The penned merger of equals between Publicis and Omnicom takes two large networks of agencies and folds them into one behemoth holding company significantly larger than WPP, which would fall into second place. To gain strength in building a future, Publicis has been aggregating large digital shops to complement its traditional creative agencies; at the same time, Omnicom has been amassing a large contingent of small shops that grew quickly under its Diversified Agency Services (DAS) umbrella of digital firms in the race to lead the "new" thing.
Why merge now? The ad agency world and the technology world are on a collision course, centered on how well companies manage their business or consumer customer. I first mentioned this in a post about change management in my Forbes blog almost exactly one year ago. As agencies find themselves up against tech services giants like IBM, Accenture, Sapient and Deloitte, they are being asked to deliver:
- Marketing and business strategy based on deep data. No marketing strategy is competitive today without the strength of managing and interpreting data. Both firms have invested in disparate platforms to build insight into the planning process. Agencies like Rosetta and RAPP use data to inform the strategy to build customer engagement, getting ad efforts closer to Moneyball-like results.
- Technology driven ad management. Agencies used to be loathe to develop technology systems for use across clients, until Omnicom's Annalect and Publicis’ VivaKi came about. With Starcom MediaVest – a lean-forward thinker in the media space – at the helm of the technology platforms to improve buying power, Publicis Omnicom will accelerate the programmatic efficiency of digital into all media types.
- Competitive customer-facing systems. Most of the systems integrators went into digital to build eCommerce and CRM systems. But the end client for these efforts is typically the CMO, with the CIO making the linkages to internal systems. As these two executives merge their strategies together to drive digital business, the agencies have a leg up on the relationships, but need the scale to be competitive on the implementation front.
- Channel agnostic, or channel complementary, creative juices. Clients have been adding more agencies to their rosters lately, and managing them as a bundle of idea generators and execution teams. A bigger holding company can pitch the benefits of more alignment of best of breed agencies to retain more of these niche relationships.
On the client side, the outcomes are likely to be predictable. On the plus side, marketers have been growing their roster of agencies to ensure they have best of breed, and then have to work hard to co-ordinate these diverse teams. The merger of these two holding companies should provide more diverse choices to work with leading agencies under one holding company umbrella. Also, a larger buying center should mean better negotiating power for paid placements and technology services. By consolidating massive media buying power under one roof, one outcome should be better buying power and influence.
There are major – though predictable – negatives, in the name of more client conflicts and less negotiating power on fees. Once the client conflicts are worked out, multi-national marketing purchasing departments will struggle to negotiate if they want the scale and depth of holding company relationships.
Watch for a range of new agencies to emerge a year from now, as entrepreneurial agency founders decide to take their name on the road to smaller firms or other parts of the industry (of note: Bob Lord's decision to jump from running Razorfish, DigitasLBi and Denuo to join AOL earlier this month. Coincidence? I think not.). Also, watch for Havas, Dentsu/Aegis, and IPG to get the stare through deal hunters' binoculars as the search for more acquisition targets focuses on fewer, bigger game.