The planned merger between French firm Publicis and US group Omnicom raises the prospect of a new powerhouse in the digital marketing and advertising sectors, but will it also deliver change to the marketing technology industry?
Together, Publicis and Omnicom control around 41% of global advertising spend with a combined 2012 revenue of $22.7 billion.
If the planned merger goes ahead, Omnicom chief executive John Wren will share the top job with his Publicis counterpart Maurice Levy for 30 months, after which Levy will become non-executive chairman and Mr Wren sole CEO
Crucially the merged entity will be bigger than the world's current biggest advertising agency WPP, whose chairman Sir Martin Sorrell commented:
“Further consolidation is now inevitable. This is an extremely bold, brave and surprising move. Time will tell whether the cultures click, which clients benefit and how the synergies are achieved without any job cuts.”
Behind all the manoeuvring is a battle to secure position in the digital marketing world.
Back in February Publicis merged its Digitas agency with LBi, a marketing and technology agency it acquired last September, as it battled WPP to build the biggest digital agency in the world.
WPP has said that it wants to secure 40% of its business from digital advertising within the next four years.
Levy flagged up the importance of the marketing technology aspect of the merger:
"The new chapter we are opening is, first and foremost, a story of talent and innovation in a world being reshaped by technology.
"We must continue to invest in the tools and the models that we bring to our client the most effective and efficient marketing solutions, integrated solutions that cross the lines between disciplines and geographies, and between channels and devices.
"Our combined company will have 130,000 employees, and it will be because of our employees that we will be able to accelerate the adoption of new solutions across our agencies through our continuing investment in technology, learning and collaboration.
"Publicis Omnicom brings together the leading providers of virtually every advertising, marketing, digital and communications discipline under one roof."
Levy admits that the merger is a by-product of a rapidly changing - and increasingly data intensive - marketing and advertising landscape:
"In the last few years, we have seen media dollars shifting to new communications channel that didn't exist just 5 years ago. This phenomenon has given rise to new media giants that have expanded the communication channels available to our clients.
"At the same time, consumer preferences for consuming media and messages have evolved rapidly. New devices and technology platforms like smartphones and tablets are allowing consumers to turn to all types of electronic interfaces for entertainment and commerce.
"That means our clients need even faster, efficient and global solutions, and they need actionable insights in real-time from the vast amount of data that is now available."
The combined Publicis-Omnicom will be able to double down on digital, he added:
"Both of our companies have created a deep understanding of consumer behavior, a broad digital offering and strong capabilities to service our clients. We believe that building on these existing strengths will lead to numerous growth opportunities and significant revenue streams.
"Our combined investment in technology will allow us to drive continuing innovation, as well as industry-leading training and development for our people. Similarly, we are excited about bringing even more innovative services to market as part of our digital offering, and we are committed to continuing to lead innovations in this mission-critical area.
"Publicis Omnicom Group has a deep understanding of the digital landscape. Our existing partnership with technology leaders allow us to get the best results for our clients by having access to a trove of data that is used to generate real-time consumer insights."
There is of course another aspect to all this which is the emergence of increased competition from 'non-traditional' competitors, such as Accenture which has been investing in its own digital agency plays, exploiting its relationships with senior C-suite execs as the balance of power shifts between CMOs and CIOs.
Most of the systems integrators went into digital to build eCommerce and CRM systems. But the end client for these efforts is typically the CMO, with the CIO making the linkages to internal systems. As these two executives merge their strategies together to drive digital business, the agencies have a leg up on the relationships, but need the scale to be competitive on the implementation front.
Cooperstein reckons that a combined Publicis-Omnicom would have a good digital pedigree that would position it well:
To gain strength in building a future, Publicis has been aggregating large digital shops to complement its traditional creative agencies; at the same time, Omnicom has been amassing a large contingent of small shops that grew quickly under its Diversified Agency Services (DAS) umbrella of digital firms in the race to lead the "new" thing.
The need to offer data solutions is now a critical play, he notes:
Marketing and business strategy based on deep data. No marketing strategy is competitive today without the strength of managing and interpreting data. Both firms have invested in disparate platforms to build insight into the planning process. Agencies like Rosetta and RAPP use data to inform the strategy to build customer engagement, getting ad efforts closer to Moneyball-like results.
And in a week when it was reported that too many marketing organisations are struggling to manage too many agencies, adds Cooperstein:
The merger of these two holding companies should provide more diverse choices to work with leading agencies under one holding company umbrella. Also, a larger buying center should mean better negotiating power for paid placements and technology services. By consolidating massive media buying power under one roof, one outcome should be better buying power and influence.
There are major - though predictable - negatives, in the name of more client conflicts and less negotiating power on fees. Once the client conflicts are worked out, multi-national marketing purchasing departments will struggle to negotiate if they want the scale and depth of holding company relationships.
Well it's all very exciting and impressive and terribly Mad Men, but will it work?
Assuming it goes ahead, there will be some interesting questions of client conflict to address for the combined entity which will, for example, handle both Pepsi and Coke.
As WPP's Sorrell notes:
"Clients really have not been taken through the pros and cons of this in any great detail and it's going to be very interesting to see what happens."
But let's not run before we can walk hand-in-hand. Competition regulators are bound to scrutinise the effect that combining so many of the world’s top advertising agencies will have on the market.
Even if the US authorities are happy, Europe's bound to find some problems despite Publicis' French pedigree.
But the very fact that it's being planned is indicative of the changing competitive nature of the digital marketing landscape.