Illustration: Aïda Amer/Axios
E-commerce is colliding with digital advertising and forcing traditional ad agencies to embrace data and distribution around specific platforms like Amazon and Google.
The big picture: Today’s marketing landscape revolves around the major platforms (Google, Amazon, Facebook) that make money by offering brands a wide variety of advertising opportunities — from search and social media ads to sell to consumers directly, to video campaigns to improve a company’s reputation.
"When we're thinking about growth as an agency, we're thinking about ecommerce growth, as well as performance marketing broadly, data science practices and content marketing. Ecommerce is a major focus."— Tim Castree North America CEO, GroupM
Amazon has become a major focus.
- "Theres' a flywheel within Amazon that bridges across your paid and organic presence there," says Wes MacLaggan, SVP of Marketing at Marin Software. "If other things do well — high reviews, ratings, etc. — you get better ad performance. An agency owning that end-to-end relationship can really help in that sense with executing on the ads themselves."
- "Amazon is more or less attracting you by how profitable you can be," says Andrew Ruegger, Managing Partner and Head of Ecommerce & Data Science at GroupM. "The more you sell, the more free marketing Amazon will give you because you are moving units. A lot of work goes into connecting all pieces."
Between the lines: Ad agencies are having to retool to embrace the algorithm-driven platforms and features. That’s ushering a new era of consolidation in the sector as they buy data companies.
- French ad giant Publicis announced last Sunday it will acquire Epsilon, the data marketing arm of Alliance Data Systems Corporation, for a net price of $3.95 billion. The deal will give Publicis a leg-up on helping clients distribute their ads. Similar deals have happened in the past few years.
- IPG bought Acxiom last year for $2.3 billion.
- Dentsu Aegis Network bought a majority stake in Merkle in 2016.
On the flip side, consultancies are acquiring creative companies.
- Accenture Interactive, the digital marketing arm of international consulting firm Accenture, announced two weeks ago that it is acquiring independent advertising agency Droga5.
- WPP last year merged creative agency Y&R with digital network VML and creative powerhouse J. Walter Thompson (JWT) with Wunderman, which was more consultative, to create Wunderman Thompson.
- Stagwell Group, a digital marketing agency holding group, poured a $100 million equity investment into MDC Partners last month to bolster its creative suite.
- Last year, consulting group Infosys acquired of independent creative agency Wongdoody.
And some agencies are taking existing assets and creating practice groups to focus specifically on managing e-commerce partnerships.
- Dentsu Aegis Network, for example, launched an Amazon-focused consulting firm called Sellwin. Dentsu Aegis Network President of Commerce Travis Johnson tells Axios that clients need an end-to-end solution.
- "It's not just about ads, but also content, logistics, pricing, warehousing, forecasting, etc.," Johnson says. "What my clients need is rarely, 'Can you book me more ads?' It's how do I manage my Amazon strategy?"
Be smart: As one analyst put it to me, consultancies are trying to expand their influence in the corporate C-suite — to be able to be able to talk to the Chief Marketing Officer as well as the Chief Executive Officer.
- But that'll be a tough long-term business pitch for Madison Avenue firms that are more focused on expanding to save existing client bases.
What's next: The big question is whether brands will move their e-commerce practices over to agencies that have expanded their sales and consultative skills, or to agencies that are getting better at data and insights.
- "The problem is, not every company will be a credible full-stack provider," a advertising agency leader tells Axios. "It's all converging, but the traditional holding companies are in a particularly difficult spot."