Quick Take: Agency Holding Companies Need To Merge With Technology

unmergedWith the collapse of the proposed merger of agency holding companies Omnicom and Publicis, former agency exec and Vertere Group’s Tim Hanlon provided his take:

    “Much of of the logic I laid out last year when the deal was announced still holds. If anything, it only exacerbates the questions that brand marketers have about how to best tackle their increasingly complex task of messaging to and communicating with their consumers.

    The collapse of this deal may simply indicate that cold, hard quantitative economies and efficiencies of scale applied to a business function that is fundamentally (and historically) *qualitative* in principle, structure and process – can only extend so far before diluting, or worse, undermining itself.  Marketing services alone – no matter to what level of scale – will not be enough to solve modern marketing challenges that are increasingly digital and sophisticated.

    What agency holding companies need to do is not merge into bigger versions of their current selves, but instead combine with the increasingly important technology prowess of enterprise software, cloud computing and data architecture firms to transform their fundamental value propositions and to ensure their relevance to marketers in the coming years.”

Meanwhile, BMO Capital analyst Dan Salmon paused this morning between separate conference calls (see Omnicom; Publicis) with the two agency holding companies to provide his view to investors.  

Salmon continues to recommend the shares of both companies for what he says are different reasons, but that clearly the end of the merger is a negative for both.  

That said, Salmon doesn’t believe the oft-mentioned client or employee movements were never put into motion by the original proposal.  And, he adds that agency holding company Interpublic Group does not seem like a next option for either, but digital agency Sapient could be in the sights of Publicis acquisition strategy.

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  1. I’ve long-held this position, as well, that the modern-day agency (a) melds creative, deep technology, and analytic/data assets, and (b) it moves from project and media buying fees to a more performance-oriented model. Companies like RocketFuel may be a prototype, as I’d expect them to increasingly enhance their analytic-driven model with creative, optimizing design trade-offs like any other campaign attribute. The biggest barriers to traditional agencies moving in this direction is cultural, where creative almost always dominates analytic, and a model deeply rooted in professional services fee structures is unable to invest properly around longer-term product development investment. To that end, as ad tech firms increasingly sell their wares directly to enterprises, it appears as though the Oracles, CRM, and IBM may be the ultimate outlet for the tech, if we, in the ad tech space can stabilize revenues around predictable, high-margin, recurring revenues, which such large enterprise companies demand. This would allow the traditional agencies to remain focused primarily on a creative value proposition, while media management would be in-sourced (or outsourced) to technology companies and specialists.

  2. Marketing is becoming a development business. We’re seeing this now with native advertising and content marketing, but this concept will change what marketing is. Fundamentally the future of marketing will be in development. Technology, content, media platforms and products will be built as marketing endeavors.

    Businesses that can create content – creative shops, technology businesses, coders, producers, talent agencies, etc – will become ever more intertwined with marketers as they turn into creators.