April 24, 2018

With the departure of Sir Martin Sorrell  -- or SMS, as he is lovingly called -- many are now predicting the end of WPP and of agency holding companies in general, along with the business model of the tailor-made, client-specific, integrated agency offering.

I doubt that will be true. Will things change? Absolutely! But the agency holding company model is not going to disappear -- and that’s all because of simple economics.

When companies seek growth in mature markets, one simple solutions is to buy other companies that represent business opportunities in adjacent categories to the core business, additional categories previously not served, new categories previously nonexistent, etc.

P&G just bought itself a whole slew of OTC pharma brands by purchasing Merck Pharmaceuticals.  P&G has bought and subsequently sold pharma companies before, including Norwich Eaton Pharmaceutials.

This strategy will remain true in adland. If programmatic is a way to serve clients and generate revenue, agency holding companies will venture into that business. If it is CRM, PR, content studios, data analytics, influencer — agency holding companies will move into these as well.

As Rishad Tobaccowala, chief growth officer for Publicis, has famously said about agency holding companies: “We're cockroaches. We know how to scurry around, we hide out in the corner, we figure out where the food is, we reconstitute ourselves.”

In fact, the new competitors -- aka consultancies -- are following the exact same strategy. Marketing Consultants R3 calculated that M&A activity by the likes of Accenture, Deloitte, IBM, KPMG and McKinsey & Company totaled $1.2 billion in agency acquisitions in 2017, a 134% increase from 2016. These companies bought creative agencies, data analytics agencies, programmatic platforms, etc. That sounds awfully like they were trying to be an  agency holding company --
proof that the model is not dead and will not disappear.

So then on to the integrated offering. Many credit SMS with the invention of this model. And while (as a Brit, he would have said “whilst”) I can’t confirm that this is accurate, he was pushing this idea at least as early as the year 2000 to me. The challenge for marketers is having to deal with a multitude of agencies, meaning that you, the marketer, have the important task of conducting an ever-growing orchestra.

Today, marketers do not have increased resources, but do have far more things to do. So, if you can have one partner who can cobble together all the services you need, and you now only have to orchestrate a manageable number of account managers, that makes life a whole lot easier.

When this model was being sold by one agency, there were always problems for marketers. For instance, JWT or Mediacom might be great in 85% of all the countries a brand wanted to cover, but terrible in the remaining 15%. When you procure services across the whole spectrum of the agency holding company, that remaining 15% can be easily solved for with talent from, for instance, Ogilvy or Mindshare to stay within the WPP wheel house.

Is this model the best for everyone? Absolutely not. But the question marketers should be asking is “What are marketing’s future needs?” — and not, “Now that the agency holding company model is dead, whom should I hire?”

by Maarten Albarda
Courtesy of mediapost


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