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It’s an end-of-year shake-up for adland: The third largest agency holding company, Omnicom, announced plans to acquire the fourth largest agency holding company, IPG, yesterday morning. The combination will have Omnicom leapfrog Publicis and WPP to become the world’s largest holding company, together accounting for $25 billion in annual ad revenue and over 100,000 employees, should the acquisition be approved by regulators.
Consolidation has been the name of the game for some time for holding companies albeit at a much smaller scale. Think Dentsu Creative, Omnicom Advertising Group, VML, to name a few. There’s been a push to combine agencies (sometimes doing away with agency brands), find efficiencies where possible (like back office overlap) and use the scale of a bigger shop to woo advertisers. The push to do so is expected to continue with this acquisition.
“There’s going to be blood,” said one ad agency exec who asked for anonymity. “There’s gonna be a lot of consolidation as a result. Creative agencies, PR agencies, they’re going to push them together like VML or whatever that agency’s called now, right? That’s gonna mean redundancies in the back office can be addressed very quickly. The amount of savings that comes from that — they’re gonna cut like a meaningful percentage of operating cost; you don’t need two CFOs, you don’t need two art departments, etc. — is probably about 30% of the staff from both sides.”
That being said, any cuts could be a ways off. The acquisition has to be approved by regulators. Sorting out the overlaps, the redundancies and the efficiencies as well as the benefits of the scale once they have that approval will be the first order of business for the leadership teams. Consolidation of agencies will be a second order effect.
For their part, it seems Omnicom and IPG want to soothe worries about consolidation in the interim. During the call announcing the acquisition plans, Omnicom CEO John Wren said, “Each of our two organizations has exceptionally talented people who are recognized every year for their creativity, innovation and effectiveness. Omnicom will remain committed to being the home for the best talent in the industry, and this transaction will create many new opportunities for our teams.”
Wren continued: “As one company, we will have a unique ability to bring our clients expert town for their specific needs, wherever they are in the world.”
However, the cost of the acquisition may make that difficult. Wren also noted that acquiring IPG will come to the tune of $450 million to close and get to the expected $750 million in “cost synergies” that makes the deal appealing.
In the meantime, there’s a sense from some in the industry that this acquisition was bound to happen and necessary for survival, especially to compete with Publicis and WPP more seriously. Others worry that big isn’t always better. Keep reading to get a sense of the landscape — both for and against — this acquisition.
The case for the acquisition
We’re currently in a “bundling phase” in the industry, explained the exec, and this is the biggest bundle we’ve seen yet. The acquisition will reduce the number of competitors — which some see as a good thing as there have been myriad players and not enough differentiation between those players — and increase the scale for Omnicom. They’ll get bigger and have the opportunity to be more competitive.
“Scale matters,” said Allen Adamson, co-founder of brand consultancy Metaforce, adding that the case for scale is one that only really matters when you’re the biggest. “If you’re big but you’re not the biggest you’re not gonna win the scale game.”
The move also allows Omnicom to grow which will likely please shareholders and Wall Street. “Getting organic revenue growth in the ad business is incredibly difficult,” said Adamson. “If you’re not growing, the only way to keep Wall Street happy is to cut costs.”
Adamson continued: “If you’re bigger, it provides more opportunities to find efficiencies of scale. You can mush companies together like WPP has been doing, take out multiple CFOs or HR departments or leverage real estate and technology. There are more ways to squeeze margin out of lots of little companies than out of one big company and since they’re [likely going to] combine a lot of small agencies it opens the playing field up to find ways to drive efficiencies and margin to enhance market value.”
One major focus on enhancing market value: Combining the scale of their technology offerings (think Omnicom’s Flywheel, IPG’s Acxiom and the like) as well as their media business. While Omnicom and IPG did highlight the combination of their technology businesses on their call announcing the merger on Monday, they didn’t share much about how the potential of their combined media businesses could benefit them and their clients.
Even so, “if you’re a client or a marketer, I think it would be important to focus on the investment forefront,” said Jay Pattisall, vp and senior agency analyst at Forrester. “We are really just at the beginning of a massive AI and technology boom inside business across the board but in marketing and advertising in particular.
Pattisall continued: “There will be lots of advertising practices, consumer behaviors, platform opportunities and technological capabilities that will need to be invested in, piloted and understood. A very large company is capable of doing that.”
The ability of Omnicom to create a “true competitor” to Publicis’ Epsilon platform with Acxiom and Flywheel and the like under one roof will likely appeal to marketers, explained Andrea Kerr Redniss, managing director at Medialink and partner at UTA, noting that is a major pro for the acquisition.
“The retail media expertise that they actually have in this space and can bring together with Flywheel and all those pieces, that’s something we’re hearing a lot about from consumer brands today,” said Kerr Redniss, noting that some CMOs are also responsible for retail media networks now and that expertise matters.
