What you need to know:

• Madison and Wall founder and one-time WPP global business intelligence chief Brian Wieser sees a deepening divide between holding company strategies.
• He thinks last year’s financial results and next year’s forecasts illustrate that divide – and thinks holdcos that signal investment intent into key areas like data and IT services, and do those deals, will ultimately be the growth winners.
• Publicis and Omnicom posted the strongest growth for 2023 and have indicated they expect larger growth than the rest for 2024.
• They have both been “most aggressive” in principal based trading – i.e. buying media and on-selling it for a mark-up, per Wieser.
• He thinks that’s no bad thing – some clients “prefer” arbitrage, because their internal processes, read procurement, won’t let them pay for other adjacent services. The arbitrage approach lets them do that and Wieser says marketers are more clued-up than when transparency blew up in 2016.
• But he thinks the bigger picture revolves around investment in data – and acquiring companies that can help agencies narrow the gap on IT services firms now striking much bigger deals for marketing-adjacent services. Some holdcos, says Wieser, have been “unambitious”. He suggests his former employer is a case in point.
• Likewise, while both traditional models with lots of agency brands can work, those more likely to “thrive” will “explode” their brands and push further into unified structures as are Publicis, Havas and Dentsu – though the latter is suffering “shrinking pains” as a result of abrupt departures and cultural challenges in a relationship-driven business.
• Meanwhile, although some of the world’s biggest advertisers have signalled continued increases in spend, how much agencies capture in the face of aggression from consulting giants and platforms is an open question.
• There's always more in the podcast. Get the full download here.

Growth busters

Publicis topped the holdco growth table for 2023 with 6.3 per cent organic growth, followed by Omnicom (4.1 per cent) WPP (0.9 per cent), IPG (-0.1 per cent) and Dentsu (-4.9 per cent).

Headwinds included a major pullback by tech companies across the piste with all holding companies exposed to some degree.

According to Wieser’s number crunching:

• tech and telecom clients accounted for 12 per cent of business at IPG in 2023.
• tech and digital services represented 19 per cent of WPP’s business in 2022.
• technology was 8 per cent at Omnicom in 2023 with telco another 4 per cent.
• Publicis’ tech, media and telecoms clients made up 12 per cent of business in 2023.

Whether tech firms return to spending or cut further – Wieser last week told Mi3 they may be tempted to at least partially lift Elon Musk’s zero-based budgeting playbook – will have a bearing on how 2024 profitability plays out for the big advertising and media agency groups.

But Wieser thinks differences in holdco structure, strategy and investment appetite are the bigger variables for this year and well beyond.

Arbitrage attraction

Publicis and Omnicom have the most bullish growth forecasts for 2024. Wieser thinks the two have also been the “most aggressive” with principal-based trading models, or arbitrage, over the last 12 months, helping to power double-digit growth within their respective media businesses.

But while agencies buying inventory and selling it on to clients for a mark-up has historically carried negative connotations – and trade press headlines – Wieser suggests that’s no longer the case. He says a lot of marketers like it.

“At the end of the day, marketers have basically decided that if they don't want to pay fees for services, because it's so called non-working spend, and they'd rather bundle it in with working spend, well that’s marketers’ prerogative. We can argue about the pros and cons. But collectively they are saying that they kind of accept, if not sometimes prefer, that model.”

Wieser’s theory is that it makes marketers look good while giving them what they need. They can tell the business and its investors they are cutting non-working spend – i.e. all those other services, like research and insights – and increasing working spend, i.e., buying ads. In reality, they are cross-subsidising one with the other.

“If the agency says, ‘buy this much media from us and we'll give you some free services or we'll include services at a discounted rate’, it's kind of inefficient, superficial in some ways, but it seems to satisfy a market need. So whatever complaints we might hear that, pick your agency – usually Publicis – is undercutting everyone else, maybe it's because they've got a different commercial model,” says Wieser.

“And it can be completely transparent in terms of what those margins are. Transparency and principal-based [trading] are not opposites.”

Even if those inventory mark-ups are fat, that’s more money for other services that procurement departments don’t want to pay for.

