Will data save Dentsu? Inside the holdco’s rebuild around Merkle
Though Dentsu’s most recent results leave plenty to be desired, its grand restructuring project continues apace – with Merkle’s data business at its heart. We take a look as part of our Data and Privacy Deep Dive.
Another year, another restructure. / The Drum
Pulling together across networks and geographies – or at least projecting the image of a united front – has become increasingly important for agency groups. But in the case of the newly configured Dentsu, announced yesterday, the job of bringing staff into the big tent is paramount.
Many employees within its core Japanese business begin and end their decades-long careers entirely within the firm. Case in point: five members of the new ruling council, announced this week, joined the company back in the 1980s. But following the merger with Aegis in 2012, and the acquisition of Merkle in 2016, the larger part of its workforce is now situated outside Japan.
Dentsu has merged together hundreds of agency businesses across the globe. But although executives in the US and UK quote Japanese epigrams in conversation, there’s a gulf between teams in New York (often carrying experience of a variety of corporate cultures) and their lifer counterparts in Tokyo.
The company’s restructuring scheme was so extensive it outlasted the tenure of Dentsu International leader Wendy Clark. Moving forward, its plans to take half its future revenue from digital transformation services mean reorienting its entire business model away from advertising and media, and around the data business housed within its subsidiary Merkle.
Merkle is “a very unique company inside Dentsu,“ says Forrester analyst Jay Pattisall. “It includes digital media and performance media capabilities, it includes marketing development and a creative function. It has a business-to-business practice comprised of several consolidations, including Gyro and DWA, and then there’s the data and identity resolution business it has developed.”
Software platforms such as M1 and Mercury, both developed at Merkle, are now embedded throughout Dentsu’s media agency network and are increasingly used by its creative businesses. “Merkle sits in the middle in the same way that Epsilon does for Publicis. It powers the marketing execution for different service lines across Dentsu,” says Pattisall. He argues that the organization acts as a “glue” for the wider holding company, a “foundational piece” that binds the business model together.
While analysts routinely question the depth of coordination inside sprawling holding company businesses, Pattisall says Merkle lives up to its promises. “There’s a little bit of theater around this,” he says, “but aside from any messiness behind the curtain, Merkle has a really solid reputation. Dentsu would not be the same company without Merkle and its data products.”
While those capabilities – feeding audience insights to creative agencies as they dream up new campaigns, producing performance creative that frees up Dentsu Creative to build larger brand campaigns, or helping to inform a new media strategy – add value to its products, it’s also key to realizing a major ambition for Dentsu. The company has a stated goal of taking 50% of its revenue from CX and digital transformation services by 2025.
Dentsu needs Merkle not just to quarterback its creative and media businesses, but to act as an anchor for its agency stable as it transitions to a new position in the wider market. “It’s about the business revolving around how you deliver better experiences for customers across the spectrum,” says Matt Naeger, executive vice-president and chief strategy officer for Merkle in the Americas.
He explains that getting to that position means more investment in the network (such as the Pexlify merger inked back in June) while integrating it even more closely with other Dentsu agencies as it rolls out across regional and national markets.
“The EMEA team have done a great job of linking the teams together at cluster level at country level as well as at region level to consolidate that approach; the next phase is scaling up in Asia Pacific,” he says. To that end, APAC counterpart John Riccio has a brief to double Merkle in the region through strategic acquisitions; a “big chunk” of Dentsu’s $2.6bn war chest has been set aside for the job.
Audience activation as a boilerplate
In the biggest integrated pitches of recent years, such as the huge Coca-Cola business granted to WPP last year, Dentsu has missed out. But the top accounts in today’s advertising industry are almost all integrated – that is, package deals which combine creative, media and some form of CXM or data service.
Pattisall says that “the presence of an agency’s audience platform and audience activation technology is, at this stage, a boilerplate. It’s a must-have component for large global integrated pitches because of the volume of dollars that are moving out of linear television and into more addressable forms of digital marketing. There needs to be a preciseness with this form of marketing’ it needs to be highly targeted. They need to be able to appropriately control the reach and the frequencies so they're not overspending, and they need to find these audiences and target these audiences in a privacy compliant manner,” he explains.
“You don’t get to the second or third meeting if you cannot demonstrate a competence in in audience and data competency for digital marketing these days.”
According to Naeger, Merkle is playing a bigger and bigger role in demonstrating those competencies, as well as linking together media or creative offers. “Merkle connects into that story because we bring our analytics prowess in… that links to our media and our creative narrative,” he says.
“The center point of Merkle’s value proposition is that you need to understand the expectation of the consumer before you put an ad in front of them. What that ad looks like and when it gets there, and how much you pay for it are all based on whether or not you can meet that expectation, and how you’re going to deliver on the expectation. It’s a more integrated story than where we were even two years ago.”
CXM isn’t a side hustle for Dentsu – it’s the future of the entire agency group. In the company’s most recent trading update, its digital and customer transformation business was one of the few areas of positive organic growth. While its international business still charted growth in the third quarter of 2022, organic revenue growth at its Japanese business fell. CXM services in particular outstripped creative and media, even as organic revenue growth across all four of its operating regions fell. What’s more, Dentsu does more CXM business internationally than at home; income from that service area rose to 35.7% of group revenues in EMEA, Americas and APAC, compared to 27.9% in Japan itself.
That gulf may close in coming years. But it suggests the centrifugal force keeping Dentsu together won’t be its Japanese heritage but Merkle, and the digital transformation business it underpins.
For more on how the world of data-driven advertising and marketing is evolving, check out our latest Deep Dive.