The agency holding companies all face the same external struggles – new competition, slowing growth and the need for new skills. But they’re taking different paths to confront these challenges.
Traditionally, holding companies followed the same playbook: growth by acquisition to amass the scale that gave them clout across major clients.
But the shift to digital made scale and buying power are less important than access to the right data. And agency silos blocked access to that data, slowing down work and inhibiting collaboration. These weaknesses have allowed consulting firms to pose a competitive threat.
So IPG, Omnicom, Publicis, WPP and Dentsu Aegis Network all need to get to the same place: winning more of their clients’ budgets, according to Dan Salmon, managing director of US internet and media equity research at BMO Capital Markets.
But to get there, they’re taking different bets on the importance of their agency brands and data ownership.
Do agency brands matter?
Some holding companies are doubling down on their agency brands, while others are pushing their historically competitive agencies to operate as a single company.
Omnicom and IPG often tout the work coming out of their individual agency brands, like BBDO and McCann, on earnings calls. But Publicis has been pushing toward a “power of one” model for years, while WPP is merging agencies across disciplines and doubling down on its corporate brand.
But behind their public positioning, holding companies will either showcase a specific agency or go to market as a united entity, depending on what a specific client asks for.
“If a client is large enough, they'll prepare pitches and services tailored to what the client wants,” Salmon said.
Despite bolstering its agency brands, IPG’s long-standing open architecture model financially incentivizes its agencies to work together. Omnicom also creates client-centric teams for major clients like McDonald’s.
“There’s no one way to service clients,” said Jay Pattisall, principal analyst at Forrester.
Publicis has been the most vocal about operating as a single company since it acquired Sapient in 2014. While that integrated strategy has won the group major global clients like GSK and Marriott the past few years, it’s been at the expense of its individual agencies like BBH and Fallon, said Greg Paull, co-founder and principal at R3.
“There’s the way agency brands are perceived in the minds of clients and of talent, and I think people might under-appreciate the second one,” he said. “At the end of the day, an agency is only as good as the talent they attract.”
Holding companies that go too far in the direction of a single organization may struggle, as intercompany conflicts are still a “top five issue” for big brands, Paull added.
No matter how they choose to position themselves, all of the holding companies are doing whatever they can to reduce churn and hang on to their clients in a rapidly changing industry.
But they still have a lot of work to do to get to where they need to be.
“Right now, there are hundreds of labels,” Pattisall said. “It’s increasingly complex for clients to understand what agency does what.”
The data debate
Dentsu was one of the first holding companies to invest heavily in data ownership, when it acquired Merkle in 2016 for $1.5 billion. Subsequently, IPG bought Acxiom in 2018 for $2.3 billion, followed by Publicis’ $4.4 billion purchase of Epsilon in 2019.
On the other hand, two holding companies took a different stance on data ownership.
But there’s nuance even among the holding companies that do own data assets. It’s not as if they just bought third-party data markets.
IPG’s and Publicis’s acquisitions were mostly about talent, and Publicis bought into data and wrangling technology. Because Epsilon’s assets included the CJ Affiliate Network, the Agility Harmony email platform and Conversant, Publicis made the largest ad tech acquisition since WPP invested in AppNexus in 2014, Salmon said.
“The third-party data companies were second at best, and not part of the reason why IPG and Publicis bought them in all likelihood,” he said. “First-party data management was the priority.”
Omnicom and WPP, which haven’t bought data companies recently, would argue that they already have the expertise in house.
Omnicom has its data science unit Annalect, and WPP has data management expertise spread across agencies like GroupM and Wunderman. Plus, it still retains a minority ownership stake in Kantar.
“They all have a platform designed to ingest data sources, owned or rented, and enrich their clients’ media activation,” Pattisall said.
While growing expertise in-house is a slower process, buying poses integration challenges and risks associated with certain parts of the data business.
Dentsu has had a head start on integrating Merkle, but the jury is still out on how its data impacts the holding company’s creative work, Paull said.
A year in, IPG has only begun to integrate Acxiom with its media division. And it’s too soon to tell what Publicis’ integration strategy is with Epsilon. In today’s current regulatory environment, owning a third-party data brokerage could pose long-term risks.
But home-grown data units also require internal reorgs. Omnicom relocated all of its client-facing talent at Annalect across its agencies in March, and WPP CEO Mark Read talks openly about making data and technology more accessible across the group.
Regardless of how they’re getting there, holding companies are betting on data expertise and management to create a stickier offering as their client relationships become more transient.
“It just goes to show what CMOs are asking for,” Salmon said.