Last week, Bain Capital bid 152 billion yen ( US 1.35bn ) for ADK in which WPP has held a 25% stake in ADK for the last 20 years. WPP's stake has been valued at $290m. ADK also holds a 2.4 percent stake in WPP worth $576m. It is not clear how other international shareholders may respond to Bain's move. Completion of the deal would see ADK privatised and delisted from the Tokyo Stock Exchange. There has been trouble brewing between WPP and ADK for a while so the offer from Bain is not surprising. Bain Capital grew out of Bain & Co although the two companies are independent.
This news comes on the heels of the news that WPP and Publicis are potential take over targets and that Accenture could be a credible buyer. "Amid strong pressure on advertising agencies’ business models, a consolidation deal is a credible scenario," Jerome Bodin, an analyst at Natixis, wrote in a research report last week. Bodin said a merger is one possibility, but more likely is acquisitions by a consultancy or IT services company like Accenture or Capgemini.
Earlier this year Brian Whipple an ex-ad agency executive from Accenture Interactive said, "We don't believe brands are built from advertising anymore. "They are built from an amalgamation of customer experiences, so that is what we are focused on."
Four consultancies have already cracked Ad Age's ranking of the 10 largest agency companies in the world. With combined revenue of $13.2bn, the marketing services units of Accenture, PwC, IBM and Deloitte are just below WPP, Omnicom, Publicis Groupe, Interpublic and Dentsu.
So what if anything is likely to happen if there is an unhappy marriage between the consultancy and the ad agency?
Advertising agencies for a long time now have devalued their own services by charging less than they are worth. Add to this unfair price competition with every agency trying to undercut every other agency. This first started to happen in the 90s when the 15% agency commission broke down and the media business first got separated from the creative business. Clients have been driving down agency fees to the bare minimum ever since then. This has had two effects on the advertising agency:
It has put a squeeze on costs. This has resulted in the ad agency recruiting people who are neither qualified nor talented. To take an example from the Indian advertising market, way back in 1992 agencies like JWT in India hired at least 60 freshers from the prestigious management schools in the country. That number in 25 years is now dipped to less than a quarter. Advertising is no longer the industry of choice for students from the more prestigious management schools. It neither pays well nor is it attractive.
In an effort to shore up their margins, agencies have been less transparent than they were 25 years ago. Toyota unfortunately was the first client that discovered irregularities in the media buying of its agencies, something that has sent shock waves through the industry.
The good part is that consultancy companies value their work and know how to charge for it. They make ad agencies look like fumbling infants when it comes to charging a fair fee for projects. If like me you have been witness to any project reports or presentations from the consultancy companies, you must have said to yourself " I can do this as well or better, but why do the consultancy companies charge a packet for this while I get pittance"?
So in other words the consultancy might just help to make the advertising agency more profitable.
Strategy vs Creative
The biggest downside of the ad agency-consultancy marriage might well be in its appreciation of creative services. In my interactions with the consultancy company, they seem much worse than clients in their appreciation of creative. They lack intuition, they are too left brained, stodgy and use research as a means to justify everything they do. The agency planner and client service executive is already an enigma to the agency creative person and this relationship might well be doomed with a consultant entering the fray.
We can certainly now bid a proper goodbye to creativity as we know it. Remember Bill Bernbach said " An idea can turn to dust or magic, depending on the talent that rubs against it."
Having said that, the consultancy is pretty close to gobbling up the ad agency. They are already making their mark on the digital and interactive arena - Deloitte Digital, Accenture Interactive are just examples of how the consultancies are already dominating the digital arena.
Who would have thought that the death of advertising as we know it, would be accomplished by the consultancy consuming the ad agency? Creativity is like washing a pig said Luke Sullivan, author of "Hey, Whipple, Squeeze This". God knows but maybe the consultants may just turn that into a science, so goodbye Mad Men! And R.I.P. Don Draper.
Prabhakar Mundkur is chief mentor for HGS Interactive Follow him on Twitter @wisecowboy