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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.	
  
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.	
  	
  
LUMApartners
Then	
  Media	
  Agencies	
  were	
  formed	
  in	
  the	
  1970s	
  /	
  80s	
  as	
  that	
  became	
  an	
  increasingly	
  
important	
  component	
  of	
  the	
  value	
  chain.	
  	
  
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.	
  	
  
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.	
  	
  
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.	
  
LUMApartners
Here	
  are	
  five	
  ideas…	
  
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.	
  	
  
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.	
  	
  
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.	
  	
  
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.	
  	
  
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.	
  	
  
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.	
  	
  
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.	
  
LUMApartners
If	
  none	
  of	
  these	
  five	
  opFons	
  pan	
  out,	
  what	
  happens	
  to	
  the	
  ad	
  agency?	
  
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.	
  
LUMApartners

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LUMA Digital Brief 004 - Back to Mad Men

  • 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. 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. LUMApartners Then  Media  Agencies  were  formed  in  the  1970s  /  80s  as  that  became  an  increasingly   important  component  of  the  value  chain.    
  • 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. 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. 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.  
  • 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. 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. 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. 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. 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. 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. 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. LUMApartners If  none  of  these  five  opFons  pan  out,  what  happens  to  the  ad  agency?  
  • 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.