The case against the acquisition
Bigger isn’t always better. That’s the common refrain from many in the advertising community when asked to posit the case against this acquisition. It’s hard to turn a big ship around and move it in the right direction. This is taking two big ships and putting them together to make a massive one that will be harder to move at that scale.
Multiple industry execs brought up a quote that advertising legend Jay Chiat was known for: “How big can we get before we’re bad?” when Digiday asked for their reaction to the acquisition. Even so, there’s an understanding in the marketplace that this move is “less about the networks gaining share and more about their defending it,” explained search consultant Ken Robinson, partner at Ark Advisors.
While the groups may be defending their position by combining, doing so will lead to fewer options for clients. There are several other issues that may arise that may cause clients to think twice about staying put and lead to churn. “The anticipated disruption of an [acquisition] — departing talent, new client conflicts, sorting out enterprise technology platforms, etc. — may induce some clients to put their business into review to get ahead of any possible messiness,” said Robinson, noting that “sunsetting agency brands” would also be a likely downside of the acquisition.
“The two groups will only exacerbate the U.S. centricity of each other,” wrote Greg Paull, president of growth at search consultancy R3, in an email. “With 65% of IPG’s revenue and 54% of Omnicom’s revenue coming from the U.S., the two challenges will be a combined, politics-free central organization and how they will use that base to build stronger global footprints, particularly in Asia and Europe where they are underweight.”
Some clients may also see the acquisition as a distraction and worry about the attention paid to sorting out the kinks of combining the businesses over the attention paid to their business. For smaller brands there’s not only the worry about attention but worry about having to find a new agency given potential client conflicts as the bigger piece of business will certainly be the one asked to stay with the new group.
Marketers will be concerned about if their business will still be a priority for the new combined holding company and wonder who will run their business.
Combining the talent pools — and the potential to lose out on talent who don’t want to work for a behemoth with a yet-to-be-defined culture — is another issue that some point to as a con. It could lead to indie agencies able to poach top tier talent, according to industry analysts, who also noted that it could benefit indie agencies’ pitches as they’ll have another massive player to point to and differentiate themselves.
3 Questions with Craig Brommers, CMO at American Eagle Outfitters
American Eagle is partnering with WhatsApp to offer personalized holiday shopping. Out of all platforms, why WhatsApp?
One thing that popped out at our team is WhatsApp is finally growing at a tremendous rate here in the U.S. Now there are over 100 million users in the U.S. — and 50% of the U.S. Gen Z population is now on WhatsApp. So it seemed like a no-brainer to us to test this and be a first mover on WhatsApp. We try to generally be unemotional about the platforms that we engage with. We have to go with the eyeballs and where the clicks go, and they’re going at a pretty fast rate on WhatsApp.
WhatsApp is a private, end-to-end encryption messaging platform. How do you market, let alone measure engagement, in that kind of environment?
They are now offering sponsored Snaps inside of Snapchat, and that has been almost off-limits for advertisers because that’s a private area. So it could be very curious to see as brands and retailers and other industries get into that, what’s that reaction. But WhatsApp is the exact same thing.
On an innovation play, the thing that I’m most interested in as a CMO is engagement. Are we offering something that people are interested in? While we will be curious and we’ll hold ourselves accountable to financial metrics and innovation, I’m mostly interested in reading if there’s proof of concept here. Is there something that we need to build on? That’s what we’ll be looking at.
WhatsApp has found itself in the hot seat before for being a home to misinformation. Was that a concern during the planning process?
We’re focused on that particular topic on every platform that we work with. Of course, we want to operate in a safe environment. We’re asking our platform partners tough questions to make sure that our content is seen in the right context. In the particular case of WhatsApp, especially with AI involved, it was really important for us to pay attention to the details. … I don’t think it’s fair to just pin that on WhatsApp. Every platform has its challenges, but I assure you we’re doing our due diligence to make sure that we’re showing up in the best place in the best way possible. — Kimeko McCoy
By the Numbers
The artificial intelligence hype cycle is likely to continue into the new year, picking up steam with brands like Mondelez and Aldo building out in-house AI tools, companies like Perplexity fueling the AI search arms race, and social platforms rolling out new AI-powered creative tools. In fact, most CMOs are engaging in AI across their main marketing activities, according to recent research from Infosys Knowledge Institute, a research arm of Infosys, a digital services and consulting company. Find key details from the report below:
- 96% of marketing leaders have deployed AI in at least one marketing activity.
- 52% of AI marketing deployments generate business value.
- 30% of marketing leaders have deployed AI in all seven key marketing activities. — Kimeko McCoy
Quote of the week
“Part of the problem is we’re only trading in one KPI, and the things we’re now using require accuracy, and the only KPI we can trade on is money.”
— one agency exec when talking about AI-driven ad buying at the Digiday Programmatic Marketing Summit earlier this month.
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- Retailers are making a play for brand dollars, but advertisers aren’t convinced just yet