Does Independence Matter?

We may never know what Dentsu Aegis Network paid to acquire independent agency trading desk Accordant this week, but whatever the price was, its Tokyo-based parent Dentsu will likely need to depreciate a significant part of it because they have effectively lost one of Accordant’s key assets: independence. At least that was one of the core positions the Accordant team sold to differentiate themselves in the market versus the big agency holding companies they competed with, including Dentsu Aegis’ Amnet, which Accordant is being folded into.

Don’t get me wrong -- Dentsu Aegis is acquiring strong technical, data and people assets. Over the years that I have been meeting with and trying to understand the culture of trading desks, I have come to believe that Accordant was truly best-in-class. But much of the reason for that was its independence. It was a main point that founder and CEO Art Muldoon made with me every chance he could from the moment they launched, to our initial conversations that led to Accordant’s quarterly market tracking reports, to our coverage of those reports over the years. Art’s contention was that Accordant’s visibility into the programmatic marketplace was better than others because it was independent and neutral.



That logic made sense to me then. It still makes sense to me now. But it does not make sense that Amnet will retain that now that it is inside one of the world’s largest agency holding companies. Ditto for Dentsu Aegis’ recent acquisition of performance and data shop Merkle, which also prided independence as one of its attributes -- especially in its ability to manage sensitive competitive data across its various customers. That claim holds some water when you are an independent company accountable explicitly for servicing your customers. It holds less water when you are part of a holding company and are accountable for contributing to its bottom line.

These are not new issues for Madison Avenue. Independence -- and especially how it factors into things like “media neutrality,” “client service,” “market-making,” “arbitrage,” etc. -- has always been a factor for agencies, big and small. It has recently become a central theme in the client/agency transparency debate as well, with a number of independents pointing out that they are focused 100% on being accountable to their clients and not their shareholders. Empower Media has been the most dramatic of those examples, actually pulling out of agency trade association the 4As because of its failure to work with the Association of National Advertisers on its transparency initiatives. And encouraging others to follow suit. Or as Empower’s Andrew Susman put it, “when does common sense become common practice?”

As I said, independence has always been an issue in the agency business. It is literally what gave rise to the independent media agency movement in the 1960s, creating the first wave like U.S. Media International, the second wave characterized by Dennis Holt’s Western Media, and the third wave today by entities like Hotl’s U.S. International Media as well as Empower, Boston’s Almighty, etc.

One of the real ironies for Dentsu Aegis, of course, is that pre-Dentsu Aegis most likely was the player most responsible for the unbundling of agency holding company media services. In an effort to compete with Carat during the late 1990s, the big agency holding companies finally caved in and unbundled media as standalone operations.

It’s ironic, because now Dentsu Aegis is gobbling up proprietary assets that were originally premised on their independence and neutrality in the marketplace. Like Accordant and Merkle.

It’s not the first time this organization encountered something like that. Pre-Dentsu Aegis acquired pioneering marketing mix modeling firm MMA as part of its plan to enter the U.S. marketplace back in the 1990s. It made sense. MMA was the leader in the rapidly growing art of tying product sales and brand performance to marketing and media investments. Whether mix modeling has lived up to its promise or not is not the point. The point is that when Aegis acquired MMA it was perceived that way, and part of Aegis’ plan was to use MMA to simultaneously upsell mix-modeling services to its existing media clients, use it to acquire new clients, as well as continue servicing and build on MMA’s direct business. It didn’t exactly work out that way, and following a series of restructurings, Aegis spun MMA off and sold it.

Carat, in particular, has continued to invest and reinvest in proprietary data and research tools since then, but it was all done for one end goal: to service its existing clients better and to position itself to attract new clients better. I think that is the right approach, because the minute you acquire independent assets, they are no longer independent and you cannot continue offering them that way. Well, you can, but nobody is going to believe it.

Not in the U.S. marketplace, anyway. In Japan, where Dentsu is headquartered, it is common practice for holding companies to provide agency services as well as things that would otherwise need to be independent and neutral here like research, data, intelligence, and even media inventory. Dentsu is not only one of the biggest agency companies in Japan, it’s also one of the biggest suppliers of media.

That’s a cultural difference in markets.

The question is whether that model will work in North America.

It hasn’t worked in other agency holding companies I have covered over the years. Even Havas’ Adnetik, arguably the first true agency trading desk to operationalize, was ultimately spun off and now is 100% independent -- and rebranded as Digilant. And from what I understand, its business continues to grow, largely because it is independent.

In this new era of transparency and independence, there is no explicit dividing line. It most likely falls somewhere on a spectrum depending on the client, category and the nature of the business being serviced. The best example of that likely is WPP, which operates successful, high-demand services that other agencies clients frequently use, including Kantar research and certain ad technology, like 24/7 Real Media. But even WPP saw the value of spinning off 24/7 into a truly independent entity -- AppNexus (in exchange for nice strategic stake) -- and Kantar maintains equally cozy strategic investments in other neutral and independent service providers, like comScore (although they have been gobbling up new shares in recent weeks).

Perhaps the best example of walking that fine line between neutral independence and holding company bottom lines is WPP’s Xaxis. I don’t know how many other agencies -- or other agencies’ clients -- actually use Xaxis, but they have nothing to fear by using it because the only interest it has is generating explicit performance for the clients it serves because it explicitly makes its profits on the arbitrage and spread of doing so. People have knocked it for its lack of transparency, but if you ask me, it is the most transparent approach, because it’s saying it’s not transparent up front but that you get what you pay for. And what Xaxis customers are paying for, bottom line, is results.

I’m not writing this to slam Dentsu Aegis for acquiring Accordant or Merkle, but simply to point out that to whatever extent those assets were based on their independence, they should immediately depreciate them.

Or as someone might say in Japan: “haraisugi!”
1 comment about "Does Independence Matter?".
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  1. Nico Neumann from University of South Australia, September 4, 2016 at 5:45 a.m.

    Great article Joe! One question pops up in my head: should/do clients have special clauses in their contracts to be allowed to leave a trading desk in such cases (because many probably wanted an independent trading desk)?

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