Agency Darwinism in the Web 2.0 Age
Just take this statement from Dell's blog regarding their engagement of WPP for their $4.5 billion global business:
"Together with the WPP agency, Dell is creating a new marketing model designed to further propel Dell's growth. We've been calling this 'Project Da Vinci' because we've been looking for the combination of artist and scientist-an agency that has both the creative horsepower and ability to measure the business impact of their work."
For those who think that large agencies have it any easier than smaller agencies because of their deep pockets, think again. Granted, the big guys have the resources to invest properly. However, it takes a lot longer to turn around an oil tanker than it does a speed boat.
Of course, the oil tankers have been turning for some time now, and it's an impressive sight to see the ship riding the crest of a huge wave and passing a tipping point, surmounting the legacy resistance and generating even more momentum by integrating familiar digital marketing brands from all walks of life into major agencies everywhere you look. We're talking about specialized agencies, ad delivery and measurement systems, research tools, technology companies, and even media companies.
The growing need for agencies to posses technologies that help create efficiencies in processes, provide depth of reporting and analytics, and improve margins, is driving much of the consolidation. In today's market climate, technologies and tools that can plug into an existing portfolio of a major media company or agency holding company can produce the promise-land exit strategy that every new media entrepreneur, agency executive or propellerhead has dreamed about. Most deals are somewhat grounded in reality, albeit valuation is as much an issue as it always has been for a complimentary acquisition versus a deal which is revenue based.
There's a dynamic at play in the Venture Capital world as well, which is worth noting. During the period I'll call VC1.0, we experienced the over funding of businesses based on the future potential of ad revenue, a fairly two dimensional future, if you will. The new round of growth we're experiencing, including the proliferation of Web2.0 sites, are funded by what we'll call VC2.0, characterized by smaller rounds of funding for innovative products that have a potential for exponential growth, predicated by consumer adoption and ongoing market consolidation.
Although leaders in the space such as Wikipedia, YouTube, Flickr, MySpace, Facebook, Digg and others have certainly set the bar, and surely will continue to prove that they can hold their own and displace consumption of other media, admittedly, (like many VC1.0 funded companies) most web2.0 businesses will never thrive on their own. Rather, consumer adoption and a balance between visionary and practical leadership will help specific new agencies, technology companies and media companies become strategic pieces of an ever growing digital puzzle of complimentary assets within larger portfolios.
The only solution to fragmentation is ubiquity
Agencies large and small must apply different methods to accomplish this over-riding marketing principle of the new generation. Smaller agencies must collaborate to survive and grow. Some will bubble up to the top, merge, grow, compete and become new forces to be reckoned with. Larger agencies will continue to grow both organically and through strategic acquisitions.
The gap between early movers and those sitting on the sidelines will continue to grow, as the competitive positioning of the digital haves and digital have-nots applies new versus old world approaches to clients' businesses in an environment ripe with change. Agencies risk passing a point-of-no-return at which organic growth alone cannot overcome the onslaught of your competitors' momentum.
The once untouchable industry position of the glorious name brand agency of yesteryear has been waning for the last handful of years, along with the primary focus on the :30 spot. The agency ecosystem, structures and processes that supported an industry for so many years and stood the test of time, has changed forever.
PaidContent.org reported on Sorrell's position on 'Legacy. Agencies: "We have roughly $2 billion in our legacy businesses. Under our strategy, we look for complementary businesses and then graft them on to it. That's what we've done with our new acquisitions, such as Bridge and Schematic, Blast Radius."
WPP takes on Google
The agency holding companies have many stakeholders to keep happy, and although clients are an important stakeholder group, shareholders are equally as important. Lately I've read about WPP's CEO Sir Martin Sorrell commenting on Google more so than his direct competitors Omnicom, IPG, Publicis, or Aegis.
The competitive undertone between the world's largest agency conglomerate, WPP, and the largest digital media and technology company, Google, is almost like a real life soap opera. The current level of "coopetition" is interesting. In an industry filled with uncertain direction as to how to reach an un-debated pot of gold at the end of the digital integrated rainbow, it seems like we take a slightly 'open source' view to business in general these days. We collaborate in and tolerate closer proximity to competitors than ever before, based on an interdependence of collective growth. If we learned anything over the last ten years, we learned that growth is not stifled by lack of control.
After last year's $649 million purchase of 24/7 Real Media, ongoing acquisitions of some of the last remaining independent digital shops with critical mass, acquisitions in Asia and emerging markets poised for explosive growth such as in India, rumors are reverberating throughout the advertising and internet industries about additional consolidation.
NY Post recetly reported a potential acquisition of web-based TV media & creative exchange, Spot Runner, mobile Firm Jump Tap, Canadian agency NuRun, and video network Video Egg. Sorrell was also rumored to have been a suitor of Doubleclick prior to the [almost completed] acquisition by Google. It's as if WPP has become a staple of exit strategies the world over, much like Google has been for innovative small technology companies over the last decade. The moves are being made at the highest levels, an essential component to make such a major shift in structure successfully.
According to PaidContent.org, Martin Sorrell put Google's market cap and revenue into an interesting perspective: "We have a $15 billion market cap. If I take Publicis Groupe, which is roughly half that, and IPG, which is a third of that, it's a combined $50 billion market cap. And all those companies' revenues put together is $33 billion. In comparison, Google's revenues are two-thirds of the top four ad holding companies and its market cap is more than four times those same companies."
Market cap discussion aside. If I were advising Sorrell, I'd have him keep an eye over his shoulder for Microsoft. With aQuantive already integrated into their portfolio, investments in emerging platforms and human capital over the last few years, Microsoft is positioned strategically to compete with specific key agency assets within WPP as much if not more so than Google, who seems to have fumbled so far when "encroaching on agency turf" even as agencies have lay susceptible to the potential for several years.
WPP scorecard so far
23% of WPP's business is digital. Based on their last corporate report projecting about $29 billion in billings for 2007, that equates to almost $3 billion in digital billings. Subsequently WPP landed the $4.5 billion Dell account, which promises to act as a catalyst for further integration, change and revenue.
Not too shabby for an oil tanker. What do you think? Many speed boats have run out of gas or sunk in storms while this powerful ship continued to slowly turn around. However, WPP is not alone. Aegis has been hard at work over the years developing what is now claimed as the largest digital agency in the world with its ISOBAR unit. In a watershed move last year, the traditional and digital media operations merged into one universal brand (Carat) led by its digital head. Of course, each of the holding companies and agencies of all sizes have also implemented the beginning phases of what will evolve into long term transition strategies.
So what are you waiting for? Sure you may not be Martin Sorrell, but you can still embrace the new dynamics of the "state of the agency". Invest proportionately in technology and human capital. Challenge your team to develop new ways of engaging consumers, measuring effectiveness, and creating efficiencies within their own processes. Create an environment that fosters collaboration and sharing of digital knowledge & experience through all facets of the organization. Stir, wait 18 - 36 months, consider yourself part of the next generation of agencies that survived natural selection! Hold on to your credentials presentations. Evolve and compete ... or move out of the way!