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Huge ad merger’s scale argument doesn’t hold up July 29, 2013

Posted by David Card in Uncategorized.
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Two of the biggest advertising holding companies, Omnicom and Publicis, would combine to make the biggest mega-agency ever. But is that a good thing? I’m skeptical.

As Om points out, all companies have to be tech companies these days, and advertising powers the business of two of the most important forces in tech, Google and Facebook. Even mainstream media thinks the merger is a big data play. Big tech players like Oracle, Salesforce, and Adobe are bulking up on marketing and advertising technologies through acquisition, and maybe we are heading for a showdown between advertising “art and science.

I’m not going to dwell on how hard it is to pull off mergers of equals, or that client overlap and conflict will open up competition from other agencies. But think of what ad agencies do for their clients. They’re creative consultancies who buy media efficiently in order to reach specific audiences.

I’m hard-pressed to see how getting bigger is going to make the combo more creative. Nor will sheer mass help it respond to one of the key opportunities in marketing: i.e., figuring out how to really use social media for something other than cheap inventory.

The combo may have more buying heft when negotiating media buys – but that’s in television. With the proliferation of ad networks and analytics, buying specific digital audiences is a pretty level playing field, if not a commoditized skill. In theory, the merged company could look at the data from all of its campaigns, digital and traditional, to better understand buying patterns and audience interest, and properly asses the impact of branding campaigns on purchases. That would be huge.

But do you really think a massive organization with all of its fiefdoms and differing “religions” on market analysis – let alone different platforms and tools – is going to pull that off?

 

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Handicapping Microsoft’s media business July 24, 2012

Posted by David Card in Uncategorized.
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Microsoft’s struggles to make a successful business out of advertising led to the company posting its first-ever quarterly loss. The main culprit was a $6.2 billion write-down of the goodwill associated the 2007 acquisition of aQuantive – a company that combined advertising technologies, networks and an agency business. But Microsoft’s continuing losses in its search and ad-driven Online Business division didn’t help. Some have been saying for years Microsoft should never have gotten into media. Is it about to get out?

Microsoft is sending signals that it might be about to dramatically restructure its ad-based businesses:

Why media?

In the past, I’ve tried to make the case for why Microsoft needs to have an advertising and search business. But I’m beginning to have my doubts, and my argument was always stronger for search. Search is technology- and scale-driven, is a core navigation/UI mechanism that threatens Microsoft’s Windows and browser franchises and is the unchallenged cash cow that powers Microsoft’s chief technology platform rival, Google.

A competitive search offering could fuel a display advertising business with user intention data valuable for re-targeting and advertising attribution analysis, two key factors in raising display ad CPMs. Years ago, Microsoft was an early leader in advertising yield management (acquiring Rapt Inc. in 2008) and attribution analysis. Advertising complements Microsoft’s digital living room and mobile efforts. And many consumer app and cloud businesses are paid for via a combination of advertising and fees, even if the idea of B2B marketplaces with advertising as one of the exchange currencies never caught on.

But Microsoft’s recent big acquisitions – Skype and Yammer – may employ freemium business models, but they don’t depend on advertising. They’re far closer to traditional Microsoft strengths in unified communications and enterprise software. Other social media acquisitions by enterprise software firms, like Salseforce.com and Oracle, display much more of a marketing focus than Microsoft’s.

Here are potential scenarios for Microsoft’s advertising and media business:

  • Stay the current course. Keep investing in MSN and Bing, build out ad networks and exchanges with other portal partners like Yahoo and AOL. Jump hard on local and mobile and buy a Yellow Pages company if that’s what it takes. Odds: 3:1.
  • Pick a spot.  Focus on one or two core advertising businesses, but de-emphasize the others and stop hoping for synergies. Pick only 2 of the following: Bing, MSN, targeting/hosting technology, ad neworks/exchanges, MSN, local/mobile. Odds 5:2.
  • Unload the media business. At the risk of being the boy who cried wolf, I could see Microsoft keeping search technology, but spinning off MSN and Bing to a joint venture with Yahoo, perhaps with AOL in the mix. Odds 2:1.

Some hybrid of the second and third scenarios is looking increasingly likely.

 

Question of the week

What will Microsoft do with its media businesses?