Advertising Giants Merge in Effort to Fend Off Silicon Valley

Advertising powerhouses Omnicom Group of the U.S. and Publicus Groupe SA of France announced a merger on Sunday that aims to fend off the growing competition from Silicon Valley tech companies including Google and Facebook. The new Publicis Omnicom Group will have combined revenue of nearly $23 billion. The Wall Street Journal describes the merger as “a $35.1 billion cross-border linkup that shows how Big Data is making Madison Avenue look more like Wall Street.”

Omnicom’s chief exec John Wren and Publicis chief Maurice Lévy will serve as co-CEOs for the first 30 months, after which Lévy will become nonexecutive chairman and Wren will continue as CEO. The combined stock market value of the two companies as of Friday was $35.1 billion.

“Omnicom and Publicis hope that by joining forces, they will be better equipped for an industry increasingly dominated by data-driven analysis and automated trading of ad space,” reports WSJ. “The market for automated buying of space is relatively small, but fast growing. According to eMarketer, U.S. advertisers will spend $3.4 billion on real-time bidding in 2013, mostly in online display ads.”

The merger would place some of Madison Avenue’s biggest ad agencies under one company. Omnicom’s agencies include BBDO, TBWA Worldwide and media buyer OMD. Publicis owns Leo Burnett, Saatchi & Saatchi, media-buying firm Starcom MediaVest and digital agency Razorfish.

“Of the growing portion of global ad spending that is digital, the money flows disproportionately to Google, which not only sells online search ads but runs an automated marketplace for buying online ads, and to Facebook, which has a vast audience and plenty of user data,” notes WSJ, citing additional forces in this space such as Salesforce.com and Adobe. “With revenue three times that of WPP last year, Google is a formidable competitor for ad agencies, particularly in an industry where data collection has assumed greater importance.”

Lévy noted that “the communication and marketing landscape has undergone dramatic changes in recent years, including the exponential development of new media giants, the explosion of Big Data, blurring of the roles of all players and profound changes in consumer behavior.”

“There has been a huge shift in the way we do business,” said Jonathan Nelson, chief executive of Omnicom’s digital business. “We are borrowing black-box trading techniques out of Wall Street; we are looking at genetic algorithms; we are looking at artificial intelligence; we are looking at predictive models; we are looking for anything that might give marketers an edge.”

Antitrust and account conflicts are expected to be the biggest hurdles. For example, Pepsi is one of Omnicom’s biggest clients, while Publicis does work for Coca-Cola. “Do I expect to have difficulties? Yes,” said Wren. “Do I expect to have resolutions? Absolutely.”