Analyst Shorts 'Super Bear' Agency Disintermediation Thesis, Cites End Of Google Managed Services

In a bullish uptick for the major publicly traded ad agencies, a highly regarded Wall Street analyst published a note this morning noting that the shutdown of two disruptive sources bodes well for agencies, especially the demise of Google's managed services division.

"[It] should mark a final stake in the heart of the 'super bear' disintermediation thesis for the agencies," BMO Capital Markets' Daniel Salmon wrote, referring to the shutdown of Google's managed services, which many saw as competing directly with the services provided by ad agencies over time.

"The most significant headwind to the agencies’ stock performance over the past decade was the view that they were destined to be made obsolete, i.e. the disintermediation short thesis," Salmon explained, adding: "The past 3-4 years have brought additional concerns about transparency, zero-based budgeting and the competition from the consultants (back to this in a moment), and all of it has added up to flat to low single-digit organic revenue growth across the group, versus the typical mid-single-digit growth to which investors were accustomed in this type of economic expansion. But the disintermediation thesis was ever-present since the emergence from the financial crisis."

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The other shutdown signaling some relief for big agencies was Accenture's decision to leave the media auditing business, which had been putting incremental oversight pressure on the big agency media services divisions, but also represented a potential "back-door" threat to displace agency services.

That said, Salmon isn't giving agencies an all-clear from the major consultancies, noting that they still are viable rivals for agency services.

"To be sure, it’s more than just Accenture, as Deloitte Digital’s presence continues to grow, and we see McKinsey’s practice building momentum too," Salmon explained, adding, "And of course, that Google Marketing Partners’ site will show you dozens of digital native upstarts that have built leading practices servicing the walled gardens platforms."

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