For so long, advertising’s ‘big six’ – WPP, Omnicom, Publicis, Dentsu, Interpublic and Havas – had things pretty easy. Clients relied on them for creativity, innovation, new technology, the lowest prices and so much more, and they only had one another as serious competition for the big accounts. Complacency became a real risk: growth was driven largely by acquisition, and they relied on scale and global reach being a barrier to entry for any ‘upstarts’.
In-housing and management consultancies pose a risk
Recently, however, things have become much more challenging. It started with the ongoing accusation that the big six were not transparent in their business practices, as explored in the ANA’s explosive K2 report in 2016. This concern prompted many clients to seriously consider, or even actively start, bringing their media buying activities in house, thus cutting out the middleman, saving money and eliminating transparency concerns. In-housing has gathered pace with the rise of digital advertising, with many major brands bringing functions such as creative, content creation and even programmatic buying in-house. And then of course, there’s the threat of the management consultancies, who, as E.J. Schultz writes in Ad Age, are ‘wooing chief marketing officers with their vast array of strategic and data analytics solutions to big business problems that traditional advertising can no longer solve’. In 2018, the marketing services units of Accenture, PwC, IBM and Deloitte muscled into Ad Age’s ranking of the 10 largest agency companies in the world, making the big six sit up and take notice once and for all.
A resurgent advertising industry
Most recently, the threat has come from a resurgent independent advertising industry. In a recent Campaign article, Iain Jacob wrote about how the industry appears to be ‘returning to a more natural state of creativity that has always defined the best advertising practitioners’ – he suggests that creativity has been stifled by the big six and the landscape had fallen flat. Now, start-ups in every sector of the industry, from content and digital creative to data and performance, backed by private investors, venture-capital funds and private equity, are flourishing. They are being fuelled by clients who are promoting diversity and supporting a ‘fundamentally different ecosystem to procure the creativity they need to thrive’.
How have the big six reacted?
In the manner of turning a large ship, the reaction of the big six has been somewhat slow, but is now gaining momentum. Each has been pursuing radically different strategies, compared both to their past strategies and to one another. WPP, for example, has – as we explored in more detail in this blog – focused on streamlining its structure, consolidating its workforce and investing in more data and technology alongside creativity. For them, it’s a question of simplifying their offering so it’s easier for clients to navigate. Jacob points out that WPP has taken a different approach to data to Publicis Groupe: the latter acquired data marketing business Epsilon, therefore cementing its status as a data ‘controller’, while WPP has sold its stake in Kantar to focus on being a smart data user or ‘processor’ to drive value for clients. Jacob makes it clear that his money is with WPP in this instance. In second quarter reports, Omnicom’s John Wren stressed the group’s commitment to creatives and creativity as the key driver of their recent growth: ‘Omnicom was founded by creatives. It is not something that can be acquired or sold’.
Is it working?
This year’s second quarter reports for the six holding companies were generally positive. WPP’s key sales measure – organic growth less pass-through costs – fell by 1.4%: not immediately promising, but a marked improvement on the 3% fall forecast by analysts, and also an improvement on a fall of 2.8% in the first quarter. Interpublic also enjoyed good news in July: a second quarter net revenue increase of 9.1% and organic net revenue increase of 3.0%. American conglomerate Omnicom reported a fall in revenue of 3.6%, but an increase of net income of 1.8%, thanks to organic growth in advertising and healthcare. Things weren’t so optimistic at Publicis: the French company reported lower-than-expected revenue for Q2 2019, with just 0.1% organic growth, compared to analysts’ expectations of 0.7%. That resulted in a slump in share value of 8.5% – their lowest level since 2012.
In the short term, and considering the financial positions of the major players, the focus on creativity and client deliverables rather than acquisition of data companies seem to be playing well. In the context of the rise of in-housing by clients, is data acquisition the right thing to do? Only time will tell.