The Agency Holding Company Model Is Dead - Welcome To The 'Marketing Stack'

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hanlonTim Hanlon is Founder and CEO of consulting firm Vertere Group.

As a former key executive within Publicis, Hanlon's years of experience provide him a unique view into today's announced merger of agency holding companies Publicis Groupe and Omnicom Group.  

AdExchanger asked Hanlon about his "take" on the blockbuster combination earlier today.

AdExchanger: Did you see this coming months or years ago?  Or is it a complete surprise?

TIM HANLON:  I think that everybody in the advertising industry fantasizes about various scenarios.  In the grand scheme of things it doesn't necessarily surprise.  As the holding company model has become the driver of the business over the last 15 years, every agency and then holding company has effectively looked at merger combinations, filling in gaps – “digital” being one of those gaps to fill and international markets being another.  While the merger of these two companies is rather stunning, I don't think anybody in the ad business doesn't think about what pieces they might be needed in the future given the scaling, multinational landscape.

Given the steady move towards automation in media, do you see this merger as an outcome of that vision? 

In theory it makes strategic sense, but the reality of the agency holding company model is antithetical to that.  In essence you have well over 120,000 people combined who are born out of a history of people-driven, creative, marketing and communication services.  By definition, it is inefficient and does not neatly fit into machinery, computers or electronic engineering.

What you have now is the starting gun of a new race.  That race is to combine technology and creativity at reasonable and workable scale that solves marketer's problems in a modern, real-time way.  You can borrow from Professor Schumpeter and his "Creative Destruction” theory - this is creative destruction in the ad business.  There will be classic agency holding companies that evolve and stay relevant in a very data-driven and technology-driven world. And there will be new entrants that come from the technology and data side of things that will aggressively add service layers to their once, tech-only, offerings.

Look what Adobe has done over the last couple of years in terms of acquisitions or Salesforce buying Buddy Media or Oracle buying Vitrue – and so on. This could be one of those seminal moments where the fusion of art and science are basically hanging in the balance.  Along with WPP Group, this merger is probably the best shot that the traditionally agency-centric model has in terms of being sustainable in a modern marketing world going forward.  It's a wider array of competitors now.  It frankly has been for the last decade or so, but this is the beginning of the end of the agency holding company model.

If it’s not an agency holding company model going forward, what is it?

I think the term going forward is "marketing stack."  And, agencies and holding companies will have the more qualitative components of that stack.

There may be one more major combination in the holding company space that could credibly make it take a seat at this table. So, eventually, you will  have three major agency conglomerates -  versus, or maybe in partnership with, the seven or eight “horsemen” of technology.

What does Publicis-Omnicom mean for the marketer? 

If I'm a modern marketer, this deal gives me a convenient excuse to re-think my approach to getting my marketing needs served and done.  This isn’t to say that an agency or an international holding company can't and won't be a solution for my marketing needs.  It requires marketers to think much more broadly about an array of providers and solutions that aren't necessarily born from the agency world.

A good example has been the advent of social marketing.  It’s clear that the vast majority of agency entities were thoroughly unprepared for the social medium paradigm shift and a lot of it has been about “catch up” since then.   Many major marketers have pulled back a lot of their social activities in-house, recognizing that social isn't another medium to be conquered, but frankly a fabric of their existence and similar to things such as HR, PR, corporate communications, crisis communications, etcetera.

Mobile may be another good example of how an agency stumbles its way through solutions and where the marketer may have to perform some of their mobile activities in-house.  The modern CMO has many different levers to use and has to look at the world much more broadly than just agencies and holding companies.   The tension is going to be between technology and creativity and the "marketing stack.”  You have two different approaches in there: one creatively-driven and agency-driven; and, the other is technology and engineering-driven, data-driven.

When all is said and done, what do you think will be Publicis CEO Maurice Lévy's legacy?

In many respects it's a simple story of small business man makes worldwide good.  It’s multi-threaded though.  There's the French thread.  There's the business leader thread where you see an entrepreneurial starting point with the ultimate capstone.  Then along the way it’s fueled by a competitive desire, mostly personified in a man named Sir Martin Sorrell.

Sorrell, in some ways, became the rationale for Lévy's growth ambitions.  Without Martin Sorrell, I don't think you have Publicis-Omnicom Group.  I don't think you have the pointed, competitive, expression of where Maurice has taken this company over the last 20 years.  Sorrell and WPP become the focus of the energies.  I think what you see now is probably the end result.

All that said, is the advertising and marketing world better for all of this consolidation?  Are marketers better served by this gigantic international scale with thousands upon thousands of employees in hundreds upon hundreds of competitive silos and inefficiencies?  I'm not sure.

What I am sure of is - and what he may be sure of is - that the quaint agency model needs to be fortified with technological prowess.  I believe that, in his mind, the way to get their fastest is to scale.  It remains to be seen however, if scale is the only path to modern marketing “goodness.”  At the end of the day, the enlightened marketer will determine how much of the agency holding company model will work for them.

While people may think that there are only two-plus holding companies in the ad space that matter and that consolidation is nearly done, ironically, it is a much more competitive world and landscape when you factor in all of the new generation of marketing solutions out there, mostly from the technology side of things. Companies like Google, Facebook and Amazon, were arguably not marketing-oriented solutions until now.

If I'm the modern marketer, I need to look at the landscape much more broadly than just two or three major holding companies.  There's a vast array of formerly technology-only companies that have amazing and effective solutions that simply need some services layered on top of them.  Companies like Adobe, SAP, Oracle, Salesforce, Google and others are rapidly trying to do just that.

Follow Tim Hanlon (@timhanlon) and AdExchanger (@adexchanger) on Twitter.

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