The power of the largest ad agency in the world

For years, the advertising business has been spurred by the Madison Avenue mythology of small independent shops coming up with the snappy catchphrase or memorable TV commercial that becomes part of everyday culture. But the announcement of the merger of two industry giants, Omnicom and Publicis, to create the largest ad company in the world, signals that advertising is now firmly in the business of Big Data: collecting and selling the personal information of millions of consumers.

That business is a competitive one, with technology companies like Google and Facebook using their massive databases of user data to place ads. Between them, Omnicom and Publicis account for $22.7 billion (€17.1 billion) in revenue last year, more than the next highest ad firm, WPP. But neither company comes close to the $50 billion (€37.8 billion) in revenue that Google made last year, largely on the strength of its advertising business.

The merger was announced in Paris. There, the chief executive of Publicis, Maurice Lévy, said the “billions of people” who are now online and providing data to companies offer an opportunity to use advertising technologies to “crunch billions of data in order to come with a message which is relevant to a very narrow audience.”

The business of advertising and marketing is being transformed by technology as agencies target ads to individual consumers.

While advertising agencies often work hand in hand with Google, Facebook and Twitter, those companies also work with firms like General Motors and Coca-Cola directly, especially on sharing data. Traditional advertising agencies are under pressure to deliver more value for their customers, or be cut out of the equation.

"Industry-wide, you're seeing more and more brands taking in pieces of what they used to pay an agency to do in-house and then spend that with other companies," said Brad Rencher, senior vice-president and general manager of digital marketing at Adobe Systems. David Kenny, a former Publicis executive who now runs the Weather Co, which includes The Weather Channel and weather.com, said that platforms like his are now working directly with companies to develop advertising campaigns, especially on mobile devices, essentially bypassing ad agencies.

At the same time, new competitors in the digital advertising space have emerged over the past few years including Accenture, Sapient and Deloitte, consultancies which have built up their marketing and data divisions to include many services once provided exclusively by ad agencies.

For consumers, the merger is another signal that marketing is becoming more personalised, often based on information that consumers may not even be aware they are sharing, including web habits, social media activity and credit card histories. As advertisers collect and combine this data, consumers can expect to see ads targeted more specifically at them.

Advertisers like Nike, Comcast, Progressive and Procter & Gamble are now using automated exchanges – fast-paced, algorithmic bidding systems – to target individual consumers rather than the mass audiences broadcasters and publishers serve up. Though still small, an increasing amount of the display ads consumers see online have been sold through programmatic bidding channels.

In an interview in June, Scott Hagedorn, chief executive of Annalect, a data marketing company that is part of the Omnicom Media Group, said advertisers can now determine, in milliseconds, whether someone looking for a car is a luxury car buyer or a used car buyer. Based on that information, an advertiser can determine whether to even display an ad or not.

Advertising agencies already collect this data through a variety of sources, including cookies, which track user behaviour online. They also depend on partnerships with data companies that collect and combine information like what websites a person visits with other streams of data, including use of store loyalty cards.

The world of data is exploding. Google, Twitter and Facebook track individual sentiments online. Increasingly, smartphones and internet-connected cars, fitness devices and even thermostats, provide real-time information about a broad range of tastes and behaviours.

Companies like IBM, Oracle, and Microsoft, along with numerous data analysis startups, have all in recent years spent heavily on technology and talent to serve corporate marketers directly, bypassing agencies and consultancies.

"There will soon be billions of people worldwide carrying smartphones, and they will get new forms of education, entertainment, and advertising," said Marc Benioff, the founder and chief executive of Salesforce. com, a leading software company . "Companies are setting up to maintain direct relationships with 100 million, maybe 1 billion people at a time. Publicis, Omnicom and WPP are all building marketing software departments, but guess what? Coke has a software department, Burberry does, Nike does, every company we deal with practically. They are all increasingly becoming data savvy."

Claudio Aspesi, an analyst at Sanford C Bernstein, said the Publicis-Omnicon merger was not simply a matter of corporate synergy but rather of gaining leverage against difficult competition.

"If Omnicom and Publicis agree that the future holds more investment in software and in businesses that require scale, that explains the deal," he said. "All of sudden the new set of companies playing in this space is not only large and profitable but they are competing with companies that are very large and profitable."

© 2013 New York Times News Service

Forward thinking
Publicis ahead of the game

Early days
In 1972 a fire tore through the Paris headquarters of a small French ad agency named Publicis. Rather than destroying the firm, it laid the foundation for the creation of what could soon be the world's biggest advertising company. Publicis averted disaster because a young executive who ran the firm's computer system, Maurice Lévy, saved the agency's files on magnetic tape, helping it to get up and running again within days. That act of forward thinking caught the attention of the agency's founder, Marcel Bleustein-Blanchet, who picked Lévy as his successor, putting Publicis on a path of technology-focused growth.

Publicis coup
That process culminated when Lévy, now the 71-year-old chief executive of the Publicis Groupe, joined the head of another agency company, John D Wren of the Omnicom Group, to announce plans for a $35 billion merger.

Though the creation of the Publicis Omnicom Group, as the new company is to be called, is billed as a merger of equals, it has been widely seen as a coup for Publicis and a career capstone for Lévy, given that Omnicom is significantly bigger, with $14.2 billion in revenue last year, compared with $8.5 billion for Publicis.

Lévy the outsider
With blow-dried hair fixed permanently in place and a fitting bon mot at the ready - in French or English - Lévy exudes a courtly air rather than street smarts. Indeed, Lévy's diplomatic skills have elevated him into the inner circle of advisers to a succession of French presidents. But he has a "Mad Men" flair for showmanship, in contrast to the accountant-like demeanour of Wren, who has preferred to let his company's agencies, and Omnicom's steady profits, do the talking.

Aides to Lévy, who was born in Morocco in 1942 after his parents fled fascist Spain and Vichy France, say he has also been driven by an outsider's desire to prove himself to the French establishment and to the British and American advertising companies that have long dominated the business.

In 2000 Lévy finally landed his first big prize: Saatchi & Saatchi, whose founders, the brothers Maurice and Charles Saatchi, had been ousted in a shareholder struggle several years earlier. In 2002, Publicis snapped up the parent company of Leo Burnett, the Chicago-based agency famed for creating the Marlboro Man.

Future growth
Publicis raced against WPP, led by Lévy's archrival, Martin Sorrell, to snap up agencies in China and other fast-growing markets, as well as picking up firms that focused on online data and web-based marketing campaigns. Under the merger plan, Lévy and Wren are to serve as co-chief executives for two and a half years, after which Wren will take over that responsibility alone, with Lévy becoming nonexecutive chairman.

Even critics were impressed by the boldness of the merger plan and by Lévy's desire to plant a French flag atop the industry.

© 2013 New York Times News Service