An explosion of data. Emergent digital giants. Blurring marketing roles. Insatiable client demands for more capabilities. Fierce competition for agency services. Fast-shifting audience behaviors.
That's the future landscape of marketing, according to Omnicom Group CEO John Wren and Publicis Groupe chief Maurice Levy. And last week they made the dramatic case that the best way for them to compete in that world is to merge into a $35 billion juggernaut. Going forward as Publicis Omnicom Group, they will be a "new standard," they say.
In reality, that is not the future -- it's the present. And while the vision may be clear to Messrs. Wren and Levy, it's already proving tough to get others to see how a merger makes them better, not just bigger. To wit, the future co-CEOs held a staggering four press conferences last week to discuss the deal's merits. Investors' eyes remain blurry. As of August 2, shares of Publicis are flat since the merger announcement, while Omnicom shares have lost 2.5%.
It's widely assumed that the Nos. 2 and 3 advertising companies are early movers in an era of inevitable mass consolidation. That buys into the premise that the merger can truly help them compete with more speed, technology and breadth and others will have no choice but to make their own play at scale. But questions clearly linger over whether the company will be too big to succeed. And most importantly, it still must prove what, if anything, this does for the people paying the bills -- clients.
After a week to digest it all, here's what the deal gets them, what it doesn't and what it says about the way the marketing world is changing.
Ninety percent of the world's data have been generated in the past two years, said Mr. Levy, citing an IBM statistic to support the case for the merger. And increasingly those data are generated by digital interactions tracked for the primary, if not sole, purpose of selling goods or services. This data-intensive world has ushered in competitors that aren't ad agencies but giant technology and consulting firms, like IBM, Oracle and Accenture. Of course, being big (or bigger) doesn't magically grant a company data expertise, make it a technology leader or help it produce better insights. But increased scale could help Publicis Omnicom afford the infrastructure and talent it needs to, as Mr. Levy put it, "build something quite incredible in terms of crunching the data." Those are investments procurement-focused clients aren't eager to underwrite, and Publicis Omnicom will have a broader base of clients to spread the costs across.
If successful, Publicis Omnicom could compete more directly with the likes of Acxiom and Epsilon, top sellers of third-party data and services to help companies manage their customer data. Or it could buy up the competition. The holding company of the future is going to have to make acquisitions, likely in the data space. Combined, Publicis Omnicom could more easily absorb a bigger purchase.
Still, Omnicom and Publicis will have to integrate their existing data platforms -- a time-consuming and costly effort. And brand clients are becoming more mindful of how their information is shared across agencies, even in aggregate, which limits the value of the data passing through a holding company.
WIELDING A BIG STICK
Publicis and Omnicom have been careful not to play up the media-buying clout of their combined scale, perhaps because it could be an antitrust red flag. But it's there. "We'll be the first stop, whether you're starting a new company or you're a media company coming to try to sell out the Grammys or the Super Bowl," Mr. Wren said. "The first place they will come -- every single time, every single day -- is to us."
The combined company would have more sway with Google and Facebook. Volume discounts are harder to come by due to the real-time nature of digital buying, but there's plenty of opportunity to use scale to negotiate perks such as first looks at premium inventory and the ability to shape ad products or increased access to those platforms' data.
Scale has diminishing returns, though. Publicis Omnicom can't exactly threaten to pull $1 billion from NBC Universal if it doesn't bow to price demands, because there are few places to take that kind of money, pointed out Bill Koenigsberg, CEO of Horizon, the largest independent U.S. media agency. "So [the agency] has less flexibility than they think they have."
THE CLIENT EQUATION
Clients have grown more tolerant of conflicts and trusting of holding-company firewalls after 20 years of ad-agency consolidation, and they're not yet fleeing for the arms of competitors. But the merger rationale plainly isn't clear to them. Just 18% of respondents in an unscientific poll on AdAge.com said the deal is good for clients.
Publicis and Omnicom are betting they'll love the one-stop shop they're assembling. But right now, clients are open to working with specialty firms on things like content marketing and app development, accepting agency-like services from media giants and experimenting with bringing some disciplines in-house -- data being an increasingly common one. While marketers want efficient partners, they also want the best. There will always be marketers that need big multinational agencies to create and disseminate messages from Sweden to Sri Lanka. This deal reduces the supply of those, which in theory could help the agencies hold the line on pricing.
But clients will be negotiating, too. Publicis Omnicom has promised Wall Street $500 million in annual cost savings by year five -- and client procurement folks will surely want a piece of that.
Right now it's striking how little most marketers truly know about whether this will affect them, with most of those contacted by Ad Age saying they're taking a wait-and-see approach. Public communication about the deal's implications for clients remains long on assurances and short on specifics. As Bill Duggan, exec VP of the Association of National Advertisers, advised: "Clients of Publicis and Omnicom should directly ask their agencies -- 'What's in this for me?' and 'How will this impact my business?'"
The answer will ultimately determine what adland looks like in the future.
Contributing: Rupal Parekh, Laurel Wentz, Alexandra Bruell, Natalie Zmuda