The Economics Of Massive Ad Agencies With Dozens Of Subsidiaries Selling Similar Stuff

The economics of massive ad agencies with dozens of subsidiaries might seem odd. But it makes perfect sense to have dozens of different brands doing different types of advertising and marketing related work under the same global ownership.

The advertising industry self-selects for creative types who want to make lots of money. Much like tech firms like Google and Yahoo will pay $20 million for a hot startup to get the talent behind the startup, a global advertising conglomerate can do the same thing.

They’ll buy a small boutique firm that came up with something new, keep the name, bring in restructuring experts and accountants from head office and make sure the former owners never hit their earn-outs (really cynical joke). The acquired feels awesome because a big brand bought them out, the acquirer feels awesome because they’ve got another agency brand to fly under the radar of clients who can approve big spending ad campaigns.

They can also deflect failed campaigns, media buying scandals and push poor performers into quitting by using the less successful subsidiaries as punishment pens. Furthermore, it is really profitable because of the money a single campaign can cost a client. The branding, direct mail, online creative and television commercial arms can all pitch separately and make a fortune for the ultimate shareholders of the wider group.

Some clients will not even realise that the other agency pitching for their business is actually owned by the same conglomerate until partway through negotiations. Some subsidiaries maintain “clean” online and print branding that makes it appear like they’re an independent agency.

So the news that Omnicom and Publicis are merging and will be bigger than WPP shouldn’t make you wonder. It’s basically a juiced up, global┬áprice discrimination strategy – much like airlines offer different levels of service, an ad agency conglomerate can capture far more of the total advertising spend and media buying commissions than a single boutique or integrated “one brand” firm ever could.

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