After Publicis Omnicom Merger: Will consolidation continue?

During the AdForum Worldwide Summit in NYC, the CEOs of 6 holding companies  discussed with the world’s leading pitch consultants the future of the industry and commented on the Publicis- Omnicom Group planned merger. Here are the meeting notes I took:

Will the merger work?

In the days following the planned merger announcement in Paris, competitors as well as commentators were quick to raise the potential problems of this merger. In our conversation with the CEOs some of these arguments resurfaced, though in a more moderate tone: Client conflicts, of course, but even more, client fear to be diluted in a larger, more bureaucratic organization, Talent and management drain, Focus of the most senior management level on non-client matters, Clash of culture and Leadership complexity.

The Co-CEOs to be answered that they have talked to all clients and none have indicated their intention to leave since the announcement of the merger, Maurice Levy adding that “the reactions of the clients have been good on both sides”. Both John Wren and Maurice Levy underlined that conflicts firewalls were already  in place at both holdings cos. as well as at their competitors, that there was no intention of merging the networks,  each network keeping its own culture and continuing to compete with others within the Group.

Still, Time is the enemy:  “We will have 6 to 8 month to take advantage of the confusion” rejoices one competitor. Publicis Omnicom management is well aware the Time factor, getting ready to pull their act together in place as soon as they get the green light of the regulators.

Both John Wren and Maurice Lévy have a large experience of post-merger integration, so you can bet it will be promptly and orderly executed.

Legal Hurdles?

I heard many industry comments, including from Agency CEOs implying that the merger might be torpedoed by anti-trust authorities in the USA, Europe or even China. And this argument has been used again during our meetings by Sir Martin Sorrell and David Jones. My own feeling is that these were objections of façade. I felt a general consensus among all six CEOs that the merger will finally proceed without major objection of the authorities. Despite an estimated 40% global market share (RECMA), Publicis Omnicom Group will certainly be a strong market leader in the US (41.6%) but WPP will remain market leader in Europe (30.9%).

Media Buying

Sir Martin Sorrell claims that the only area of our business where there are significant economies of scales is media buying. True in traditional media, answers Miles Nadal but digital and social media buying are a change of foot where scale does not necessarily mean greater efficiency. David Jones agrees and suggests that the real benefit of the merger in terms of media buying will be the level of volume rebates that goes into Media companies.

Digital consensus

Rarely have we heard “Everything is Digital” more than during this week. Maurice Levy proudly recalled his bold move into the space with 38% of Revenue coming from Digital, while Sir Martin Sorrell claims that WPP was the first mover and that Publicis copied his strategy. The other Holding’s CEOs echoed the digital song as well as all other Agency CEOs whom we met. But if the tune is in sync, the content is somewhat different. Publicis strategy has been acquisitions (Digitas, Razorfish, Rosetta, MRY, LBi) followed by processes and analytics consolidation in Vivaki; WPP, despite strong acquisitions such as AKQA, has been less greedy in its digital shopping but has created a portfolio of 30+ specialized shops and has been successful in Agency “digitalization” such as Wunderman. IPG has mainly relied on RGA strong leadership while Omnicom and Havas claimed they have succeeded in infusing digital expertise at the core of every level of their agencies.

Big Data is big issue

Interestingly, all 6 Holdings CEOs agree that Big Data is THE big issue of our Industry tomorrow. Martin Sorrell pointed out that the Talent that will be most needed in his organization as well as the  industry is MathMen (or women). Maurice Levy spent a great deal of the conversation explaining how Big Data was today and tomorrow’s currency . Michael Roth mentioned IPG’s Center for Market Intelligence, David Jones emphasized the 200 Data scientists of Havas global data practice. Asked where MDC sees its future investments, Miles Nadal answered “Consumer Insights, Data analytics, Digital production and Social media”.

