The news sent shock waves through the ad business and has indeed propelled the industry on a course of consolidation that is running rampant today.
True, Interpublic Group of Cos. had existed for two decades before what was called the Big Bang. And true, acquisition-happy Saatchi & Saatchi Co. of London would two weeks later pull off a buyout of Ted Bates Worldwide that would topple the $5 billion in billings of the Big Bang partners-later to be named Omnicom Group-from the No. 1 global organization. But the vision of a marketing world with global accounts and giant holding companies for corresponding agency networks is now the nature of advertising.
`IT WAS THE SPARK'
"It was the spark that ignited the fire," said O. Burtch Drake, American Association of Advertising Agencies president-CEO.
Advertisers had provided the fuel, in the form of an increasing emphasis on foreign markets and global marketing. Evidence of this long-forming trend has mounted in recent months, with global account consolidations by Bayer AG at BBDO Worldwide ($225 million), Colgate-Palmolive Co. at Young & Rubicam ($550 million) and S.C. Johnson & Son at Foote, Cone & Belding ($350 million). And that's just recently.
Omnicom, now the No. 2 ad organization, had billings of $20 billion in 1995, and much of its growth is coming outside the U.S. (see chart on Page 3). No. 1 is London's WPP Group, formed after Omnicom with the takeovers of J. Walter Thompson Co. and Ogilvy & Mather, with billings of $22.7 billion. Saatchi & Saatchi, now known as Cordiant, today is No. 5 with billings of $11 billion.
If other marketing disciplines were eliminated, Omnicom would be No. 1 in advertising.
Ad agencies are notorious for overpromising, but the people behind Omnicom by all accounts delivered on their pledge to be a "global creative superpower."
QUESTIONS OF QUALITY
Critics of the Big Bang predicted a drop in the quality of the well-regarded creative of the agencies. But BBDO Worldwide and merged DDB Needham Worldwide have retained reputations for fresh, entertaining advertising.
Another satisfaction to Omnicom, now headed by Chairman-CEO Bruce Crawford, a former BBDO CEO: The company's stock has quadrupled in value since 1986.
"When you look at Omnicom and how well-managed it is, it certainly looks like it was a pretty good idea," said Martin Sorrell, chief executive of WPP.
There was a lot of uneasiness about mega-agencies in '86 and a few years thereafter, both on the client and agency sides, Mr. Drake recalled. But "today one looks back and says this is a pretty good way to run global communications companies."
Advertisers initially were concerned for a variety of reasons. With a concentration of agency ownership, client conflicts appeared unavoidable. Both Omnicom and Saatchi-with-Bates lost hundreds of millions of dollars in billings in the weeks following the mergers.
IRKED BY PAYOUTS
Of course, some clients also found the high payouts that some agency executives received-Bates Chairman Robert Jacoby pocketed $112 million in the sale to Saatchi-vexing, since that money ultimately came out of their coffers.
The Bates deal, and the shop's subsequent firing by a few big clients, hurt-and slowed-the globalization process.
"Bob Jacoby cost us three years in healing and synthesizing," said Keith Reinhard, still chairman-CEO of DDB Needham.
In an interview with Advertising Age not long after the merger announcements, Robert Goldstein, top ad executive at Saatchi client Procter & Gamble Co., said he saw no added value in the formation of giant agency holding companies. He was skeptical that the independence of their various agency holdings would be maintained.
P&G keeps one of the industry's toughest agency conflict policies to this day, though Saatchi & Saatchi Advertising Worldwide remains a major global shop for the No. 1 advertiser.
In the automobile industry, it's common to find competitor brands working within the same holding company. Interpublic agencies handle General Motors Corp. brands and Mercedes-Benz. Omnicom agencies handle Chrysler Corp., Volkswagen, Porsche and American Isuzu Motors.
ONE FAILED VISION
One vision of the megamergers that wasn't realized was centralization of many agency functions. Omnicom had hopes of merging functions including research, production and personnel. In the end, only certain financial functions have been truly consolidated, giving agencies credibility when they claim autonomy.
"There were too many ego and turf issues involved," said BBDO Chairman-CEO Allen Rosenshine, along with Mr. Reinhard an architect of the Big Bang (see story below).
Other Omnicom visions have materialized, however. Its first annual report addressed agency compensation: "We expect competition among advertising agencies to increasingly focus on costs to the client."
Indeed, the past few years have seen a dramatic increase in cost-based fee systems, at the expense of traditional media commissions. More clients and agencies are negotiating performance-based agreements as well.
Consolidation and compensation feed each other, of course. Big agencies pitch clients on the efficiencies of working with one agency around the world. Recent consolidations by Colgate and S.C. Johnson were in part driven by their desire to cut agency costs.
SMALLER SHOPS PERSIST
Despite all of the consolidation, the agency giants haven't been able to put smaller U.S. agencies out of business. The top five holding companies control a smaller share of U.S. ad spending than of spending around the world. And the top 10 agencies in the U.S. have seen their share of the total U.S. market decline slightly in the past decade.
What has become challenging for smaller shops is remaining independent. In the '90s, the holding companies are on a new buying binge for smaller, specialized shops that can operate independently under their umbrellas.