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Publicis Omnicom Merger is Bad for Clients and Shareholders

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Publicis Omnicom Merger is Bad for Clients and Shareholders

  1. 1. Augustine Fou- 1 - Publicis Omnicom - 1 - Dr. Augustine Fou July 2013 Bearish For Clients and Shareholders
  2. 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. 3. Augustine Fou- 3 - UPDATE: May 2014 - 3 - “While revenue is important we think losing scale advertisers” undercuts the idea that the Omnicom- Publicis merger creates scale, Mr. Tullo wrote. “While 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.” “Publicis ... has recently lost several major accounts, including Microsoft, Miller Lite and Samsung.
  4. 4. Augustine Fou- 4 - UPDATE: August 28, 2013 - 4 - OMC -7.5% PUB -5.0% 1 month since merger
  5. 5. Augustine Fou- 5 - Executive Summary - 5 - • Bigger is not better – 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 – reduction of “overhead” (i.e. workers) and standardizing shared services are good, but these don’t necessarily mean true efficiency gains for the good of the client. • New overhead of “coordination” – once a company exceeds a certain size, the challenges of “coordination” start to outweigh the cost savings from greater negotiating leverage.
  6. 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 (“talent”) 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 clients’ businesses.
  7. 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 “portfolio” of agencies does not benefit any particular client because the client is attached to specific agencies. Most “talent” is on the payroll of a specific agency; unless there is a significant change to corporate structure and compensation models, that “talent” 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. 8. Augustine Fou- 8 - Strategic Rationale - 8 - “Cost initiatives” may make behemoth more competitive, but … Source: Public Omnicom SEC Filings, Investor Call July 29, 2013 “one-stop-shop” is only valuable to clients if the various moving parts can be made to move in unison – 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. 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
  10. 10. Augustine Fou- 10 - Performance-based Incentives Source: Adweek, August 2013
  11. 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 “buying power” rationale is no longer valid, or will be less so going forward,
  12. 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. 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. 14. Augustine Fou- 14 - So What? “The anticipated or implied benefits of this mega- merger only accrue to clients if some very large assumptions come true – 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 ‘storytelling’to the objective nature of ‘big- data-analytics driven strategy.” Augustine Fou- 14 - - Dr. Augustine Fou
  15. 15. Augustine Fou- 15 - Dr. Augustine Fou – Digital Consigliere “I 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.” 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 ClickZ Articles: Slideshares: LinkedIn:
  16. 16. Augustine Fou- 16 - Related Articles Augustine Fou- 16 - trends-implications-for-agencies-by-augustine-fou compensation-by-augustine-fou-chief-digital-officer 9-84444-take-these-five-steps-before-your-agency-is- disintermediated