Can Madison Avenue Remain Relevant, Compete With Google, Microsoft?

Madison Avenue's scramble for digital media and advertising services is a drive to remain relevant and to avoid being subsumed by bigger, far more capitalized players. That seems to be the picture emerging after an unprecedented series of deals that have consolidated some $12 billion in digital advertising services in the hands of big agency holding companies like Publicis, Interpublic and WPP, as well as two outside players: Google and Microsoft.

Microsoft's acquisition of aQuantive, in particular, looks to be a game-changing deal, making the software giant one of the biggest players in the ad industry. According to Advertising Age's recently published 2007 agency report, aQuantive ranks as the 9th largest marketing services agency in the world, and is the first digital shop to break into the top 10. And between Microsoft's acquisition of aQuantive's Atlas unit, and Google's purchase of DoubleClick, they virtually control the burgeoning ad serving marketplace.

That no doubt was a big motivation for WPP's acquisition of 24/7 Real Media. While small compared with the size of the $6 billion aQuantive deal and the $3.1 billion DoubleClick deal, WPP chief Martin Sorrell acknowledged that the $649 million 24/7 Real Media buy was a bid for the world's largest buyer of media to remain relevant in the digital age.

Noting that WPP controls "around 20% to 25%" of most traditional media markets, the world's largest media buying organization has a relatively miniscule share of the online ad marketplace, Sorrell told analysts following the 24/7 Real Media announcement.

He said WPP currently is Google's largest customer, spending an estimated $200 million during 2006, or less than 1.8% of Google's estimated $11 billion in advertising sales.

"That $200 million is obviously a much smaller percentage than our quote normal unquote normal media share would be," he conceded, adding that, "underlines that Google's business, at least historically, has been long tailed B-to-B small or medium-sized enterprises rather than bigger budgets."

The reality is that with the exception of certain tightly controlled traditional media, such as network TV and big consumer magazines, big agency holding companies have only a minority share of the world's advertising marketplace, suggesting Madison Avenue always has been a long tail industry, and is getting longer with every minute into the digital age.

According to recently released estimates from Paris-based media billings research firm RECMA, the Big 6 ad agency holding companies - WPP, Publicis, Omnicom, Interpublic, Aegis and Havas - billed a total of $195.06 billion during 2006, or less than a third (32.5%) of global ad spending, according to Universal McCann's estimates.

The data dispels a fundamental myth about the advertising business: That the consolidation of big media buying accounts on Madison Avenue has concentrated the advertising marketplace into a handful of big agency players. Now, with even bigger players buying their way in, the role of traditional agency companies could get even smaller. Especially if either or both of Microsoft and Google decide to "roll up" their position in the advertising marketplace, and begin buying other advertising services companies - possibly one or more of the Big 6.

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