Marketing 2019: The year of consolidation arrives in force

It’s been a question that more and more people are asking. By all accounts, the marketing industry, and the structures around it, are noticeably complicated. Between multiple types of agencies — digital, social, traditional, integrated, content — and a plethora of other partners, from production to advertising technology to platforms — the universe a marketer deals with on an everyday basis seems to constantly be expanding. For some, it ’s a necessary byproduct of how complicated marketing has gotten. For others, it’s confirmation of bloat.

And following a year where agency brands have been hammered, big tech players continue to gain more control, and marketers continue to tighten their belts, it feels like the year of consolidation is finally upon us.

The numbers are starting to show some of that. An analysis by consultancy R3 in the first half of the year found an explosion of M&A activity that led to an 88 percent increase in M&A compared to the same time last year. The total number of deals were 199, and deal value was $9.3 billion. The consultancy, like most analysts in the business, expects this to continue.  

‘Has anyone been less surprised by anything in the history of advertising?’

WPP is often the bellwether of the agency services industry, largely because of its scale. After Sir Martin Sorrell departed as its chief executive earlier this year, it certainly seemed like the beginning of the end of the holding company era, a relic from a different time.

Which is perhaps why the death of J. Walter Thompson didn’t come as much of a surprise to most in the industry. Creative networks, especially Byzantine ones like JWT, have struggled all year, dragging down performance at agencies. They’re expensive to maintain, with high overheads and expensive staff. And there’s less business for them, with agency fees continually slashing. Merging JWT with Wunderman, or Y&R with VML, is one of the most obvious steps a behemoth like WPP has to take in order to cut down on ballooning costs and actually focus on businesses that are making it some money.

But that is hardly just the beginning. Already the market is rumbling over more mergers — Ogilvy with Grey, perhaps. Even within Ogilvy, there’s been a whittling down, with a new organizational structure that merged together various disparate Ogilvy entities into a much slimmer shape this year. Whichever brands end up fading away, the blueprint is certainly starting to take shape: Fewer agencies that do less advertising, and are able to be strategic consultants.

“Special is going to win,” says R3 principal Greg Paull. As this consolidation takes hold, there is a significant hollowing out of the bloated middle, he argues. “Much as in the consumer goods categories you’re seeing special brands come through, the same is happening with services. There’s probably 50 or 100 agencies in the creative space that continue to have problems.” In Paull’s mind, those who win will be the big scaled plays within holding companies, or alternately tiny independent agencies that offer something very niche to a very small group — and hopefully get acquired early on during that process.

What’s happening at brands

The big change is that clients are now asking for business strategy and solutions. The marketing industry continues to get more and more complicated. Faced with new types of competition and new customer expectations, “advertising” has begun to take somewhat of a backseat, at least in priority, to hiring companies that will help them solve business problems.

Inside brand marketing departments, too, consolidation is happening. Michelle Peluso, chief marketing officer at IBM, has been on a mission inside her own departments to try and simplify. Because of how digital marketing grew up, marketing departments were organized around vertical disciplines, she says: paid search, advertising or email. But the customers are living differently. They’re having experiences across channels — and marketers have simply not kept up. At IBM, a new agile discipline organization has meant Peluso has multiple teams filled with experts from content marketing, paid media, product or events — all working together.

For 2019, this leads to a couple of different roads, neither of which look like very good news for agencies.

One, of course, is the in-house trend. In public, most brand executives are insistent that agencies and external partners remain relevant to them. But sometimes the mask slips. “High five!” Progressive CMO Jeff Charney exclaimed from the stage at the ANA annual meeting after the marketing organization released a new report showing that 78 percent of brands now have an in-house agency, up from 58 percent five years ago.

That brands would rather get it all done themselves isn’t surprising. Some of this was driven directly by the ANA’s own transparency report two years ago that showed large-scale issues of rebate and fraud in media in the U.S. But some of it simply driven by simplicity.

In-housing agency services are simpler, and for many, it’s faster. It means consolidating how many partners brands work with, and in many cases, moving projects along quicker. Even at marketing stalwart P&G, 2018 meant more was brought in-house — chief brand officer Marc Pritchard started the year with a vow to cut down agency relationships and create capabilities to do more production and execution within the company.

One of the less-clear but perhaps most compelling reasons for the sudden interest in in-housing, and the shrinking of the marketing world it is leading to, is the rise of digitally native brands. These born-online companies, which often began as direct-to-consumer but are increasingly looking like more mainstream retail companies, often eschewed traditional agency services from the beginning. Many are figuring out their own paths — heavy Instagram advertising, done mostly by in-house teams (luggage brand Away famously has a 70-person-plus marketing team that does everything, including TV ads) or by reliance on armies of freelancers or permalancers. Few are hiring agencies the way legacy brands did.

In response, many are watching how these companies do business. Pete Blackshaw, the former global head of digital innovation at Nestle and now CEO at Cintrifuse, says that that’s been somewhat of an obsession of his from the beginning. DTC brands are shaking up how marketing is done, working with e-commerce channels, great customer service, focusing on word-of-mouth marketing and doing it all very quickly. Big companies are seeing how they work, and how successful they are — and are also seeking to emulate this.

But agencies are quick to say that if brands choose to in-house their services, they still need an external company to consult on business solutions. The fact is that more clients do want that — and that agencies aren’t really equipped to provide it.

Enter the consultants

The consultancy threat is not over yet. Plenty will seek to downplay it. Mike Sheldon, the chairman and CEO of Deutsch North America, for example, maintains that while the consulting giants, like Accenture, Deloitte and PwC, certainly are making their presence felt, he simply hasn’t encountered them in pitches the agency hasn’t participated in.

But consultancies aren’t necessarily getting business by pitching. In most cases, the big consultancies already work with big brands for other things, like accounting or operations. In most cases, the marketing services are often layered on and into those existing relationships, either via the consultancies’ themselves or via agency groups they’ve acquired.

Accenture invested more in acquiring companies in media than Dentsu and Omnicom combined did, according to R3 analysis. And plenty of that firepower is going to creating marketing for brands, but also helping them build their own in-house agencies. For example, at Accenture Interactive, one of the big core competencies includes helping advertisers do some of their media buying, mostly in programmatic, themselves. At Deloitte, managing director Todd Paris says that it’s not about displacing agencies, but helping CMOs do their jobs better, which often does mean “owning” capabilities.

Alex Leikikh, the global CEO of Mullen Lowe Group, who himself lived through a couple of agency mergers, says it’s the “great rebundling” that’s been promised for so long that’s finally happened. “Digital agencies, mobile agencies, all these specific agencies have become complicated for clients to manage.”

Clients, he says, need more of a conceptual platform and a partner that can help them do that. Leikikh says there’s no question of more consolidation across agencies. Where he’s keeping a keen eye on is also consolidation across various marketing models: The platforms, the media agencies, consultancies, holding companies and creative independents or integrated agencies. “The next I look forward to next year is in some ways consolidation across those.” Leikikh may be right: Already, agencies are rumbling about potentially buying or creating consultancies of their own; platforms are increasingly absorbing more agency talent.

Either way, 2019 will bring a much slimmer industry. What’s not clear is if it will finally be more efficient — or even nimble. For Paull of R3, it’s a reckoning of sorts: “Go big or go special. It’s going to be rough in the middle.”