Peter Kafka

Recent Posts by Peter Kafka

The Real Story Behind Publicis + Omnicom Has Nothing to Do With Tech

giant turtles shutterstockOmnicom and Publicis, two of the world’s biggest ad companies, are merging. If regulators sign off, they will become the world’s biggest ad company.

But, beyond the fact that the new company will be really, really big, what does that mean? And why should you care?

I asked Simulmedia’s Dave Morgan to try to explain what does, and doesn’t, matter about the deal. Morgan built and sold two really important ad tech companies — Tacoda and Real Media — and his new one is trying to bring tech to TV. He is one of my go-to guys when I’m trying to figure out how the industry works.

Here was his initial response, via email:

I believe that consolidation is an inevitability of the holding company business/capital structure. The bigger they are the more they can reduce costs/redundancies and hold profit margins and manage debt cheaper.

They will probably get some scale leverage in media buying, but probably only in TV, and I’m not sure that will translate in much better rates. Certainly, the TV media owners will feel more pressure. It will be interesting to see how they respond to it. I am hopeful that this will be a driver to get TV networks and TV distributors to use data and better measurement to help them hold/increase their media pricing with data-driven audience packaging.

Unfortunately, one of the ways they will get synergies will be with layoffs, with lots of that in middle and higher/middle management, I suspect. This should be good for independent agencies, who will pick up pieces of the conflicted businesses. It should also be good for companies selling marketing technology and services directly to clients, since more consolidation means more clients conflicts and, thus, a greater desire to bring some tasks and data in-house.

dave-morganSo, that’s helpful. But wait a minute: How come Morgan didn’t say anything about Google, Facebook and Twitter?

Lots of other people are saying this merger has something to do with those guys — either as a way to help the ad guys compete with the tech guys, or at least as a way to help them get better deals when they buy ads from the tech guys.

Or maybe “big data” is involved in some way.

I figured that Morgan may have forgotten to mention some of that, so I got on the phone to remind him.

His answer: Nope — this deal has nothing to do with tech.

“I think it’s a total misdirection to think that you can leverage the scale and advantages of big data if you’re bigger. Quite the opposite,” Morgan said. “These aren’t technology companies, and you don’t get better tech development out of consolidation. You’re not going to create the next MediaMath, or Videology, or Facebook, or Google out of this.”

Alrighty. But, at the very least, a really big ad company has more buying power. So it can get better prices out of Google, et al, right?

No, Morgan said. “Most of their media is auction-based. The fact that you buy more doesn’t let you get a better price.”

Ah. Right!

So, does this deal matter at all? Yes, said Morgan, who likes the tie-up, at least from a shareholder perspective: It’s a classic scale deal, and when those work, they give you better margins and happier investors.

But it’s not reinventing the ad business.

(Image courtesy of Shutterstock/PhotoRoman)


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