When Publicis Groupe and Omnicom Group announced their $35 billion megamerger Sunday, the first slide in the part of the investor presentation explaining the strategic rationale touted they were living in a new world with an "explosion of big data, analytics and insights."
So, will this merger truly help the company to better get a handle on big data? Or is it just a scale play intended to improve efficiency and negotiating leverage? That's been much debated over the past few days. Scale doesn't magically translate into data expertise and infrastructure and the soon-to-be-co-CEOs, Omnicom's John Wren and Publicis' Maurice Levy, have shed no light on how they plan to get there.
What is clear after talking to several people in the industry, including some at these two giant ad players, is that there are a few ways a merger could help a combined Publicis-Omnicom build the kind of infrastructure a giant holding company needs to compete in a data-driven world. But the merging certainly isn't the only way to do that -- and everything will depend on whether it can execute a path potentially made more complicated by the doubling of its size.
The first thing to know is that proposed Publicis Omnicom Group doesn't want to become the next Google. Rather, today's ad agencies need to use Google and other digital-media platforms -- including, increasingly, digital video platforms as soon all advertising is delivered digitally -- to show the right message to the right person at the right time. That comes with building a sophisticated technology infrastructure to handle everything from managing myriad iterations of creative across the globe to generating and buying the data used to pinpoint audiences -- as well as by hiring the kind of people who can run it and glean insights from data. Much of that infrastructure can be licensed -- Publicis and Omnicom companies already partner with Adobe, Oracle and Salesforce.com -- but big holding companies see revenue and strategic advantages in building out much of their own platforms. The problem is, clients aren't keen on financing such massive investments.
WPP, which is arguably the furthest along in creating its own technology infrastructure to manage data and digital advertising, financed its platform in part with its arbitrage-based digital-media-buying model. Publicis and Omnicom hope that by getting bigger, they'll be able to amortize the cost of building platforms and buying data across a broader base of clients, as well as negotiate better deals with the companies that supply much of that technology and data. In other words, the proposed Publicis Omnicom Group doesn't want to be Adobe or Amazon. But it would love to negotiate better deals on technology and data with Adobe and Amazon -- and Oracle, and Salesforce.com, and SAP, and Blue Kai, and Experian.
The systems integration headache
Omnicom has already started building out such a data-driven advertising platform, called Annalect. At Publicis, that platform largely lives within VivaKi, which has evolved from its all-things-digital holding brand into an automated-buying system and keeper of big, holding-company-wide relationships with digital companies.
When asked in an analyst call today about whether the merged company would build on Annalect or VivaKi, Mr. Wren was quick to dodge the question, appearing to interpret it as one about where it would trim headcount. He did note that with Annalect "we're building something extraordinarily powerful that can be utilized at the end of the day by every single client that we have and the bigger we get more information we get -- the more products we develop, the better it is."
But the question is a valid one, and the challenge of integrating systems can't be underestimated: these two sprawling ad giants now must agree to consolidate into one data and ad serving platform, or the promise of huge data scale for greater efficiencies may never come to fruition.
Their now-smaller adversary, WPP, has spent the past few years gobbling up technology firms and tech-driven agencies. The combined forces of Publicis and Omnicom aren't necessarily more nimble in the tech department. Indeed, Omnicom historically has partnered for technology, while Publicis has built in-house.
"They haven't had a clearly defined strategy on tech," said Alex Yoder, CEO of web analytics firm Webtrends, which has branched out its business into cross-channel marketing automation.
If data truly is the reason for the merger, the holding companies stand to compete more directly with the likes of Acxiom and Epsilon, top sellers of third-party data and services to help companies manage their own customer data. Both firms have built out their agency services in recent years. Epsilon in November acquired digital agency Hyper Marketing, giving it marketing services to put its consumer data insights, management and analysis to work for brands.
Companies like Epsilon were born out of data and the technology necessary to use it. As they tack on agency services, they could steal market share away from the large agencies. Epsilon-owned Aspen Marketing Services is the digital agency of record for Fed Ex, for example, according to Andrew Frawley, president of Epsilon.
Epsilon's agency business is its largest revenue-generator, said Mr. Frawley, noting, "A lot of the [clients'] budget gets spent out of the agency bucket."
Clients own their data
Then there's the question of whether or not brand clients will allow their information to be shared, even in aggregate, which is necessary if Publicis and Omnicom are to take full advantage of all the data passing through their organization. It's unclear why Pepsi would want to divulge any proprietary data in a way that could benefit its archrival Coca-Cola; both are clients of the merged conglomerate.
Perhaps not surprising, more and more large brands are taking ownership of their data and the data-centric efforts enabled by it. As they build data-generating loyalty programs themselves, hire their own data scientists and conduct analysis internally, it's not clear how readily they'll partner with the large holding companies for such services.
And speaking of data scientists, smart people who understand how to spin all this consumer data into something valuable for brands are at a premium. Attracting this kind of talent to Publicis Omnicom Group in the middle of the inevitable chaos of two huge agency networks aligning won't be easy when there are many alternatives in the technology and analytics space, so many of which are chomping at the bit for more data people, and willing to pay for their expertise.
Leverage with web giants
Finally, scale will help them as they negotiate more comprehensive media deals. If they can bring their media operations under a single buying platform, a la Group M, they'll use that scale to control pricing in traditional media where ad space is typically bought upfront. But the scale could also benefit them with the digital-media giants, such as Google and Facebook, whose rapid global growth was also cited in the rationale for the merger.
It's true that much digital media is bought in an auction-based, programmatic process, but there are perks that scale can help you negotiate -- whether that be better inventory, first looks at new media opportunities, the ability to shape advertising products or increased access to the data generated by those platforms. Several holding companies have already done these alliances with digital giants, but increased scale offers more power in influencing those partnerships.
Scale is no guarantor of success in a data-driven world. In the short term, Publicis Omnicom Group could use its increased leverage to negotiate better rates for media and production and cut costs out of its back-office redundancies. But will scale prepare them for tomorrow's marketing realities, which include a new competitive set of technology and consulting companies, a tendency of clients to take things in-house or work directly with digital giants -- not to mention an explosion of data?
That's the $35 billion question.