So, Data crunchers - Chief Data Officers, quotes Martin Sorrell - will rise from the zillions of ones and zeros to predict behavior and narrow target brand consumers. And if Maurice Levy, echoed by John Wren, is claiming that the merger will give them the capabilities to invest in talent and tools in data buying, data processing, data analyzing and data programming and allow them to access to stand competition vs. Google, Facebook and the likes, others are doubtful. One argument is that POG will still be a dwarf both in size and in data collection compared to these giants. Another is that agencies don’t own data. It is the property of their clients. Media own users data, Marketers own consumer data but agency don’t. To which Martin Sorrell answers that this is the reason why he acquired Market Research companies in the first place creating a large Consumer Insights division which changed its name to Data Investment Management to clearly signal the increasing focus of the business.

The Future of our Industry

Data is not only requiring huge investment, it is changing the ballgame of our Industry. Maurice Levy claims that agencies have now to invest massively before the acquisition of clients instead of only servicing their needs on demand. As a result, Agencies are increasingly facing other type of competitors. Maurice Levy quoted Accenture or Deloitte and mentioned a current pitch against a Consulting firm and an Integrator, David Jones recalls  the Global Data win of Unilever facing the Management consultants and other Data specialists, Martin Sorrell questioning if Google and Facebook were friends or enemies. Others cited Media owners, Online trades such as Amazon or American Express were in the position to play a disruptive role in the advertising industry. As one agency puts it, the name of the game is to best predict the behavior of the consumer.

My own prediction: The winners will be the ones that succeed in bridging the data analytics with motivational data that triggers consumer behavior. More PHDs needed…

The Agency of the Future?

In this new competitive world, Agencies have a unique competitive asset: Creativity. Sir Martin Sorrell talks about the combination of Art and Science, Maurice Levy talks about the combination of IQ, TQ and EQ (Intellectual, Technologic and Emotional Quotients) as the true differenciator. Leveraging consumer insight into compelling story telling has always been the specificity of Agencies. And data-based behavior analysis will only broaden the scope of solutions and enhance creativity, as says Maurice Levy.

But the path to get there is multiple. Everybody preaches for its own parish. Miles Nadal believes in creating a few integrated platforms with geographic diversity and broader service offering around strong entrepreneurs, David Jones to offer a nimble, agile, simple integrated organization. And multi networks holding companies all defend their model with the same arguments: There is no One size fits all and Client is king. Holding companies should be able to offer specialists agencies or integrated networks. Holding companies solutions? They are all for it, with strong variations, though, when it comes to create virtual agencies around a client. A definite future, according to its most vocal  advocate, Sir Martin who claims: “I defy anybody to come with a better solution aligned along one brand”

What’s next?

In recent years, the emerging technologies have generated a flow of new start-ups specializing in Digital, Social, Mobile etc. but also digital born creative agencies that service leading brands. Many agency search consultants  participating to our bi-yearly Adforum Summits report that it is not unusual to organize pitches where worldwide networks compete along small shops. I will always remember the meeting with Northern Kingdom, a small Swedish agency showing their global work for Nike and Coke!  Clients are getting used to this. On the other hand, some high level admen leave behind bureaucracy and politics and see opportunities of riding the Small and Agile wave. New type of agencies,  virtual networks or smaller holding companies are burgeoning. Before being swallowed by the holdings?

The Role of Consultants

In a more complex set of needs and larger competitive environment, all six CEOs underlined the increased importance of the Agency Search consultants which “bring an institutional objectivity as “custodian of the process about valuating the differenciated offerings and the best cultural fit in relation to clients needs” says Miles Nadal.

And,Yes, of course, there will be further consolidation!  Despite his denial, Martin Sorrell will try to regain his leadership. IPG is not on his wish list, he says.  And I bet IPG is in talks with Dentsu. This  Group is building its global network by acquisitions (McGarry Bowen, 360i, Aegis) but is still small relative to its own size. IPG would immediately give them the footprint that they need with a strong presence in the USA and a good Digital offering (RGA, Huge).  Havas also, but to a lesser degree and with some hurdles at the media level. And Sir Martin might consider a more focused acquisition  like Sapient, for instance, or even outside the box in the tech or consulting world.  My Two Cents.

October 20^th, 2013