Tuesday, October 26, 2010

Only consolidation can save us....part 1



When Sir M was in town for the Spikes he was on stage asking for questions to be emailed to him. He didn't get round to answering mine.

The gist of my question was why hasn't our industry consolidated more? 

Look at many of our clients. Much of the time, consolidation has reduced their categories to 3/4 big players and a handful of niche ones supplying specialist consumers. 

In the computer category - Dell, Lenovo, HP, Acer and Apple.
In the mobile phone category - Nokia, Samsung, Sony Ericsson, Apple, LG and Motorola
In the Accountancy category - The Big 4
In the toothpaste category - Colgate, Crest, Aquafresh,  Oral-B, Tom's of Maine, Darlie

I'm sure there's many exceptions to this rule, but in my mind they tend to be in categories where consumers actively demand greater choice - candy, drinks, food, cars etc.

So, back to my question. Why hasn't our industry consolidated more?

Our industry did undergo massive consolidation a decade or so back, but only at a holding company level - from dozens of brands to 4 or 5 (WPP, Omnicom, Interpublic, Publicis, Havas). 

But this wasn't really consolidation, it was merely conglomeration. Of course, some brands died as a result (DMB&M, BSB, Ayer etc.) but the vast majority of them remain today.

So, my hypothesis is that the industry can't sustain this many agency brands and if we are to get back to a more acceptable level of remuneration we need fewer brands with more business and a greater concentration of talent. 

Right now, clients have a dizzying choice of agencies who are willing to cut costs and anything else that gets them the project (and IT IS increasingly just a project). I don't blame clients, it's only natural, and besides, they have their own issues to deal with.

Do the holding companies really need so many mainline adverting brands, and can those brands realistically sustain themselves over the long term? Does it make sense for a WPP or an Interpublic to have 10+ offices in each city they operate in? I don't think so.

The response I usually get when I ask this is "We have no choice, we can't consolidate because of client conflict...". 

They are right. 

This, in my opinion, is at the heart of what needs to change.

If the issue of 'client conflict' were removed, the door would be open to real consolidation in the industry.  This could lead to the kinds economies of scale that would allow the remaining agencies to HIRE MORE, attract young talent (vs. other categories to whom we lose graduate talent - like banks & law firms), hire the best and pay them accordingly, TRAIN the rest, satisfy shareholders and the City and put some of the pride back into our great industry (I recall a story that advertising execs ranked somewhere between traffic wardens and second hand car salesmen in a recent study - although Mad Men has likely pushed us up or down on that scale depending on your perspective). 

But, to do this would mean convincing clients that 'client confidentiality' is really possible. And why not?  Let's face it, Bain, McKinsey, Accenture, the Banks and many other service industries manage - and some clients even see it as an advantage (McKinsey clients for example). The notion that, because you have a bunch of people working on a Coca-Cola brand in your office, a group of totally autonomous people can't be thinking about a mineral water, seems outdated and outmoded. 

One other point in support of my premise is that it's hardly like 'confidentiality' is the titanium clad thing that it used to be; with clients moving from competitor to competitor with increasing speed (what's a marketing director's average length of tenure these days? 18 months, less?) and agency revolving doors are revolving as fast as ever they have there's a veritable merry-go-round of illegitimate information and knowledge that circulating around.

I've witnessed agencies chasing their tails to try to hit increasingly difficult to achieve numbers; more often that not, chopping their tails off in the process. Clients playing one agency off against the other to drive down costs. The increasing role of procurement. Contracts coming down to auctions between agency CFO's - one a few years back being realtime online! This doesn't strike me as a situation that, in the long run, really benefits clients; let alone agencies.  It stretches agency teams, often resulting in sub-standard work, hampers agency's ability to attract the best new talent and can often disuades an agency from telling clients what they really need to hear. All dangerous stuff.

Phew, that's a load off my mind. I can get back to thinking about something else now.




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