The collapse of the $35 billion merger of New York-based Omnicom with France's Publicis is likely to lead the world's biggest ad agencies to think small as they try to counter the challenge from internet giants like Google.
Since announcing their merger last July, executives from the two firms touted the creation of the world's biggest ad agency as the best way to gain scale and capital to compete on price and invest in technology as clients squeeze the agencies on cost.
One of the prime motivations for the deal was the competition coming from a host of rivals ranging from Google and Facebook, software companies Oracle and Salesforce and consulting firms Accenture and IBM, which are siphoning off business that traditionally belonged to ad firms.
After this week's break-up, which was due in large part to a clash of cultures and egos, the two firms need to rethink their approach. Bankers and industry executives say buying smaller ad technology companies may be their best bet to capture the billions of dollars flowing toward digital advertising.
"You have two massive organizations that singularly focused their future on a combination of scale to deliver better costs and that is not going to happen now," said Dave Morgan, the chief executive of Simulmedia, a firm that sells TV advertising. He pointed to recent deals by Google and AOL focused on small ad technology companies that provide analytics.
Greater scale was supposed to give the new Omnicom-Publicis group better bargaining power in buying space for ads on TV, the internet, and print at a time when many global brands are looking to cut costs on advertising.
That rationale was never completely clear, one major Omnicom client told Reuters. And with the promised increase in scale no longer an option, the two firms have to explain to their clients what they can offer instead.
NEED FOR INSIGHT
One thing they need to provide is greater insight on what works and how cost effective ads are, especially in digital advertising, ad executives and analysts say.
Consumers now interact with media in a host of different ways, from the traditional sources of TV, radio, billboards and newspapers, to the different offerings online and on mobile including basic portals and social networks.
That has forced ad agencies and clients to change how they value the influence of an ad. A consumer seeing a traditional TV commercial may then go online to search for a deal before eventually