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LUMA Digital Brief 004 - Back to Mad Men

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LUMA Partners presents Digital Brief 004: Back to Mad Men. We explain what the future holds for ad agencies and five strategies they make take in a competitive marketplace.

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LUMA Digital Brief 004 - Back to Mad Men

  1. 1. LUMApartners LUMA  Partners  presents  Digital  Brief  004:  Back  to  Mad  Men.  Mad  Men  recently  finished  its   seven  season  run  and  no  TV  show  has  ever  captured  the  hearts  and  minds  of  the  inner   workings  of  Madison  Ave.  Or  at  least  how  it  was.  Much  has  changed  in  the  agency  world   since  then  and  that  change  is  acceleraFng  with  the  growing  presence  of  data  and  soGware   into  the  mix.  This  change  poses  significant,  if  not  existenFal,  strategic  challenges  to  agencies.  
  2. 2. LUMApartners Let’s  remember  how  the  current  Agency  Holding  company  structure  came  about.  First  there   were  large  and  small  creaFve  agencies  that  specialized  in  coming  up  with  strategy,  copy  and   art  for  ad  campaigns.  Let’s  call  that  the  Mad  Men  era.    
  3. 3. LUMApartners Then  Media  Agencies  were  formed  in  the  1970s  /  80s  as  that  became  an  increasingly   important  component  of  the  value  chain.    
  4. 4. LUMApartners Finally,  in  the  1980s  /  90s  we  saw  the  formaFon  of  Agency  Holding  Companies  that   aggregated  media  buying,  maintained  mulFple  agency  networks  to  manage  client  conflicts   and  manage  finances.  There  are  more  components  like  PR,  research  and  other  services.  This   was  the  case  for  20+  years  even  as  data  became  more  important  and  digital  gained  share.    
  5. 5. LUMApartners But  today  agencies  are  no  longer  alone  in  the  markeFng  ecosystem.  The  broader  ecosystem   now  includes  companies  in  Ad  Tech,  MarkeFng  Technology,  Data  MarkeFng,  CRM  SoGware,   Tech  Services,  Publishers,  and  Retailers.    
  6. 6. LUMApartners Agencies  are  being  squeezed  from  all  sides.  As  more  media  buying  is  soGware-­‐driven,  Ad  Tech   companies  including  many  players  across  the  LUMAscape  are  taking  share.  Data  Marketers  are   encroaching  on  campaign  spend  and  big  Tech  Services  are  showing  interest  to  pursue  services  in   adverFsing.  Publishers  are  encroaching  on  creaFve  work  as  they  take  on  agency-­‐like  capabiliFes   and  content  studios.  And  let’s  not  forget  another  major  trend  towards  client  direct.  
  7. 7. LUMApartners Here  are  five  ideas…  
  8. 8. LUMApartners We  saw  with  the  recent  failure  of  Omnicom/Publicis  that  Holding  company  mergers  are  hard.   Certainly  some  quality  independent  agencies  like  Droga5,  Weiden  &  Kennedy  and  Horizon  are   abracFve  targets  but  consolidaFon  on  a  large  scale  doesn’t  seem  to  answer  the  problem.    
  9. 9. LUMApartners We  say  acquire  as  opposed  to  build  based  on  the  recogniFon  of  the  difficulty  of  developing   technology  from  within  an  agency  due  to  the  lack  of  tech  talent  and  insFtuFonal  DNA.  Then   there’s  the  problem  of  obsolescence,  which  is  hard  enough  for  a  standalone  technology   company,  let  alone  an  in-­‐house  soluFon.  Some  Holding  companies  have  made  strategic   moves  (investments,  acquisiFons)  such  as  WPP  and  less  so  Publicis,  but  the  jury’s  sFll  out.    
  10. 10. LUMApartners This  seems  like  an  inevitable  future  of  agencies.  Data  is  the  lifeblood  of  adverFsing  as  it   provides  the  connecFve  Fssue  that  Fes  everything  from  planning  to  buying  to  abribuFon   together.  We  like  Data  MarkeFng  as  a  strategy  for  agencies  and  WPP  has  made  some  moves   in  this  arena  that  look  promising.  In  a  world  where  Google  and  Facebook  have  so  much  data   of  their  own,  this  strategy  may  be  necessary  for  agencies  to  compete.    
  11. 11. LUMApartners AGer  technology  and  data,  the  agency’s  other  alternaFve  is  to  acquire  Tech  Services.  Instead   of  producing  the  creaFve  for  markeFng  campaigns,  Tech  Services  advise  companies  with   implementaFon  and  strategy.  Buying  Tech  Services  is  akin  to  buying  a  new  competency,  and   with  that  a  stronger  value  proposiFon.  We  believe  that  acquiring  Tech  Services  is  a  viable   extension  strategy  and  Publicis’  acquisiFon  of  Sapient  is  indicaFve  of  that.    
  12. 12. LUMApartners Agencies  face  sFff  compeFFon,  especially  if  they  apply  their  tradiFonal  earn-­‐out  structures   that  are  beber  suited  for  professional  services  deals.  CRM  companies  can  easily  outgun  the   agencies  with  6x  the  market  cap  and  7x  the  valuaFon  mulFple  of  the  Holding  companies.  Add   to  that  the  growing  interest  from  much  larger  Consumer  Internet,  Commerce  and  Telco  giants   as  compeFFve  buyers  and  it  is  easy  to  see  why  the  going  will  be  tough.    
  13. 13. LUMApartners While  agencies  fight  for  relevancy  in  the  increasingly  compeFFve  markeFng  landscape,  they   may  find  that  the  only  path  towards  survival  is  to  be  the  bridge  that  connects  every  touch   point  for  the  marketer.  For  this  to  work,  agencies  need  to  be  technology  and  data  adept  to   add  real  value  to  the  marketer  by  coalescing  what  will  likely  conFnue  to  be  a  fragmented   ecosystem.    
  14. 14. LUMApartners By  way  of  example,  we  do  not  believe  that  the  agency  trading  desks  have  sufficient  value  to   warrant  a  seat  at  the  table  long  term.  
  15. 15. LUMApartners If  none  of  these  five  opFons  pan  out,  what  happens  to  the  ad  agency?  
  16. 16. LUMApartners One  could  imagine  a  digital  world  where  the  media  agency  loses  its  relevance  and  vanishes,   in  which  case  there  won’t  be  a  need  for  the  holding  company  structure.  What’s  leG  would  be   only  the  creaFve  agency.  It’s  back  to  Mad  Men.  
  17. 17. LUMApartners

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