Are we witnessing the slow death of advertising holding companies?
The feted founder of AKQA, Ajaz Ahmed, has launched a new agency that promises to take on the “slow, bureaucratic” ad groups that since the pandemic have have been labouring under stagnant revenues and falling share prices. Ali Lyon asks: “Are those holding companies on borrowed time?”
Ajaz Ahmed is not a man to shy away from grandiose rhetoric.
The founder of AKQA – one of the most successful digital advertising agencies in British history before its blockbuster sale to WPP 12 years ago – has never been afraid of to discuss issues in a manner, or with vocabulary, that borders on the hyperbolic.
Among his former agency’s mottos was the phrase: ‘Get big or die trying’. And in a diary-like collection of thoughts from his AKQA days titled, Notes from a Founder, the entrepreneur wrote that ‘share of market comes from share of mind’, and ‘good work carves a crevice in your synapses’.
But as he launches his latest project, Studio.One, it is the terms in which Ahmed speaks of today’s advertising landscape, and what it says about the traditional giants of the sector like WPP, for which he has saved his loftiest and most striking language.
“Our belief is that this is a new era for independent agencies,” the founder – who set up AKQA in 1994 aged just 21 – tells City AM on the day of the agency’s “birth” last week.
“We are witnessing a paradigm shift.”
Studio.One, Ahmed says, hopes to harness the embarrassment of technology now at agencies’ disposal to uproot the staid and sclerotic practices still demonstrated by some of his sector’s biggest beasts.
The fledgling agency – the slogan for which is the suitably modish ‘Spirit Untamed’ – will function in an altogether different way to AKQA both before and after its absorption into the WPP firmament. It will have a different leadership structure, a more outcome-driven approach to billing, and crucially, he says, leaner operations. Taken together, this means it can service clients in a way that produces better, cheaper, more considered work for clients than the household name holding companies that have been an ever-presence in his sector since its ‘Mad Men’ heyday.
“We will be a direct rival to the slow, bureaucratic and expensive agencies within holding companies,” he says, putting his tanks firmly on the lawn of AKQA’s former owner. “They’ve become dysfunctional.”
Ahmed’s shot across the bows to the so-called ‘holdcos’ comes after a three-year period in which many of the major ad groups have struggled to keep up with the pace of change in what is a rapidly shifting industry.
Several of its biggest constituents – Japan’s Dentsu, the soon-to-be-merged American juggernauts Omnicom and IPG, and the Mark Read-run WPP – have struggled to arrest what has become a stubborn-looking combination of stagnant revenues and falling share prices.
Much of the industry is still grappling with the structural ructions wrought by the ascension of Big Tech as an avenue for ad spend.
Rather than call on the kinds of expensive media-buying intermediaries with which all the largest holdcos are bursting at the seams, advertisers are finding it increasingly prudent to go straight to the likes of Google-owner Alphabet, Amazon or Meta. These giants of the attention economy offer advertisers an intoxicating combination of cheap reach and hyper-accurate targeting to which the likes of WPP’s GroupM or Omnicom’s OMD have been struggling to add value. Last year, Big Tech platforms became the repository for over half of global advertising spend for the first time ever.
Latterly, blue-chip and growth-stage firms’ ability to turn to artificial intelligence to create perfectly serviceable adverts or graphic designs without calling on costly advertising agencies has only served to compound holdcos’ woes.
All of which was plain to see in several of the ad groups’ most recent sets of results. In March, Amsterdam-listed Havas posted a 0.8 per cent decline in organic revenue across 2024. Omnicom’s earnings slumped 4.5 per cent in the first quarter of this year. And WPP, once a darling of the FTSE 100 whose share price has more than halved since an early 2022 high, missed analyst estimates for the second time in a row when it reported it its own fall in earnings for Q1 in April.
Paris-listed giant Publicis, which posted organic growth of 6.3 per cent last year to leapfrog WPP as the world’s largest advertising group, has been the exception that has proven the rule.
But for Ahmed, who fell out with WPP chief executive Mark Read over the latter’s decision to merge AKQA with the group’s other flagship ad agency Grey, their slow demise goes well beyond macroeconomic trends beyond their control. They have, in his eyes, also made “misguided” strategic decisions that have led almost all of them to suffer a conglomerate discount rendering them less valuable than the sum of their parts.
“They have these bloated internal corporate structures where each individual agency is having to pay what’s called a ‘corporate overhead’ to the centre,” he says. “And what value does the centre provide? All the pitching, all the winning clients, is done by the agencies.”
This collective underperformance has sparked a proliferation of smaller, independent creative agencies like Studio.One promising clients a more considered, conscientious service at a marginally lower price point. And it is a trend that hasn’t been restricted to the confines of the branding and digital space in which Ahmed moves.
In 2019, James Acheson-Gray, a mainstay of the kinds of public relations agencies that are also a standard element in holdco portfolios, decided to co-found Apella Advisors.
Clients, in his eyes, were growing increasingly disillusioned with the impersonal, expensive players in his sector. Instead what they wanted was the kind of high-level, ultra-bespoke corporate affairs advice from battle-hardened experts like him and his fellow founding partners.
“Senior clients of ours, they’re looking for that top-level strategic thinking and agility,” he tells City AM. “And in that traditional model, senior people are spread very thin. When I was running a large agency in London, I’d be spread across 15 clients and you feel a bit like you’re being pulled from pillar to post all the time.”
Also coming under increasing strain, in Acheson-Gray’s eyes, is the so-called ‘pyramid model’ adopted by most of the largest advertising and PR agencies. Under the approach, an agency will employ an army of low-paid junior staff – “the grinders” – who carry out the day-to-day satisfaction of big client work. Those juniors – many of whom employers lose to other industries or ‘in house’ – then taper up to fewer middle management and then a narrow selection of better remunerated but no less harried seniors.
Thanks to a combination of technology and changing client needs, Apella and several of its peers, Acheson-Gray says, has been able almost to invert that structure. It focuses on fewer – but Acheson-Gray claims better – junior staff.
Asked whether that is the kind of structure he has in mind for Studio.One, Ahmed says: “That’s exactly right. We can be completely streamlined. You don’t need a lot of the corporate overheads and staff costs that exist… because the AI operational and business tools are so sophisticated now. And that’s allowed independent agencies to have more significance than ever.”
The holding companies themselves argue that, in some aspects, they are better placed than independents to embrace the period’s industry-defining technological advances. They have enough financial clout to invest hundreds of millions of pounds – via acquisitions or creating new tools – to get the best tools in the business.
They are also, says Lauren Winter, the head of Omnicom-owned Fleishmanhillard’s consumer practice across Europe and the Middle East, reassessing the skills and structure of their teams.
“I am still of the belief that only humans can predict the unpredictability of humans,” she tells City AM. “However, we can’t be naive to the fact that many things we grew up doing can be automated and therefore graduates entering the workforce need to reevaluate the skills they bring to the table.”
Winter adds that big networks have the benefit of “large tech tools” that, combined with her and her colleagues’ expertise, presents a “pretty potent” proposition to the clients over whose marketing spend Fleishmanhillard and its competitors are desperately scrapping.
But for Apella’s Acheson-Gray those efforts may prove all too little too late: “It’s a bit like the traditional lagers – Harp and Stella and the like. Then the craft beers come in and steal their thunder.”
Ahmed – for his part – sums up his aspirations for Studio.One with a similar analogy. “A lot of the holding companies and traditional agencies are fighting over a bigger slice of the pie,” he says.
“Our belief is that we should bake a better one.”