Holding Companies Must Bring All Disciplines to Table

An Ad Age Editorial

Published on .

When WPP Group Chief Executive Martin Sorrell announced record 2006 results, he made a confession to Wall Street analysts: "If you said to me what do we worry about, well, I think we worry about the traditional advertising business in the mature markets."

Mr. Sorrell said publicly what many agency executives say only privately. The crux of the matter: Agency costs, cultures, creative solutions and business structure are out of sync with where marketers want to go. It's time to rethink the model.

There's no denying business is shifting. Since 2005, traditional advertising and media buying/planning have produced less than half of revenue for U.S. agencies, according to Advertising Age's analysis. Marketing services -- a catchall including digital, direct marketing and promotions -- brought in the rest. Traditional agency revenue last year rose just 4.2%; marketing services jumped 13.1%.

Holding companies are well-positioned in emerging fields: WPP, Omnicom, Interpublic and Publicis last year generated 49.5% of worldwide revenue from marketing services, insulating them somewhat from tumult in traditional media advertising.

The appeal of digital, direct and certain other marketing services is clear: Results can be measured. As Mr. Sorrell said earlier this year: "We'd like to see half our business in the measurable area basically because we believe that clients will not move any more without significant quantitative data for their decision making."

At least for now, he sees one advantage in keeping ad agencies and marketing services as distinct disciplines. " OgilvyOne is growing much faster than Ogilvy advertising, and if you look at the two things together, one masks the other," he said. "If you split them apart, it tells you a lot of interesting things."

Where does this leave traditional ad agencies? They must become more accountable, agile and relevant. Mr. Sorrell said: "We may have to do some things in the traditional agency business that makes life difficult -- make some changes." Good agencies are malleable. Sometimes it takes a hammer.

In the end, it's essential to knock down silos; DraftFCB CEO Howard Draft has the right idea in his mandate to put all disciplines at the same table. It's no use having lots of marketing-services companies in the holding-company stable if they're not working with ad agencies on integrated solutions for clients.
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