Agency holding companies WPP and Dentsu recently launched divisions to help clients build in-house teams. More top brands are bringing their marketing work in-house, at agencies' expense. Rivals Omnicom, IPG, Publicis have similar operations but don't publicly promote them. Agency leaders say these operations aren't defensive, but analysts said the holding companies emphasizing lower-margin offerings is a sign of desperation. Click here for more BI Prime stories.
One of the most-discussed topics in the ad industry concerns "in-housing," or marketers taking control over more of their own work. Last year's Association of National Advertisers survey found that 78% of respondents had some form of internal agency. Two of the biggest global agency holding companies, WPP and Dentsu, recently responded to the trend by setting up branded divisions to help clients manage the in-housing process. WPP's Wunderman Thompson created Wunderman Thompson Inside in early 2018 and Dentsu-owned Isobar announced the launch of Accelerate last month. Both aim to slow the drift of work away from traditional agencies and compete for business transformation services that are dominated by consulting firms like Deloitte and Accenture. Executives at WPP and Dentsu told Business Insider that they've been performing such work for years but formalized it after seeing more CMOs request in-house capabilities in recent briefs. Rivals like IPG, Omnicom, and Publicis provide similar services but don't actively promote them. Holding companies say they're not worried about losing business, but onsite operations can help minimize the impact In a harbinger of the in-housing trend, Best Buy dropped its agency of record in 2015 and hired Wunderman Thompson to build a division that now employs more than 100 agency staff working alongside the retailer's own team in its Minneapolis headquarters. Agency leaders downplayed the much-hyped threat this sort of model poses to their business. "We're not lying awake at night worrying about in-housing," said Wunderman Thompson Inside Managing Director James Sanderson. About 300 of Wunderman Thompson's estimated 20,000 employees currently work at Inside, and Sanderson said the agency has avoided losing key clients' business by embedding itself within their offices. In addition to Best Buy, clients include Coca-Cola, Dell, and Samsung. And Isobar Global Chief Client Officer Sue McCusker said she sees client in-housing as an evolution rather than a loss, even though one of the services its Accelerate division offers involves auditing a marketer's operations to help speed up the in-housing process. Onsite operations are less profitable than standard agency services Former agency executive David Jones told Business Insider that holding companies "need to latch onto to any glimmers of hope for their future" but that they need to bring their own unique platforms and operating systems instead of simply co-locating with clients. "[This] fundamentally cannibalizes the existing business of the holding companies and reduces their revenue, so their starting point for doing it comes from a very negative and defensive place," Jones said. While the biggest holding companies have lost billions in market capitalization in recent years, Oliver, an agency that specializes in helping brands like Unilever develop their own in-house teams, claims to have grown at an annual rate of more than 60% since its founding in 2004. Jones's conglomerate You and Mr. Jones acquired a majority stake in Oliver in January. Greg Paull, founder of management consultancy R3, said the profit margins for onsite operations tend to be in the single digits, which is lower than standard services. The agency executives who spoke to Business Insider agreed that such models cannot succeed if their main selling point is price. But savings are almost always a key factor. StubHub recently stopped using nearly all its agencies in part to save money. Senior Director of Global Brand Marketing Meg Ciarallo said she assembled her own team with help of another in-housing firm called Undnyable rather than taking the embedded approach, arguing that her own creative staffers know the brand better. Most holding companies don't actively promote their in-housing divisions Other agencies provide similar in-housing services, even if they don't discuss it publicly. For example, MRM//McCann has a division called Inside through which about 10 percent of the agency's employees are embedded with clients, but parent IPG does not openly promote the division. Omnicom Media Group COO John Swift told Business Insider his company deals with clients' needs on a case-by-case basis and does not see the need to roll out separate brands for such offerings. "They don't want to deal with a logo soup with all our capabilities packaged in different ways," Swift said. McCusker of Isobar said that Accelerate is not a product she aims to sell, but a service woven into the entire organization. Still, it's difficult not to see the public launches of these divisions as an attempt by the holding companies to resist the in-housing trend.SEE ALSO: Big brands like Unilever and Marriott are taking more of their advertising in-house than ever before, and a whole new cottage industry of companies is trying to cash in on the opportunity Join the conversation about this story » NOW WATCH: People are still debating the pink or grey sneaker, 2 years after it went viral. Here's the real color explained.
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