- As the holding company model continues to face threats on numerous fronts, the five biggest ones should consider going private, said S4 Capital’s Sir Martin Sorrell.
- In an interview during the Cannes Lions Festival of International Creativity last week, Sorrell said the holding companies were stuck in outmoded ways of working.
- Sorrell also said that ad agencies his new company S4 Capital is trying to provide advertisers with an alternative by focusing on data, digital and being better, faster and cheaper than traditional agencies.
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In their heyday, ad holding companies allowed agency groups to serve an array of clients with various marketing functions while achieving economies of scale.
But with the holding company model facing threats and shares of big players like WPP, Publicis, and IPG continuing to slide, they may be better off going private, said former WPP chief and S4 Capital head Sir Martin Sorrell.
“There’s a serious question to be asked as to whether the ‘big five’ would be better off private,” Sorrell told Business Insider during an interview during the Cannes Lions Festival of International Creativity last week.
“Do they need more scale? Probably not. A lot of clients believe that small is beautiful on the creative side of the business, and brain is becoming more important on the media side than brawn, certainly in programmatic.” he said.
Sorrell says ad agencies are stuck in outmoded ways of working
Holding companies have struggled as big clients like Procter & Gamble pull back on ad spending, brands experiment with taking more functions in-house, and Facebook and Google continue to dominate digital advertising. Some, like WPP, are responding by simplifying their networks, and integrating creative, digital, and media teams.
Read More: Consumers are avoiding ads more than ever, so P&G is striking creative partnerships with big names like John Legend and Arianna Huffington
But that won’t be enough, said Sorrell.
“The Pavlovian reflex reaction of most traditional agencies is still around a TV film,” he said. “They are still rooted in the ‘Draper-esque’ past, the ‘Mad Men,’ mad women, past, rather than looking to the future. Clients continuously complain that agencies don’t respond in a digital way, or even in a balanced way.”
Read More: Hershey’s bet on in-housing is yielding sweet results, with overhead costs down 25%, output up fivefold and over $4 million saved in agency fees
With S4, Sorrell is trying to build an alternative to the holding companies
Since leaving WPP last year after allegations of misuse of assets and improper behavior, Sorrell has begun to build a holding-company alternative in S4 Capital by acquiring companies like programmatic firm MightyHive and digital production company MediaMonks.
Sorrell said his goal is to create a global advertising, marketing, and ad-tech company that’s focused on digital and first-party data and is better, faster and cheaper than traditional agencies. S4 Capital reported $150 million in revenue in 2018, and has clients including Procter & Gamble, Nestlé, and Avon.
“We focus purely on digital, which is the growth segment of the business, and continues to grow at around 20% as opposed to the old stuff, which is actually declining in some channels,” he said. “I get harangued for saying cheaper by [CEO of Accenture Interactive] Brian Whipple and others, and that may sound glib and superficial, but it really does resonate [with clients].”
Sorrell claims that by being technologically agnostic, S4 is not beholden to or dependent on any platforms. In signing clients, he said the company prioritizes top-line growth, and margins, not sacrificing them as he said holding companies have done.
Still, while brands are putting more of their spend in digital, S4 Capital is barely a year old, and has access to a fraction of the marketing pie compared to the incumbents. And the holding companies are fighting back, acquiring data-driven marketing businesses like Epsilon and Acxiom. Plus, S4 isn’t immune to the trend of clients taking functions in-house.
One is Hershey’s, which set up its own internal in-house content studio. “I could not get good social work out of my agencies because they were so determined to keep things the same,” its CMO Jill Baskin told Business Insider earlier this month. “They were so stuck in their models.”
Sorrell maintains S4 Capital will prevail over traditional holding companies because his company’s functions are all connected from the start.
“In other words, a company not fragmented by earnouts or by the silos, all the verticals but truly integrated,” he said.
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