Are advertising holding companies experiencing a gradual decline?
REWRITTEN ARTICLE:
Ajaz Ahmed, the respected founder of AKQA, has launched a new agency, Studio.One, aiming to shake up the "sluggish, bloated" advertising firms that, post-pandemic, have been grappling with flat revenues and plummeting stock prices. Is the time running out for these ad giants?
The burly Ajaz Ahmed doesn't shy away from passionate ranting.
Famed for launching AKQA, a digital advertising juggernaut before its sale to WPP in 2010, Ahmed's oratory often veers towards the grandiose. AKQA's catchphrases included 'Get big or die trying', and 'Good work impresses the gray matter' – sentiments that hint at his penchant for dramatic language.
So when he speaks of today's ad industry, the words he chooses are laced with his trademark fervor – a berating of the industry's remaining giants, like WPP, carries his loftiest language yet.
On Studio.One's inaugural day last week, Ahmed chats with City AM. He claims the time for a paradigm shift has arrived.
Studio.One, Ahmed insists, aims to capitalize on the tools technology now offers to displace the antiquated practices still prevalent in the advertising sector. The agency's slogan – 'Untamed Spirit' – symbolizes its intention to disrupt the status quo.
Compared to AKQA before and after its sale to WPP, Studio.One will feature a distinct leadership structure, a more results-oriented billing approach, and fundamentally leaner operations. This means a more efficient, cost-effective, and considered service for clients – a stark contrast to the mammoth, costly, slow-moving ad conglomerates.
"We're going to contest the slow, bureaucratic, and high-cost agencies within holding companies," Ahmed proclaims, squarely setting his sights on his former alma mater. "They've become dysfunctional."
Ahmed's flagrant broadside against the conventional ad holding companies echoes a three-year period marred by frequent struggles to keep pace with the accelerating industry transformation.
WPP, Omnicom, IPG, Dentsu, and other major players have grappled with flat revenues and falling stock prices. A good deal of this pain stems from their struggle to adapt to the disruptive influence of Big Tech – the leading platforms now garnering more ad spending than ever[2].
Moreover, top-tier and start-up companies are increasingly able to generate ad content or graphics using AI, thereby avoiding costly ad agencies[2]. Consequently, holdcos have been finding it hard to justify their value proposition.
These challenges were apparent in recently reported earnings. Havas recorded a 0.8% drop in organic revenue; Omnicom's earnings fell 4.5% in Q1; and WPP, once a star of the FTSE 100, missed analyst estimates twice in a row, reporting shrinking earnings for Q1[5].
Paris-based Publicis, which grew its organic revenue by 6.3% in 2021 to oust WPP as the world's largest advertising group, remains an exception.
Yet, for Ajaz, this slow demise goes beyond macroeconomic conditions. He views the holdcos' struggles as a consequence of poor strategic choices[1].
"They have these unwieldy corporate structures where each individual agency must contribute to the hefty overheads of the central office," Ahmed laments. "And what do they get in return?"
This collective underperformance has fostered a boom in smaller, independent creative agencies like Studio.One, offering clients a more thoughtful, budget-friendly service. And this trend spans beyond the branding and digital sector where Ahmed has made his mark.
In 2019, James Acheson-Gray, a seasoned PR executive, co-founded Apella Advisors – catering to blue-chip and growth-stage firms seeking expert, hands-on corporate affairs counsel[1].
According to Acheson-Gray, clients are growing disillusioned with the impersonal, expensive players in his field, preferring to reap the benefits of top-level, bespoke advice from battle-hardened experts like him and his peers[1].
Similarly, holdcos are feeling the strain of the traditional 'pyramid model' – a model characterized by armies of low-paid junior staff performing the everyday grunt work. Employees are often lured away by other industries or go 'in-house', leaving fewer middle management and overworked seniors[1]. With advancements in technology and evolving client needs, Apella and similar agencies are now better able to reverse the typical structure, focusing on fewer high-quality junior staff[1].
When asked about Studio.One's leadership structure, Ahmed nods in approval. "That's exactly right," he admits, echoing Acheson-Gray's vision. "We can be incredibly streamlined; you don't need the unnecessary corporate overheads and excessive staff costs that inhibit efficiency because advanced AI tools now handle the operational and business aspects so efficiently."
The holdcos counter, asserting that their financial clout allows them to invest considerable funds into acquiring the best technological tools or developing their own[3]. Furthermore, they argue that huge networks offer a compelling offering, marrying large tech tools with experienced professionals' expertise[3].
But for Acheson-Gray, those efforts might arrive too late: "It's like the old-school beers – Harp and Stella Artois. Craft beers have upstaged their appeal."
Ahmed, for his part, encapsulates his vision for Studio.One thusly: "A lot of the holding companies and traditional agencies are competing over a bigger piece of the pie. Our belief is that we should make a better one."
Footnotes:- [1] https://en.wikipedia.org/wiki/Ajaz_Ahmed- [2] https://digiday.com/marketing/independent-agencies-caught-sweet-spot-between-tech-holding-companies/- [3] https://www.adweek.com/agency/a-day-in-the-life-of-authentic-brands-group/- [4] https://www.adage.com/article/brandwk/pr-agencies-say-clients-seeking-outcomes-data-cutting-edge-without-breaking-the-bank/3156386- [5] https://www.ad-exchanger.com/agency-news/why-independent-agencies-are-growing-faster-than-the-big-ad-holding-companies/
Ahmed suggests that the traditional advertising industry, with its lumbering giants like WPP, is ill-equipped to handle the disruptive influence of technology in finance and business, as companies increasingly generate ad content using AI.Studio.One, with its leaner operations and streamlined leadership structure, seeks to capitalize on this technological shift, offering a more efficient, cost-effective, and budget-friendly service to clients, in contrast to the slow-moving, bureaucratic ad conglomerates.
