Confirming the rumors that were floating around for the past month or so, WPP announced its intent to acquire 24/7 Real Media.
This announcement is just one of many that came in the recent months, including Google’s acquisition of DoubleClick, Publicis’ acquisition of Digitas, Yahoo!’s acquisition of Right Media and today we also have AOL’s announcement of acquisition of AdTech AG.
At first it may seem that this is simply another expression of the digital M&A frenzy, where all big media are trying to make sure that they generate revenue consistent with the growth of the sector. However, two of these acquisitions are particularly interesting: WPP + 24-7 and Yahoo + Right Media.
Going through with this transaction, WPP gains a number of significant advantages over their competition. Just like DoubleClick, 24/7 is a faily diversified company that provides solutions to both advertisers and publishers. In essence, it generates revenue from advertisers by offering traditional ad serving solutions, SEM/SEO services, video streaming, etc.
Where it gets really interesting is in their publisher offering, where they operate both a media network and offer publishers ad serving technology. Traditionally, advertising agencies are bound by the non-compete rules with their clients. An agency that has Ford as a client cannot provide services to Ford’s competitors. On one hand, by acquiring 24/7, WPP puts itself in a position where they can effectively generate revenue from their traditional clients’ competitors, simply by serving competitors’ ads on third-party publishers and networks.
Although traditionally that would have been frowned upon, this is a sign of times changing. For an agency, offering specialized technology services is one of the few ways of diversification. This technology is also an area where they can add tremendous value to the product by channeling client needs and strategically driving the technology.
On the other hand, WPP gets much closer to publishers, and hence the audience, opening a whole new realm of opportunity for their existing clients. The cost of executing clever media strategies may be balanced out by retainer agency revenue; it should be easier and simpler to push forward innovation in video, behavioral targeting, telephony and other emerging channels.
Interestingly enough, while talking about this transaction, WPP’s CEO Martin Sorrell said that the catalyst for the deal was Google’s agreement to buy DoubleClick. That, in itself, is a very strong statement that emphasizes a long-running trend of advertisers and agencies increasingly becoming media, and media becoming advertisers.
While comparing their move to that of Google’s, they inherently approve of Google’s strategy: “use technology in a manner that devaluates and deflates traditional industries by extracting inefficiencies in existing processes.”
Following this strategy rather than fighting it is the right approach to drive change within the company. Will they get rid of the publisher services? Will they try to get a piece of the ad exchange action? All this remains to be seen, but it’s definitely a giant step forward for a traditional advertising agency. It is also a bigger scale validation of our own strategy that we’re been working on for the past seven years. Exciting stuff.