All under one roof

August is traditionally a slow advertising month across India. There’s nothing going on and the inauspicious Shraddh period is just round the corner. But August 2012 was different. There had been hush-hush, high-level meetings at various agencies and whispers of deals, stake sales and buyouts were getting louder by the day. So, when they did come, the announcements weren’t really a surprise to many. It started with Publicis’ buyout of performance marketing agency Resultrix. That was followed by the announcement of Aegis Media’s acquisition of internet search marketing company Communicate 2. Next was IPG’s decision to buy digital agency Interactive Avenues, close on the heels of which came Dentsu’s 51% stake purchase in Taproot Advertising. 

This is the tally for just one month. Indian advertising’s shopping spree, which started in November 2011, continued well into September (See: One-stop shops) and the air is thick with rumours of more deals to come. And all these deals are in digital marketing. Whether it’s the IPG-Interactive Avenues deal, where the buyout strengthens IPG’s presence in the digital space in India, or Dentsu — which is considered a digital marketing star — attempting to fill its creative void by adding a boutique agency like Taproot, the common thread joining these acquisitions is agencies’ intention to offer integrated communication solutions to their clients. “We want to be an end-to-end solution provider to our clients, by being able to deliver the brand idea across specialist platforms,” explains Colvyn Harris, CEO, South Asia, JWT. In July 2011, JWT bought 51% in Hungama Digital, a few years after it took a majority stake in Encompass, an event management firm.

It’s been over a decade since advertising agencies unbundled their various services, creating independent verticals with separate P&Ls. Does the rush to offer integrated services and specialised creative solutions under a common umbrella mean a return to the single agency culture? More importantly, can such a strategy work?

Square One

It’s ironic, really. In early 2000, it was the large network agencies that decided to separate media buying and planning from creative (yes, the same agencies that are now seeking a return to the full-service model). With more and more media platforms emerging (multiple newspapers and magazines, the explosion of satellite TV channels), media had become a more specialised function, which couldn’t function optimally within a full-service agency model where creative was king. As time passed, though, there was a further split and more agencies cropped up to offer other specialised services, such as shopper marketing, events, outdoor advertising and, more recently, digital marketing.

The biggest advantage of this divided set-up was the ability to offer specialised services. The disadvantage, according to many advertising veterans, was lack of coordination. Earlier, the creative team was the custodian of the brand and was responsible for taking the idea across platforms. In the new setup, unless the client made the effort of getting the media and creative teams together during ideation, the communication stood the risk of failing. 

For the client, the advantage in maintaining multiple agency relationships, apart from getting specialised services, was lower costs. The norm is that the agency gets a 10% commission on the total campaign budget. Boutique agencies, though, charge far less than network agencies — sometimes as little as a tenth of the price — so advertisers could negotiate rates across different agencies and make substantial savings. 

Now, price is not so much an issue (digital marketing that involves separate creatives is not much cheaper than traditional advertising). The idea is to get as many of the specialised creative services under one roof as possible — media agencies aren’t on the radar (yet) — and offer clients a one-stop shop for all their needs. “Clients are fed up of dealing with 10 different people, each trying to protect their own silo,” claims Ashish Bhasin, chairman, India and CEO South East Asia, Aegis Group. 

Also, advertising on the internet and mobile phones is becoming an important part of an advertiser’s marketing plan — from accounting for 2% of total ad revenues in 2007, it had climbed to 5.13% in 2011 and is projected to touch 8.64% in 2015, according to a Ficci-KPMG report on media and entertainment. In 2012, the industry is slated to be worth nearly Rs.2,000 crore, and will climb to Rs.5,700 crore by 2016, the report adds. That’s because digital today is no longer an extension of the television campaign — increasingly, brands are asking for exclusive content creating for the medium. (See: All for a click)

And this is where specialist agencies have the edge. It’s not as if network agencies don’t offer multiple services already — Dentsu, for instance, has famously remained a single-service agency where all verticals sat together and were part of one P&L. Ogilvy, too, has invested significantly in beefing up its digital capability, as have Draft FCB-Ulka and Lowe. But most network agencies haven’t really been fast enough to grasp just what digital marketing needs. The service usually ends up as just another department with low headcounts. Specialist agencies, on the other hand, have roll counts of over 100, all of whom live, breathe and eat digital. Little wonder, then that advertisers flock to them for their online campaigns.

One idea, one vision

How are advertisers reacting to the idea of integrated service agencies? With scepticism. Of course, it would be ideal if a single agency were to offer end-to-end solutions, taking forward a single brand idea across multiple platforms. Most advertisers believe network agencies do not yet have the capability to offer this. Some brands do work with a single network for all their communication needs — such as Volkswagen (DDB Mudra) and Toyota and Canon (Dentsu) — but, by and large, the concept of an agency of record has lost its relevance; multiple agency relationships are much more common. “Integration does seem to be a great idea, but there are very few agencies that actually offer integration in the true sense,” says Krishna Mohan, CEO, sales, supply chain and human capital, Emami. The company’s portfolio is divided between Rediffusion Y&R, Scarecrow, DDB Mudra, Curry-Nation, and, for digital, Raj Ad Mass Media.

