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Defying the Law of Conglomerate Physics in the Digital Age

French advertising giant Publicis and its American rival Omnicom recently announced that the two firms were merging to create the world’s biggest advertising company. The new company, which will become a $35 billion advertising behemoth, will be called Publicis Omnicom Group and be jointly led by Omnicom CEO John Wren and Publicis CEO Maurice Levy as co-chief executives.  The new company will control more than 40% of US ad spending which is sending ripples throughout the industry and produced a lively debate as to how the huge mega conglomerate will impact both large and small competitors.  Some competitors see the merger as an opportunity to steal clients who want a more personal advertising approach, while others have voiced concerns that the merger will lead to unfair competition.

The merger likely will create more than just a few “client conflicts,” with brands like Bud Light, Miller Lite, Coca Cola and Pepsi now finding their iconic labels being managed by the same agency.  The success of this merger may, in the end, be determined by two primary factors: client reactions and the impact of scalability.  While a number of big clients publicly shrugged off concerns, it’s hard to ignore the potential for conflicts of interest.   Although the co-leaders of Publicis Omnicom are talking about achieving $500 million in “efficiencies” because of the merger, those efficiencies have not yet been defined much less realized.  It’s possible, notes Paul Pellman, CEO of marketing analytics provider Adometry, that these efficiencies consist of leveraging data and digital marketing technologies at a grander scale. Pellman noted in “12 Things Direct Marketers Need to Know about the Omnicom-Publicis Merger” that the combined resources and assets could lead to a “more sophisticated” ad buying platform—one that drives audience attributes and real-time performance data to produce stronger results for less.

But we have all experienced before the phenomenon that bigger is not always better and projected benefits from predicted efficiencies are not always, or ever, fully realized.  As the size and organizational complexities of mega companies grow they tend to be less agile and slower to respond to subtle but impactful changes in marketing direction and the rapid pace of the digital media environment.  In addition, the inevitable conflicts between departmentalized fiefdoms, which are inherent in mega organizations, will certainly have a negative impact on creativity and innovation.  As Larry Deutsch, EVP and general manager of Blue Chip says, “scale has no connection to innovation and can actually end up hurting the conglomerates rather than helping them.”

Some industry analysts predict that many smaller brands will begin to flee within the next three to six months. As well, when competitor brands like PepsiCo Inc. and Coca-Cola Co. begin sharing the same roof under the merger, some marketing insiders are already wondering how soon brands such as these will tire of sharing their resources and walk away.  Such a migration, if realized, will produce significant opportunities for smaller, more creative agencies that focus on differentiating themselves from the pack and who successfully leverage their unique capabilities to offer innovative solutions to their clients.   The reality is that marketers will spend their money with whoever does digital marketing the best.  Even ad networks like Hearst Media and Merideth Corp are taking a piece of the social spend because they have innovative offerings like influencer marketing, content strategies and mobile solutions.  Mega firms like the new Publicis Omnicom Group will have to move with the agility of an emerging start-up to totally dominate in digital marketing, a reality that may just defy the law of conglomerate physics.

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