“I don’t actually know [the cut agencies are making on arbitrage], but I get the sense it can be significantly higher than conventional agency services,” says Wieser.

“It's not hard to imagine that, if you're the agency, you know that the client is paying X for media. You know you can get media that will satisfy what they want for 0.5X. You go and get it and then give it to them for 0.75X – and you basically provide them with value that makes them happier and better off than if they paid X. I mean, what's not to like?”

Procurement pleaser

Whatever the philosophical arguments about agencies acting as agents or principals, Wieser says it comes down to basic economics.

“The problem is that marketers aren't paying agencies. It's one thing if there's a contractual obligation … if you've got a true agent relationship where the agency says ‘I will do something for you, even if it's contrary to your interest, because you've asked me to do it for you’, fine.

“But on the other hand, if the marketer basically likes the overall arrangement, because it suits their particular needs … It's a very cynical – but very real – view that … clients know that if they pay peanuts, they get monkeys. They know that they need more services, more labour from their agency. They also know that their internal processes will not allow them to pay more for services, they need to pay for media. And if some of the spending on media gets into services they need, they are better off for it,” says Wieser.

Hence, while there are legitimate questions about supply chain bloat and practices within parts of the programmatic marketplace – the ANA suggests just 36 cents on the dollar lands in front of audience eyeballs – Wieser thinks the world has moved on from the transparency blow-up of 2016.

“That is what was missing back then. At that time, clients weren’t asking enough questions and there were some agencies who were not doing a very good job of explaining – and some were obfuscating,” he says.

“We're now at a place where clients either know, or should know, the right questions to ask. They should know the trade offs that they're making and getting. If they accept those trade offs and both parties are understanding each other – then that's a good place to be.”

Wieser disagrees the arbitrage approach can create additional perverse incentives, i.e. for agencies to hunt the absolute cheapest inventory that ostensibly delivers reach but doesn’t deliver business goals.

“That can happen no matter what.”

But doesn’t it entrench that challenge, or those behaviours?

“I don't agree with that,” says Wieser. “I think that marketers, frankly, should invest far more in studying their brand health and studying the metrics around their business health, a lot of so called non-working spend. They're not doing it. That's the problem.”

Structural divide

Wieser thinks the structural approaches of the major holdcos – consolidated or unified versus a more traditional federation of agency brands – is now starting to have a greater bearing on growth, with the holdcos broadly falling into two groups.

Publicis and Havas are the furthest down the consolidated route “blowing up brands” and now reaping rewards, per Wieser. Dentsu is experiencing “growing pains, or shrinking pains” from its attempts, though he thinks that is as much cultural as structural after collapsing Aegis into the business followed by “the imposition of the Japanese management team into the rest of the world”.

But, says Wieser, “that doesn’t mean it’s the wrong strategy – and you could argue they are better off than the alternative”.

The alternative being: “Keeping a lot of different agency brands, hundreds of people with a CEO title and thousands of staff who work for those people – the cost structures are higher, the politics are more significant. The bureaucracy can make it harder to execute on changes, to evolve and adapt to the market. So there's definitely a lot of advantages to the serious consolidation we've seen with Publicis, Dentsu and Havas,” says Wieser. “We have not seen anywhere near as much as probably needs to happen at WPP and Interpublic."

Dentsu pain

Dentsu is “really struggling right now,” per Wieser. (Locally the Australian business was back more than 10 per cent for 2023.)

“I think the changes followed from the – what seemed to me very abrupt – departure of Wendy Clark. It all kind of fell apart right then and there.” After that, “you saw a lot of people leave”. Last month its global CFO joined the exodus.

More broadly, he says, Japan is “literally an island unto itself”. Which makes it harder for the senior management team to integrate locally and regionally around the world in a business that is highly relationship-driven.

“The fact that there is instability in management, [with] so many people leaving means that if you're a client, you don't know who's going to make sure your problems go away,” says Wieser. “And the people who've come in, you don't know them well enough to know that they know your problems well enough.”

