Advertising Delivery Models Are Evolving: How Will the Holding Companies Respond?
February 13, 2019
When agency holding companies were birthed, they did nothing that directly affected client businesses. They were corporate entities that owned a number of smaller agencies and the attendant portfolios of real estate, trademarks, copyrights and licenses attached to those agencies. Their primary role was to create shareholder value through structural leveraging.
As time progressed, three things happened that form the basis of the challenge faced by agency holding companies today.
First, there was a proliferation in the number and types of agencies that of agencies came to be. Early on there were "above the line" full-service agencies and "below the line" shops such as sales promotion, direct marketing and PR. Over time, specialists in diversity advertising, shopper marketing and digital media have come into vogue. Highly focused agencies continue to emerge today, as witnessed by the arrival of Amazon "specialist agencies" that assist marketers seeking to do business with or sell goods online via Amazon. Specialization led to fragmentation and full-service agencies fell by the wayside. Marketers in turn saw their agency networks expand in size creating a range of agency stewardship and coordination challenges.
Secondly, the holding companies continued to acquire marketing services and advertising agencies. Part of their strategy involved bringing on specialist firms across a range of competencies to fill out their service offering. Another part of their strategy involved the acquisition of branded agency networks to consolidate activity within select clients (e.g. WPP's acquisition of Ford agencies J. Walter Thompson, Ogilvy & Mather, and Young & Rubicam) and to create walled silos that would allow them to handle competitive advertising accounts. Financial benefits were realized by consolidating functions and paring expenses in areas such as human resources, legal and finance.
Finally, along the way the holding companies began to compete as agencies, creating stand-alone client service entities such as: Enfatico (Dell), Team One (Toyota), GTB (Ford) and We Are Unlimited (McDonald's). The value proposition with these dedicated agency teams was to provide advertisers with scalable, seamless solutions served up by the most talented personnel from across the holding company's portfolio of agency brands. While the premise was compelling, the holding company model did not readily lend itself to a blended workforce concept.
Fast-forward to 2019 and advertiser preferences remain unchanged. Advertisers desire breakthrough, transformational business solutions served up on an integrated basis and of course, they want them faster, better, and cheaper.
In their search for a better "mousetrap," advertisers have begun to take certain aspects of their advertising in-house and or have engaged non-traditional partners including management and technology consulting firms. The consulting firms, represented by global monolithic brands, blended workforces, common processes, and centralized business platforms have made significant inroads with CMOs. This has raised speculation among many industry pundits as to whether or not the consulting firms would supplant advertising agencies. Fueling the speculation has been the management consulting firms' pursuit of agency acquisitions to round out their marketing/ advertising service offerings.
Advertisers, for their part, will continue to seek out and retain responsive, agile marketing partners that can provide breakthrough, scalable business enhancing solutions. While the idea of an integrated, end-to-end provider is intriguing, it may not be feasible. Rather, assembling a narrower team of specialist agencies, with the advertiser serving as strategist and integrator across the "marketing ecosystem" is the most likely solution.
As for agency holding companies, we believe that Arthur Sadoun, Chairman of Publicis Groupe, got it right when he stated that "the old holding company model is dead." Advertisers will not embrace a one-stop solution from any of the holding companies. Thus, the holding companies will likely continue their focus on right-sizing their networks through the consolidation of brands and functions and the divestiture of redundant and non-core entities. There may also be a subtle shift from a focus on cost reductions to enhancing the holding company's ability to cost efficiently scale operations. This could include an expansion of the old "shared services" model, looking beyond HR, finance, and legal to create centers of excellence around functions such as data sciences, technology, media procurement and production to provide clients across their network with faster, better and cheaper solutions in these areas.
While many lament the decline of the agency holding company, other than the world's top advertisers, most organizations hire agency brands. While some of the agencies they hire may be owned by the same holding company, more often they are not. Thus, the challenge of finding "integrated" solutions for the development of relevant, quick, agile, and engaging campaigns has been the purview of marketers, at least since the days when the full-service agency model was the standard. As such, the evolution of the advertising delivery model will more than likely be driven by advertisers and less so by agency holding companies.
Cliff Campeau is a Principal at AARM | Advertising Audit & Risk Management. You can email him at ccampeau@aarmusa.com.
The views and opinions expressed in Marketing Maestros are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.