When Dentsu Aegis Network bought programmatic shop Accordant Media on Thursday, it was the Japanese holding company’s second major tech acquisition in less than a month, following the majority stake Dentsu took in CRM agency Merkle.
“Programmatic is the way of working in the future and we’ll continue to invest in people who have the skills and technology to support that,” said Dentsu CEO Jerry Buhlmann.
Investing in areas like programmatic is key to sustainability, and Buhlmann envisions Dentsu “approaching 100% programmatic by 2020.” Eventually, Dentsu will embed Accordant’s programmatic expertise into its Amnet agency trading desk.
“A lot of the legacy agencies are based on global networks and silos,” Buhlmann said. “It’s not in the culture to work with other agencies because they’re not incentivized to do so.”
Dentsu has grown both organically and nonorganically 9%-10% over the last few years. The network, which didn’t have a presence outside of Japan until it acquired UK-based Aegis Group in 2012, is approaching a 20% global growth rate.
Success comes from focusing the business on high-growth areas, Buhlmann said.
“Build expertise in social, mobile and video, make sure you’re at the heart of the digital economy, build CRM, data and customer experience and link them together in the most appropriate way,” he said. “[And] don’t buy old advertising agency groups.”
Buhlmann spoke with AdExchanger.
AdExchanger: Dentsu has been on a data-driven shopping spree. What’s the strategy?
JERRY BUHLMANN: If you want to bring new scale and capabilities, you have to bring innovation into the group. M&A is a way to do that very quickly. We have an industrialized process to bring acquisitions on board. It’s accelerated our growth. Of the top 400 managers of the 30,000-plus people we have around the world, 200 of them came through acquisitions. It brings a real entrepreneurial culture to our business.
How will Merkle fit into your business? What kind of access will your agencies have to it?
Merkle is a strategic step for us. They have 3.7 billion first-party data contacts. It brings audience marketing and people-based marketing together, and we see it as a highly complementary fit. They’ve got a very clear vision of how they want to grow that fits in very well with us. There’s a good empathy between the management teams already. We expect to be able to offer their services to many of our clients quickly.
Where do Accordant and Merkle leave Carat?
Carat still has the same high-quality planning and buying. It can help clients navigate an extremely complex media environment. Now it’s more neutral in providing its capabilities across all of our businesses and we’re inviting in a richer product suite for its clients. It makes sense that Carat maintains its strategic capabilities but accesses our execution capabilities across the group. These capabilities have to be specialist to add value.
Marketers have been taking programmatic in-house. Is that sustainable?
Programmatic is a specialist skill. Once a client brings it in-house, they have to invest in that business and keep it competitive. After a while, the quality and differentiator will decay and they’ll be back to outsourcing. We can provide and invest heavily in a real high-quality capability that will offer significantly more value. Many clients don’t want to bring it in-house for that particular reason.
When and why did you start integrating the Dentsu agencies?
We focused very heavily on that in the last recession. In a recession, clients cut all of their spend and everyone goes short-term. When the recession ends, they want something new. We reinvented our organizing structure around 2009-2010 so that when clients began spending again, we had a new way of working.
Despite the ANA report, trade desks seem to be doing pretty well. Are they rushing to exit in expectation of a delayed blowout? Or is the model still strong?
Most clients are much more sophisticated than they’ve been given credit for. You establish a working relationship with clients in a contract [that] formalizes exactly how you operate in a very transparent way. A lot of the issues raises by the ANA are marginal to the business. They’re not a reflection of modern contractual relations. Following that report, we didn’t get any feedback from clients. I’m not sure it’s a particularly big deal in the real market.
How are your agencies approaching new digital channels like Snapchat?
If the consumers use it, we have to provide a way of accessing it. They are very engaged in mobile, social and video. We have to make sure we acquire skills in those areas. It’s a much more complex interaction and we see Merkle as being a big help in that regard. We need to stay very close to their behavioral habits and not try and dictate what they should be doing.
Are Google and Facebook gobbling up all of digital and mobile ad spend? Who else is getting a piece of that pie?
We’re very supportive of what Google and Facebook are doing. They’re investing in our industry and supporting us and we see a real strength in following the consumer. But the consumer changes all the time. So whilst they’re big and great at the moment, we anticipate there will be other players in the space in five years’ time.
Does Verizon have a chance to sit at that table?
Maybe. Historically, telcos are not particularly good at moving into that area, so I’d be interested to see how that turns out.
With a fragmented TV ecosystem and more spend being put toward digital, will the upfront model become obsolete?
Over time it will decay. There won’t be an upfront in a programmatic world. When you can access content readily from any source, where’s the upfront going to play its role? But I think that’s down the line.
Do you see the management consultancy space as a threat?
Most of them come from an IT consulting perspective and they’re very good at business process. Data requires a lot of business process, so they see an opportunity to get closer to clients. But they’re not good at executing and they don’t buy anything. They have their strengths and they’re exceptionally good at what they do, but we don’t see them as being particularly good at what we do. There’s plenty of space in the market for them to have their niche and for us to do likewise.
As everything becomes real time and addressable, we are going to find ourselves in the same space, but we’re more than confident in our ability to compete.
This interview has been edited and condensed.
