Missed Merger Opportunity?

Last November, Publicis Chairman and Chief Executive Maurice Lévy, announced a merger to create an “unmatched leader”. This combination of two agencies was orchestrated to “serve clients that are transforming into digitally-driven businesses in a marketplace that is undergoing a rapid pace of change”. Levy was heralding the union of SapientNitro and Razorfish.

Both are veterans of the digital wars. They have lived through the dotcom bust, the advent and expansion of social media, and were independently trying to define what digital means to business before being combined. Undeniably they had two of the coolest names in the business.

Lévy noted at the time of the merger, “When we formed Publicis.Sapient we integrated the strongest set of capabilities in digital, consulting and technology amongst any of our peer group. We are now taking this next, important step, to further integrate these formidable assets. SapientRazorfish is a powerful new entity in the marketplace uniquely combining customer experience strategy, omni channel commerce, and technology deployment to create a new breed of digital transformation partner pointed at today’s most critical client need – reshaping their businesses for the future.”

That is a lot of industry jargon but you get the gist. What I took away from it is Publicis had no real merger or integration plan. They just hoped the merged management groups would create some magic. Along the way I am sure they hoped for cost savings by paring down staff and real estate.

Fast-forward four months and Publicis reported it would write down its digital arm, Publicis.Sapient, that houses SapientNitro, by roughly $1.5 billion or almost half of its initial valuation. Analysts and media saw this happening for a few different reasons. Some pointed to spending too much on Sapient (Publicis paid $3.7 billion in 2014}. Others suggest it has become a drag on Publicis’ overall business. While still another contingent believe the merger with Razorfish is to blame.

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This is not a Turf War: Consultancies as Agencies and Agencies as Consultancies

Consulting firms have always sized-up the marketing space as a potential service offering. They have flirted with it for decades. Most large-scale forays have ended up in retreat after just a few years. Meanwhile, ad agencies have long-looked to shore up their dusty, old revenue models and expand by purportedly delivering more strategic offers. This too, has been largely episodic and unsuccessful.

Stick around and I will tell you why neither have historically worked but why they may work now. First off let’s substantiate that this mash-up is taking place:

  • Eight of North America’s top 10 agencies are owned by consultancies. Accenture has acquired at least 40 of them. Deloitte, Accenture, KPMG, PwC, and McKinsey now have agency arms.
  • Deloitte is out to create “the world’s first creative digital consultancy.” Meanwhile, IBM’s digital agency unit, iX, has over 10,000 employees and 1,000 designers in 25 offices worldwide.
  • Del Monte Foods selected Epsilon as its U.S. creative agency of record reflecting a fresh focus on data-driven marketing and a move away from traditional advertising agencies.
  • PwC made waves in 2016 when they appointed their first Chief Creative Officer. It should be noted that PwC also named a Chief Purpose Officer, which seems very much like an agency-thing-to-do.
  • Omnicom created Hearts & Science, an integrated digital agency leveraging technology to scale customer relationships. It has attracted Proctor & Gamble and AT&T as clients.
  • Razorfish, a division of Publicis Groupe, partnered with Adobe to build its own digital marketing platform.
  • Starcom MediaVest Group launched marketing consulting brand Zero Dot and sibling Zenith soft-launched a media-focused consultancy called Apex.
  • R/GA and GroupM now offer broad-based consulting services for the purposes of higher margins while securing traditional ad business. This is the strategy of O&M’s strategy consultancy, Ogilvy Red. Carla Hendra, global chairman of Ogilvy Red, is quoted as saying, “If we sell $1 of consulting work, down the road it can lead to $3 to $4 dollars of communications work.”

Clearly, traditional lines are crossing and blurring but why?

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