if you will. Vulkan likes having a job with so little structure, although he admits, “there are moments where it’s unclear which of the spinning plates I should stand under.”

Personal Stake

Anomaly is currently putting all of its talent muscle to work on a project that takes flight Aug. 8, when passengers first hop aboard Virgin Atlantic, a low-fare airline formed by Richard Branson’s Virgin Group and a group of U.S. investors, and based in Burlingame, Calif. Anomaly won the account last year, beating out such in-demand agencies as Goodby Silverstein and Crispin Porter & Bogusky. They received a small, undisclosed fee up front for marketing efforts like print and outdoor ads, and a Web site running a contest to “name the planes”, but Anomaly will also take a percentage of sales from extras like in-flight entertainment and Burton branded luggage, which it helped to develop and produce. In another first, customers can order the Burton luggage on board their flights.

Retaining and profiting from intellectual-property rights is new territory for advertising, though clients, keen to turn the old, time sheet-centered model of advertising on its head, increasingly are looking for authentic partnerships with their marketing teams. Last year, Seattle agency Cole & Weber/Red Cell, a subsidiary of WPP Group (WPP), produced a TV sitcom that prominently featured Rainier beer (made by Pabst Brewing), with the agency retaining full ownership of the show. Anomaly is betting this will be the model of the future. With an equity stake, says Johnson, the motivation to help a client succeed is more genuine—and the results more impressive. “When we own the IP or we share in the revenue, you can bet we’re going to work all day, every day.” While revenue-sharing projects currently contribute only about 20% of Anomaly’s revenue, Johnson estimates that in 10 years it may be more like 80%. In 2006, Anomaly recorded revenues of around $15 million.

“They live and die by the success of the product, and to me that’s very powerful,” says Hosain Rahman, CEO and founder of San Francisco-based Aliph, who hired Anomaly for the 2006 launch of Jawbone, its Bluetooth headset designed by Yves Béhar, founder of Fuse Project. In this instance, Anomaly holds no intellectual-property rights and is acting strictly as a marketing department: doing market research, media buys, events, and PR. But all of the agency’s compensation comes from an undisclosed share of headset sales, a model that sees the agency displaying a huge deal of faith and commitment to a product they didn’t help produce. “We are certain we have the best Bluetooth headset to back,” says Johnson. Asked if he would soon go back to a fee-based ad agency, Rahman replies, “Probably not.”

A True Partnership

Anomaly will wade deeper into the waters of intellectual property at yearend when it launches Eu (pronounced “you"), a line of skin-care products designed and produced with entrepreneur/partner Tammy Ha. The agency will help with marketing and bottle design, and Ha, a former chemist with Neutrogena, is creating 14 or so products, including cleansers, toners, and night creams priced from $50 to $180 each. In this case, company ownership will be split three ways: one-third to Ha, one-third to the agency, and one-third to private investors.

Johnson admits there are uncertainties in the more entrepreneurial projects that make projecting growth a shaky business. “A huge number of new businesses and new brands fail. We have to speculate widely in the belief that some will succeed and that the successes will outweigh the failures,” he says.

Suppose it works. If Eu becomes a top-selling product line in high-end department stores across the country, Anomaly has the option of spinning the brand off into its own small business or selling off its shares to the highest bidder. The company has already incubated two successful ventures this way: ShopText, a mobile commerce platform spun off last year; and Lucky Media, a brand that sells ad space on the backs of lottery tickets, which Anomaly sold to Michigan State Lottery. In both companies, the agency retained a share of revenue.

Still, Anomaly knows it can’t shrug off its skin as a traditional marketer just yet. A quote stenciled on the wall in the company’s posh SoHo loft, attributed to George Bernard Shaw, reads: “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” Perhaps Coca-Cola, with which Anomaly has unsuccessfully tried to forge intellectual-property partnerships in the past, is one of the unreasonable men its progress depends on. “That’s a great big corporation that has to tread very carefully about how it moves forward,” says Johnson of Anomaly’s first client, adding that “it wouldn’t surprise me in the end if they [want an IP partnership]. If they could create brands rather than buy them for billions, it would be better for them.” And, of course, for Anomaly.


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