The Internet and the explosion of “Big Data” have disrupted many industries including newspapers, publishing, books, travel, music, telephones and commerce itself. It is not surprising that the traditional advertising agency business is now also rapidly facing disruption from a series of Internet powerhouse players such as Google, Facebook and Amazon who leverage consumer search, profile, preference and buying behaviors to better target advertising. At the same time, they offer direct and easy to use self-serve platforms to marketers—bypassing agencies altogether.
eMarketer reports that 22% of the global ad spend is in digital and projects digital share to grow to 27% by 2017. The merger between Publicis and Omnicom represents an attempt to develop scale in this digital advertising world where both agencies have already developed an incredible presence by acquiring several digital agencies over the years.
However, it is further acknowledgement that digital is the future and more investments that leverage Big Data assets are critical for success. It is an acknowledgement that, in addition to the data-driven digital competitors mentioned above, agencies face competition from Accenture, Sapient and Deloitte and other consultancies who have been building up their data and marketing divisions and encroaching on services once only offered by advertising agencies.
Following the merger, the new entity boasts 130,000 worldwide employees, $23 billion in ad revenue and approximately $2 billion in net income. The newly combined agency will control approximately 41% of all global media advertising dollars—a staggering figure. Publicis Omnicom will have about a $35.1 billion market cap.
Google by comparison has revenues of $55.8 billion, which is more than twice that of the new Publicis Omnicom Group. Google has a net income of approximately $11 billion, or five and a half times that of the largest ad agency. Google also boasts a $302 billion market cap, almost nine times that of the newly combined largest advertising agency in the world. In fact, when you look at just three of the Big Data companies who have their sites on the advertising market—Google, Facebook and Amazon—they have a combined $533 billion market cap. That doesn’t include Apple, Microsoft, Yahoo, or the dozens of other large players who essentially make up the digital ecosystem.
Traditional consolidation of agencies is often intended to find more leverage in the media buying discussion to deliver more cost-effective media buys to clients. This merger will likely do that to some degree, but it does not appear to be the main driver of consolidation. Instead, this merger was due to the need to compete in a new market with players against whom it has not historically had to compete, and with tools—primarily Big Data and analytics—which are not necessarily a core competency within many of the holding company’s subsidiaries.