If there’s a bright side, “It’s that it’s hard to imagine it getting any worse. Their comparables get easier, that’s for sure,” per Wieser. “They definitely have plenty of very, very, very capable people, some former colleagues across the company that certainly I think very highly of, who are there. So [Dentsu] surely has a potential to return back to normal growth. But I don't know how to handicap it,” he says, meaning how to gauge how much and how quickly the holdco can emerge from major transformation.

De-silo, win?

Wieser thinks both unified and traditional models can work, “but I think the fewer silos, singular, mono-line businesses are far, far more efficient and more likely to thrive.”

The challenge with the consolidated model becomes “more of a finance question than anything else” in terms of how to manage the mega-structure versus the silos, direct line reporting and incentives inherent to the traditional holding group, suggests Wieser. All while ensuring clients get what they expect and it’s done profitably.

He thinks recognition of that fact came out of the aborted Publicis-Omnicom merger.

“If you go through the break-up call, Omicom, in particular its CFO, talked extensively about lessons learned. There were a lot of things that stood out to me, [he said Omnicom] learned a lot about how to better manage global P&Ls. He was essentially flattering Publicis in saying they have essentially figured this out.”

What conflict?

Conflict is historically cited as a reason for keeping lots of agency brands within traditional holdco structures. But Weiser thinks it’s a non-issue across most of the market.

“Is conflict really a thing? Do clients really care about conflict? There are a handful who do. But are there enough clients who care enough to pay significantly more to be the only company from within a category working with a given agency group? Not very many. So if you don’t have that conflict issue, you really can get rid of a lot of agency brands.”

Conflict doesn’t seem to be an issue for a lot of the consulting firms, many of which are operating across several clients within the same sector, often in very similar areas.

Per Wieser: “As they say, two is a conflict and three is an expertise…”

Data paydirt

Wieser says both Publicis and IPG are now benefitting from their major data acquisitions, Epsilon and Axciom. He suggests some of the other holdcos have been less ambitious while making questionable strategic decisions despite long-recognising the threat of IT services consultancies. Wieser suggests his former employer WPP is a standout in that regard.

“It's not necessarily the data strategies alone that are unambitious for WPP. I think that you can look at the whole collection of choices and the goals that they're setting for themselves as unambitious,” says Wieser.

Epsilon, Axciom and Dentsu’s Merkle “should, if well managed, produce some meaningful advantage – having a first party data business at scale and being able to establish a roadmap should be positive,” he adds. “It’s not the only way to compete, but the premise that I would argue is you need to be willing to make a meaningful investment one way or the other.”

I.e. make some bigger bets in the face of major market challenges. Wieser points to Publicis’ $3.7bn deal for Sapient in the aftermath of its collapsed merger with Omnicom as a case in point. The group paid a significant premium on Sapient’s then $2.5bn market value to get a decent seat at the transformation table.

“It was far more expensive then they needed it to be when they bought it,” per Wieser. “You could argue that for the right strategy, it was not too much. I’d argue they could have also gotten it for less … Nonetheless, it did provide them with a lot of the assets that are really, really helpful right now in terms of capacity to build systems, build products, just do a lot of the IT services activities out there.”

Missed opportunities

WPP made a strategic error in selling off its stake in IT services firm Globant, which is now “crushing it on a relative basis”, per Wieser. “It’s a business with $2bn in revenue probably growing 15-20 per cent this year. So they will probably grow more in an absolute sense than WPP, despite being a fifth of the size.” Booking that kind of revenue, “it’s a lot closer to Sapient – and it’s growing faster”, says Wieser.

While former WPP boss Sir Martin Sorrell was scathing of its Globant divestment, “you could argue that Martin Sorrell should have bought the whole thing when he had a chance to do so”, he adds.

“But I think the bigger point is that when you look at where the growth is, this is the slice of the industry where the IT services firms are doing really well. You look at Accenture, Capgemini, there's a lot of growth to be had – and the size of deals that they're cutting are substantially bigger than typical agency of record relationships, whether for creative or media.

