Why do big agencies continue to snap up their smaller bretheren? Why, in the current – and very uncertain climate – did Sir Martin Sorrell’s WPP recently pay over half a billion dollars for digital agency AKQA?
At Green Square, we have (along with many of the industry’s most seasoned observers) long been saying that with digital now being central to most brands’ marketing, the old channel silos (TV, print, radio, direct, online, etc) will dissolve; this means that from a client perspective, it’s no longer enough to have a “digital strategy” as a separate element of a marketing campaign, it’s about having an overall strategy for a digital world, of which offline is just part of the mix.
The problem is, many of the big global agencies that service these brands sometimes find this silo-smashing difficult. To survive, they therefore needed to get to a position where they could truly offer the same level of expertise and creativity as the younger and more nimble independent agencies. This means buying up the creativity, expertise and culture of those successful, smaller competitors.
This year the trend has, if anything, accelerated with the WPP/AKQA acquisition but also other digital businesses such as Fortune Cookie which is being rolled into Possible. Dentsu is acquiring Aegis, whose portfolio includes some very interesting agencies such as iProspect and iSpy. We’re even seeing intra-group consolidation – Publicis has pulled together a group of its agencies under Publicis Chemistry including Dialog, Chemistry, Notorious, Blueprint and Ideas to Market.
So, what does this mean for the remaining independents? We well may see a bit of a land grab for the larger ones as the remaining networks that lack digital scale – UK relative newcomers such as South Korea’s Cheil, and established players such as Interpublic – seek to gain further digital credence in one fell swoop.
However the smaller agencies need to think about where their market now lies both in terms of client revenues and ultimate exit.
Those that are niche, particularly in the fast-growing analytics, smart apps and social media arenas, may find they still possess something that the networks can’t deliver and can leverage this to their advantage. Marketing and tech continue to converge and understanding the customer journey – along with the ability to monetise it – is more important then it has ever been.
The logical next step for the global groups who have gained sufficient digital scale and credibility is not to further build their digital marketing credentials, but increase their other digital capabilities.
So the trend towards acquiring smaller agencies will continue – it’ll be different kinds of smaller agencies that will be in demand over the next few years. It is cheaper and faster to acquire certain skills than try and build them in-house. The trick will be properly scaling the technologies across the acquirer’s customer base and integrating these services into the mix. This is an area that could easily remain fragmented unless efforts are made to really embed analytics with the more generalist digital marketing skills.
This doesn’t mean that the remaining independent “pure creative” digital agencies are going to remain unloved on the shelf. If their offers are commoditised, then they are unfortunately less attractive as an acquisition prospect to UK acquirers as most have now filled their boots; but there are many overseas acquirers still looking to achieve capability in the UK and this demand will continue in the near term.
However, such agencies will need to carefully consider where their revenue opportunities will come from in the future: the best opportunities for them reside with clients who have decent marketing budgets but are not “significant” enough to attract the attention of the big groups. Equally, due to the smaller scale, the marketing teams within these clients tend to look for an agency that can deliver across the whole piece rather than breaking their spend into separate elements.
Then of course there’s mobile, whose year it is every year! However, mobile marketing really does now seem like an idea whose time has finally come. This year we’ve seen increasing use of mobiles as transactional tools largely driven by the growth in Apps. This is an area that will continue to evolve and be of interest to acquirers as it still holds an element of mystique.
Mobile advertising spend is increasing, but not at the same rate as other forms of online marketing. The smart money will be in the areas where software meets mobile in the wider context of being away from a computer – not just Apps on a mobile phone per se, but in the daily interaction out-of-home including outdoor advertising connectivity, in-store and in environments such as cars to the extent that such applications can be quickly upgraded, refreshed and further developed. There are some small agencies operating in this space – expect them to become targets for the more savvy groups in the near future.
It is not the end of an era but the start of a new one. The world never stops and everything continues to evolve. There will be new ways of doing things and the “next best thing” is just around the corner. It is those agencies that embrace adaptability that will be lead the charge for future growth through innovation… and they will be the ones to watch.
Green Square Partners
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