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Publicis Omnicom Merger is Bad for Clients and Shareholders
1. Augustine Fou- 1 -
Publicis Omnicom
- 1 -
Dr. Augustine Fou
http://linkd.in/augustinefou
July 2013
Bearish For Clients and Shareholders
2. Augustine Fou- 2 -
UPDATE: May 2014
- 2 -
Publicis and Omnicom Call Off Mega-Merger
Deal to Create World's Largest Agency Company Crashes and Burns
3. Augustine Fou- 3 -
UPDATE: May 2014
- 3 -
âWhile revenue is important we think losing scale
advertisersâ undercuts the idea that the Omnicom-
Publicis merger creates scale, Mr. Tullo wrote.
âWhile we could be wrong, losing about $500
million in client bookings in a week is a strong
reason to cancel the deal as OMC would be
disadvantaged by client defections at Publicis.â
http://blogs.wsj.com/cmo/2014/05/01/albert-fried-says-only-40-chance-omnicom-publicis-merger-will-happen
âPublicis ... has recently lost several major accounts,
including Microsoft, Miller Lite and Samsung.
4. Augustine Fou- 4 -
UPDATE: August 28, 2013
- 4 -
OMC
-7.5%
PUB
-5.0%
1 month since merger
5. Augustine Fou- 5 -
Executive Summary
- 5 -
⢠Bigger is not better â today, when clients are hyper-focused on
ROI, efficiency, true expertise, and agility are more needed
than sheer bulk (there are no economies of scale in fully
commoditized services)
⢠Cost-cutting is not the same as greater efficiency â reduction
of âoverheadâ (i.e. workers) and standardizing shared services
are good, but these donât necessarily mean true efficiency
gains for the good of the client.
⢠New overhead of âcoordinationâ â once a company exceeds a
certain size, the challenges of âcoordinationâ start to outweigh
the cost savings from greater negotiating leverage.
6. Augustine Fou- 6 -
Strategic Rationale
- 6 -
Trend observations are accurate; but implied benefit is not
Source: Public Omnicom SEC Filings, Investor Call July 29, 2013
true
true
true
true
People (âtalentâ)
who are well-
versed in both
analytics and
business insights
are very rare.
Merging 2
behemoth agencies
does not make
more of them nor
make it easier to
find them to help
clientsâ businesses.
7. Augustine Fou- 7 -
Strategic Rationale
- 7 -
Implied benefits require significant assumptions to be true
Source: Public Omnicom SEC Filings, Investor Call July 29, 2013
A larger âportfolioâ of agencies does not
benefit any particular client because the
client is attached to specific agencies.
Most âtalentâ is on the payroll of a specific
agency; unless there is a significant change
to corporate structure and compensation
models, that âtalentâ is not used across
companies or clients.
These firewalls mean talent (and expertise
in specific verticals) cannot be shared to
other clients who could use it the most.
8. Augustine Fou- 8 -
Strategic Rationale
- 8 -
âCost initiativesâ may make behemoth more competitive, but âŚ
Source: Public Omnicom SEC Filings, Investor Call July 29, 2013
âone-stop-shopâ is only
valuable to clients if the
various moving parts can
be made to move in
unison â i.e. synergize.
Otherwise, it is more time
consuming and costly to
coordinate the moving
parts that are not used to
working with each other.
Cost cutting may still not
be enough to be
competitive against small
firms.
9. Augustine Fou- 9 -
Changed from 70% commission and 30% fee to 81% fee and
only 5% is commission; Increasingly clients add in
performance clauses
Fee-based Compensation
Source: Association of National Advertisers
11. Augustine Fou- 11 -
Buying Direct from Facebook
Source: AdAge RBC Capital Survey September 2013
More clients/advertisers are buying direct from Facebook (similarly
with Google Adwords, Twitter, etc.); so the âbuying powerâ rationale
is no longer valid, or will be less so going forward,
12. Augustine Fou- 12 -
Lower Cost Alternatives
Brands now have ways to produce quality original content at a
fraction of what it used to cost to produce a glossy TV ad.
Ford sponsored video
by DevinSuperTramp
Showcases new electric
Ford car, used in the
bike tour to various
locations around San
Francisco.
13. Augustine Fou- 13 -
Crowdsourced Creativity
Brands can now crowdsource ideas from fans and then produce
the original content (in this case videos) for marketing.
Mini USA engaged
their loyal owners to
create ideas for the
launch of the new
Hardtop.
10 winning stories
were selected and
produced into videos,
some of which went
viral.
14. Augustine Fou- 14 -
So What?
âThe anticipated or implied benefits of this mega-
merger only accrue to clients if some very large
assumptions come true â e.g. 1) company culture
changes to be more like small business teams; 2) cost
savings actually outweigh the new costs of
coordination; 3) agencies transition from the subjective
nature of âstorytellingâto the objective nature of âbig-
data-analytics driven strategy.â
Augustine Fou- 14 -
- Dr. Augustine Fou
15. Augustine Fou- 15 -
Dr. Augustine Fou â Digital Consigliere
âI study trends and advise clients and
agencies on staying on-trend or ahead of
them. In this case, having been on both the
agency side and client side, I can comment
that the mega merger is not on-trend and may
not achieve the efficiencies that are
promulgated.â
FORMER CHIEF DIGITAL OFFICER, HCG (OMNICOM)
MCKINSEY CONSULTANT
CLIENT SIDE / AGENCY SIDE EXPERIENCE
PROFESSOR AND COLUMNIST
ENTREPRENEUR / SMALL BUSINESS OWNER
PHD MATERIALS SCIENCE (MIT '95) AT AGE 23
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