“These are multiyear, tens if not hundreds of millions of dollars of total value of contracts that are being cut. Sapient is able to play in that in a way that others can't,” suggests Wieser. “It doesn't mean that [the other holding groups] can't invest – and they all have smaller businesses that try. But no one is really playing at that level.”

Money talks

Publicis has stated that it has earmarked €700m-€800m for acquisitions in 2024, specifically within “data, tech, commerce and AI”. Wieser thinks those investment signals are crucial to gauging holdco growth prospects. He suggests lack of reinvestment is what crimped growth at the big holdcos in the years prior to the pandemic: “They were basically sending capital back to shareholders rather than reinvesting in the business ... Should it be a shock that if you disinvest, you fail to grow?”. At the same time, independent agencies were investing and started to power. “What a surprise,” per Wieser, “invest and grow”.

Hence he says the “big number” from Publicis in terms of planned investment should not be an outlier.

“If you want to see a vibrant agency sector from the larger holding companies, there needs to be more of that. Nobody says it needs to be the large holding companies that have a monopoly on growth. But it is safe to say that if you invest in an agency business, you will see growth.”

Omnicommerce play

Omnicom has just completed an $800m investment for ecom and retail media business Flywheel, signalling where it sees the market and the money headed.

The holdco has grown relatively consistently over the last decade despite not making strategic bets on data businesses in the same vein as Publicis, IPG and Dentsu and while largely retaining the traditional holding company structure.

“They tend to be pretty well run … They've kept their silos it works for them. [But] I'd argue – Flywheel notwithstanding – it's not a very well future-proofed business,” says Wieser. Aside from a relatively small investment in acquiring IT services firm Credera “you can argue that they don't have enough exposure – again, most of the agencies do not have as much exposure as they could or should have – to IT services that are associated with marketing. That is where the opportunity is.”

But given big investment increases by brands into performance channels along with commerce and retail media – as outlined by Wieser in last week’s podcast – he thinks the Flywheel deal is “really important” for Omicom’s ambition.

“It's definitely going to be speaking to where there's a lot of client interest and client need. You can imagine every single pitch to marketers in FMCG, apparel, electronics, you'll have people from Flywheel involved, I assume – and that will help them on so many levels.”

One big question is how Omnicom beds Flywheel into the broader business; whether it remains a standalone unit or is integrated. For Wieser’s money “It's way better for Flywheel to be integrated inside of OMG. But there is this trade off of clarity of management.”

While some informed observers have suggested the Flywheel deal signals a profound incoming change to agency models – and fires the starter pistol on a commerce arms race – Wieser is not fully convinced all holdcos will now move en masse.

“To be clear, I think it's really important. Every agency needs to make investments in this space. Every agency group would love to have something like Flywheel. But is it necessarily the case that you're not competitive if you don't have it? I wouldn't go that far.”

Outlook: New threat?

Overall, Wieser predicts a better year ahead for the major ad holding companies, though not by much. WPP has forecast 0-1 per cent growth for 2024, IPG 1-2 per cent, Omnicom 3.5-5 per cent and Publicis Groupe 4-5 per cent. Dentsu has forecast negative growth (-1 per cent).

“I think it’s a low to mid-single digit growth year,” he says. “You have to assume that when companies are giving guidance, these are numbers that they hope – if not expect – to beat.”

With big brands like L'Oreal, Unilever, Diageo, Kellogg’s, Gucci, Mondelez, Ford and big insurance companies all telling investors they're upping advertising and marketing budgets, the unknown is how much of those increases agencies can capture.

“There's always a question of whether or not the incumbent agency groups are actually going to collect that money, or will it go back to the IT services firms,” says Wieser.

But he sees a potentially bigger threat in the form of generative AI tools being touted to advertisers by the big tech walled gardens. “Performance Max at Google and Advantage+ at Meta, these provide great solutions for many marketers if they don't care about transparency,” per Wieser.

On the other hand, some of the new tools may also give marketers another reason to lean on their agencies to manage.

“So within that, there’s risks to the downside, and there's opportunities to the upside.”

There’s more in the podcast – including why Brian Wieser thinks the independent agency growth surge may have hit the buffers. Get the full download here.