Funny or die

The new rules of online marketing

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When was the last time that, when given the option to skip, you watched one of those ads before an online video through to the end?

For me, it was probably British baker Warburtons' latest preroll spot for its bagels. That wasn't because I have any particular fondness for the doughy treat — I don't. It was just an entertaining ad: Robert De Niro turns up as a gangster to pull off a Goodfellas-style heist. It's pretty funny.

The success of the ad lies not so much in its precise targeting, but in a silly joke about mobsters that appealed to me enough to grab my attention. For all the programmatic data ad agencies use, the creative part still matters. As internet users become inured to the deluge of online ads, brands are having to become smarter at appealing to consumers.

Bean counters such as Accenture, Deloitte Consulting and Ernst & Young have, in recent years, wrested business away from adland's incumbents — WPP, Publicis Groupe and Omnicom Group — because of their deep digital know-how. But if they are to grow further, they are going to need to think more seriously about expanding their creative offering, where they have scant presence right now.

So far, they have struggled to hire creatives, who are more likely to be want to work for a hip Madison Avenue name than for an accounting firm. So, dealmaking could be the best option.

Accenture seems to have got the message faster than most. It is targeting another $1 billion in acquisitions this year, with a focus on expanding its ad offering. The firm made its biggest gambit into the creative space when it bought New York-based ad agency Droga5 last month. But the likes of Deloitte, EY and KPMG have as yet made only tentative steps, and could do much more.

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With many of the incumbents seemingly blindsided by the digital onslaught, valuations in the advertising industry are low. A deal to acquire one of the giant ad holding companies might even be feasible — both Publicis and WPP are trading near their lowest valuations in a decade.

Consider WPP. The world's largest agency is a year into a reorganization under new CEO Mark Read. As part of that process, it's preparing to sell a majority stake in its market research unit, Kantar, for as much as $4.4 billion. That would value the division at about 10 times earnings before interests, tax, depreciation and amortization. After stripping out Kantar, WPP itself would trade at an enterprise value of just seven times Ebitda.

In other words, WPP is trading at a discount to what is supposed to be one of its worst-performing units. That discrepancy could well attract the attention of a brave executive team.

Sure, there would be huge execution risks, not least how to untangle its 134,000 employees. And it might be hard for a consultancy to retain WPP's media-buying operations since big agencies' media-buying practices are being probed by the Federal Communications Commission. (It would also create a conflict of interest with the consultancies, many of whom were responsible for auditing such practices.)

But teaming up with a private equity consortium could resolve those concerns: a breakup would see the creative agencies go to a hungry consultancy firm, with private equity taking the low-margin, but predictable, media-buying business. So don't be surprised if the suits in consultancy land start making those creatives in skinny jeans some offers they can't refuse.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.


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