The big four agency holding companies—WPP, Omnicom Group, Publicis Groupe, and Interpublic Group—that compete for the marcomms budgets of the world’s biggest brands have some new, well-heeled rivals.
Major management consultancies and technology services companies are poised to become serious challengers for those marketing dollars, especially after making a recent spate of agency acquisitions of their own.
In the past year, the likes of Accenture, Deloitte, KPMG, and PricewaterhouseCoopers have made high-profile agency deals around the world, and the shops they’ve snapped up are not just tech, mobile, or social specialists; some are full-service creative firms.
However, the consultancies aren’t sneaking up on ad land. Agency holding companies are keenly aware of this potential challenge to their business.
Karen van Bergen, CEO of Omnicom Public Relations Group, says management consultancies are eyeing agencies with capabilities across marcomms disciplines.
"It’s no surprise to see management consultancies expressing an interest in acquisitions in the PR industry. They are no doubt seeing an opportunity to take on this type of work as an offshoot of their core business," she says. "We have been observing this with interest. However, it has not changed our primary competition, which continues to be the large, established public relations firms."
But for how long is anybody’s guess.
Accenture last month acquired the largest branding agency in the U.K., Karmarama, whose clients include the BBC, Honda, and Unilever. Karmarama’s services include "the creation of big, generous advertising campaigns and PR platforms that help brands engage, change attitudes, and encourage," according to Karmarama’s website. The 250-person firm became part of the management consultancy’s quickly growing Accenture Interactive Unit.
Earlier this year, Deloitte purchased San Francisco-based full-service creative agency Heat and rolled it into Deloitte Digital, which the company touts as the world’s first creative digital consultancy. Heat brought with it a client roster including Electronic Arts, Hotwire, and the NFL Network. PwC, meanwhile, purchased Hong Kong creative agency Fluid, among others.
Technology services companies are also in the fray, most notably IBM.
It closed a deal earlier this year for Resource/Ammirati in its first acquisition of a digital marketing creative agency. Based in Columbus, Ohio, Resource/Ammirati’s clients include North American Breweries, Microsoft, and Nestlé. The firm adds to IBM’s iX arm focused on design and interactive customer experiences.
"We think bigger than an agency and more creatively than a consultancy," reads IBM iX’s website.
The target: CMOs
According to Gartner’s CMO Spend Survey 2015-2016, marketing technology will be the largest expenditure in a chief marketing officer’s budget, for the first time overtaking advertising expenses such as creative and paid search. Forecasts like this explain why both consultancies and companies such as IBM are ramping up their acquisitions of creative and marcomms agencies.
In guiding Fortune 1,000 companies through transformational and strategic shifts brought on by new technologies and a digitally driven marketplace, management consultancies typically worked with CEOs and chief information and technology officers.
Yet now they have their sights on the CMO, a job that has become more data-driven and intertwined with other corporate functions such as sales, e-commerce, and product development, and that has more control of the technology budget.
"We are slowly going to see more pitches for agency services that will feature entities from both legacy holding companies and entities owned by the management consultancies," notes Brian Wieser, senior analyst for advertising, media, and internet at Pivotal Research Group. "The classic, old-school, Michael Porter-style management consulting is not a growth business."
Wieser argues several factors will limit their competition against one another to areas like marketing IT integration, web experience, and user design. Another hurdle: most CMOs have more experience working with agency holding companies than consulting groups.
"If the CTO or CIO is the primary or most influential decision maker, chances are an Accenture, Deloitte, or IBM will win the assignment," he says. "But if the CMO is the most important influencer, than the agency holding company is more likely to win."
Another factor: the "creative" arms of the likes of Accenture and IBM represent a relatively small portion of their overall revenue. Their entry into creative is meant to supplement their core business, so marketing units may not get the senior-level attention and investment needed for them to truly compete against agency holding companies.
WPP, whose roster of PR firms includes Burson-Marsteller, Hill+Knowlton Strategies, Ogilvy Public Relations, and Cohn & Wolfe, reported $19 billion in revenue for fiscal 2015. Interpublic Group, with Weber Shandwick, Golin, and Carmichael Lynch Relate under its umbrella, ended 2015 with $7.6 billion in revenue.
The picture is different at a management consultancy or technology player getting into the marketing services space.
"Even though IBM iX has one of the largest P&Ls globally [at a reported $1.9 billion], it is tiny in the context of IBM," Wieser says. IBM’s revenue for fiscal 2015 topped $81 billion.
The other side of the coin is that the IBMs and Accentures of the world have deep pockets.
"Accenture doesn’t have to worry about Interpublic, but Interpublic does have to worry about Accenture," says Wieser.
‘I’d be afraid’
Tim Dyson, CEO of Next Fifteen, whose agencies include Text100, M Booth, Bite, The OutCast Agency, and Beyond, puts it more bluntly: "If I were WPP, I’d be afraid. Very afraid."
"The management consultants are looking to offer a new type of one-stop shop. Instead of purely focusing on the client's go-to-market strategy, they are linking go-to-market with the fundamental business model and strategy," he notes. "At a time when technology is disrupting everything, this should be quite appealing, especially to old-line industries with a lot to lose."
However, Dyson adds management consultancies will face cultural challenges bringing creative shops into their fold.
"Execution risk remains high, as does the cultural challenge of getting analytically based businesses to collaborate with creative-driven agencies," he explains. "The management consultants will also need to give the creative agencies a seat at the table on big decisions and not simply assume they are the brains in the room and that agency people are simply there to do their bidding."
Scott Kauffman, CEO of MDC Partners, the parent company of PR firms Allison+Partners, Kwittken, and Sloane & Company, contends it is unlikely these new rivals will be able to turn themselves into creative powerhouses.
"The creative process requires a kind of DNA that isn’t reticent in a traditional business environment, which is why these management companies have gathered these agencies under company umbrellas that foster creativity and innovation," he says. "I certainly understand why the consulting companies are trying to acquire creative talent, but they will have a difficult time thriving in those environments because they are captive to a different kind of DNA."
Kauffman says he welcomes their entry into the marketplace, saying the disruption could be a good thing for MDC as the eighth-largest holding company.
"It is a fluid marketplace, and the chaos is causing CMOs to revaluate everything," he says. "They are being asked to do more and more. You see it just not in the expanding scope of the work they’re being asked to do, but also the budgets they’re increasingly having sway over. There used to be separate budgets for the CIO and CTO, but we’re seeing an ever-expanding dominance of those budgets by the CMO."
A trend working both ways
Agency holding companies have evolved their own offerings, as well, in recent years. In 2013, WPP acquired a 20% stake in Buenos Aires-based Globant, a hybrid technology service provider, to help marketers with digital marketing campaigns. A year later, Publicis acquired Boston-based digital and technology firm Sapient.
"We’re seeing the lines start to blur both ways, with PR agencies taking on more management-consultancy work," notes van Bergen. "For instance, we recently announced the merger of Ketchum Change and Daggerwing to focus specifically on management consulting."
The two Omnicom shops will merge at the start of the new year under the Daggerwing Group name.
Analysts say as marketing, technology, strategic direction become even more intertwined—and agencies become more like consultancies and consultancies add creative and comms capabilities—more consolidation between the two groups is likely in the next three to five years.
However, for a management consultancy to become a real threat to a holding company, a ground-shaking acquisition would have to take place, but that’s not out of the question.
"It is not impossible to imagine Accenture or another firm acquiring an Interpublic or WPP, because they are smaller in comparison," says Wieser. "If Accenture wants to keep pushing on the path they’re going, their choices are to either build or buy. And the track record of building is sketchy, to say the least."