Others echo that thought. “I can see digital integrating with creative because it needs to be woven into the ideation process right at the concept stage,” says Sunil Kataria, executive vice-president, new business development, Godrej Consumer Products. “But functions such as rural, outdoor and activation need local knowledge and skills, which traditional agencies may not be able to provide.”

Not surprisingly, network agencies disagree and consider the new model superior. “Single discipline agencies will not be able to provide well-orchestrated, one-voice, one-tone campaigns,” declares Madhukar Kamath, group CEO and MD, DDB Mudra. “Nor can they harness the unique strengths and nuances of the offerings of each discipline to create a holistic, yet bespoke, solution.” Even smaller, integrated agencies hold a similar point of view. “My agency sings a united tune,” says Prathap Suthan, whose agency Bang in the Middle offers a full range of services to clients such as Finnish luxury water brand Veen and Australian GPS service provider Knoxx. 

Integration issues

Getting (or rather, buying) the capability to provide integrated services is only half the battle. What is more critical is how agencies execute the integration in-house before heading out to offer joint services to clients. Remember, advertising is a totally people-driven business and M&As in the industry don’t have the highest success rate precisely because of issues relating to people and work culture. “In our industry, we acquire skills and the success of an acquisition depends entirely on how well we manage those skills,” confirms Ranjan Kapur, country head, WPP India. “If you ask somebody to dance, your footsteps had better match.”

So far, advertising M&As seem to have had two left feet. Remember the Bates-David merger? Ogilvy’s second agency was started in 2000 to deal with smaller-budget clients. As it grew in scale and stature, WPP decided to merge David with Bates. That didn’t go down well with the David team, which felt its freedom was being compromised. Almost the entire team, including business head Josy Paul, resigned and, as a former David employee puts it, “Bates inherited an agency with no talent at all”.

In fact, Bates has gone through three mergers, each of which has cost it dearly. In 1999, Clarion merged with the agency that was rechristened Bates India, and in 2005, it acquired Enterprise. “None of these mergers worked and the agency lost its best talent, including CEO Subhash Kamath, who went to BBH,” says the former David employee, who is now with JWT.

Then, there is WPP’s 2006 acquisition of Ray + Keshavan. The design house, which created the brand identities of companies such as Infosys, Himalaya and ACC, has now been merged with WPP’s global brand consultancy, Brand Union. Advertising industry veterans say the merger sounded the death knell of a “strong brand design and consulting company”. Sujata Keshavan, who co-founded the design agency in 1989 and currently heads the merged entity, did not respond to Outlook Business’ email. 

To their credit, the new acquirers seem to be aware of the pitfalls ahead. And they’re working around possible problems. “If the parent company wants to get the best out of an acquisition, it has to first respect the reason it acquired the agency,” says Kamath. He cites the recent buyout of Mudra by DDB, which is part of the Omnicom group. “DDB respected what Mudra stood for and took it ahead. It allowed us to retain the Mudra name and our distinctive red colour.”

Indeed, network agencies have stumbled on a strategy that allows them to have their cake and eat it too. Instead of merging an agency completely, they acquire a majority stake and leave the operating control to the target. Both JWT and Dentsu have adopted this practice in their recent acquisitions. “The idea is to buy the best for your client, and you can do so by collaborating with the best,” points out JWT’s Harris. “There is no need to impose oneself; it will never work.”

How does the new arrangement work, in practical terms? With Dentsu and Taproot, for instance, this translates as operational freedom for the latter. Taproot can pitch for accounts independently, but whenever a client wants integrated solutions the two will go for common pitches. Back-end functions such as finance, administration and human resources are common as well. “In the communication business, talent is the biggest asset. It would be foolish on the part of the acquirer to impose its philosophies on the acquired,” says Rohit Ohri, executive chairman, Dentsu. Taproot’s founding partner and COO Santosh Padhi points out that the agency had been approached several times by venture capital firms. “But we didn’t want money, we wanted access to clients. With Dentsu, we have that as well as the freedom to work in our own system.”

Harris agrees, saying he’s not sure whether bringing all services under one umbrella is really required. “If we have a great idea, we will use Hungama to interpret the idea digitally and Encompass to take it forward in the activation space. But I don’t see the need to bring them under one P&L. All specialist companies want to be independent,” he says.

Harris’ boss, WPP chairman Martin Sorrell, had once famously remarked: “the toothpaste is already out of the tube” when asked about financial integration of specialised agencies under a single umbrella. To take that analogy a little further, Indian advertising agencies have found that scooping up the paste and putting it in another container can be a simple, yet effective solution.