The interactive marketing industry is consolidating. Learn why this is important and how it impacts you.
A year or so ago, the advertising industry entered into a period of rapid consolidation. This consolidation was not restricted to the US or Europe but also saw many agencies in Asia being brought then rolled up into larger multinational advertising groups. In Asia, we saw WPP acquire Blue Interactive and Agenda. Publicis bought Communication Central Group (CCG) and Focus Media in China acquired Allyes.
The intent behind the consolidation was not to primarily acquire a new clients, but for the largest 4A's and advertising groups to broaden their product and service offerings. These larger advertising companies were buying into a skill set so that they could enter into a segment of the market that they used to ignore less than a few years ago. These acquisitions were driven by an industry wanting new talents, broader services and more complete product offerings. Primary, these acquisitions were of interactive agencies as the 4A's and advertising companies saw clients wanting to use this medium.
Over the past year or so, the Internet has become the first media of choice for some Asian audiences. Actually it is already is in some regions, such as China where segments of the population (teenagers) and in some industries like automotive and travel have more Internet penetration than traditional advertising formats. With this trend, you can expect an increasing number of advertisers to move budgets to this side.
However, in a number of cases where the interactive agencies have been rolled up into larger groups, it has taken more time for them to become integrated than was anticipated or they have become challenged by finding that they are now competing with another digital group from within the actual parent company. This situation has caused a number of acquired companies to change strategic focus and in some cases lead to a tremendous turnover in staff as a result of being linked to a traditional agencies culture.
While the acquired interactive agencies try and define their new position, the digital advertising market has rapidly moved forward. Gone are the days where the media plans were almost standard for all clients and interactive agencies were simply a broker of buying media from key websites. Advertisers are becoming more sophisticated; they understand the need for new digital channels to support the more tradition banner buy- search marketing, social marketing, affiliate marketing and online casual games. A fully integrated digital approach (even mobile for some regions is being used).
So while the interactive agencies that were acquired have been fighting to find a place within their new parent companies, a number of new digital agencies has emerged. These 'new style' digital agencies are providing more complete digital offerings. Not just media planning and buying but in some cases creative and production. This will put further pressure on the larger advertising groups to complete and also extend their level of service integration.
So rather than face the issues of the past year or so with the acquired companies where they looked to the market and brought smaller interactive agencies to get these required competencies, the 4A's are looking to a partnership model. This makes more sense in a lot of cases as the risk s of the previous model are mostly removed. Apart from the CFO's complaining that a percentage of revenues are being lost to a partner, there are advantages such as speed to market, best of breed solutions and cost savings on staff recruitment (and retention).
The SinoTech Group is a good example of this new model, where large Interactive agencies partner with SinoTech Group to assess complementary products and services. For example, some agencies would look to SinoTech Group to provide Social Media and Search Marketing; others may just want a technology solution (such as ad serving or the media planning platform)
So the business models from big media groups appear to have evolved from a straight out purchase to a partnering preference. This may be a result of perceived integration difficulties -- when many companies have been absorbed in a relatively short time -- or a reflection on the current financial market situation and the desire to preserve cash.
Whatever the reason for the change, the large groups providing the client side management need to refocus on the client and make them the center of attention.
Dr. Mathew MacDougall is group CEO and chairman of SinoTech Group Limited.