What Marketing Agencies SHOULD Learn from Telco Failures

I think what's happening to the whole marketing agency space, they're pretty much replicating the old telco model where they're just buying each other up and they're becoming bigger and bigger. But I think it's bad. See, the thing with the telcos is it's a pretty sticky product. You got a cell phone, a cell phone is essential and you need it. You're not going to end up canceling it. This is why AT&T just gives you dividends and it's almost 5%. It's ridiculously high. Forget the stock price. You're getting around 5% dividends on your money. Stock price isn't going up like crazy, but the dividends aren't bad because these companies cash flow well and they have amazing margins. But you look at the agency world, they have much more churn than a cell phone provider. It's not as sticky in my opinion. And I think it's bad because instead of trying to innovate on their product and make it better, they're just relying on the same old business. And for a lot of these guys, it's declining business. They're not doing well and I don't see them trying to focus on innovation. Instead, I just see them trying to look at these companies as financial models. And don't get me wrong, we both do M&A and that is a financial model as well, a way to make money. But that's not the key way you or I grow. We try to really grow by innovating. And I think that is the better way to grow versus just, hey, my agency Omnicom, which isn't doing well, it's been declining the last time I checked. Let me just go buy up another bigger agency that's also struggling, just combine it and we'll just have more revenue. Well, you got 2 agencies and 2 companies that aren't doing that hot. Yes, they're big, but they're not doing as hot and they're not really growing when the total market is growing. And if you look at global ad revenue, It's topping $1 trillion in 2025 with 82% being made up from digital. That's a ridiculously high number.

Yep. My take on this one is I also agree that it's bad, right? And I think we were talking on the phone about this, you mentioned this, is that when they scoop up a lot of these agencies, these, they being like an Omnicom or an IPG, for example, what happens is, you know, they usually have to write off the deal or they have to discount the deal significantly, right? Because they'll buy it and it turns out, oh, this acquisition isn't as good as we thought it was, right? They might not do a good job with integrating them or they might not do a good job with innovating, right? Because the problem is it's a financial, it's just a financial spreadsheet, right? And when you're operating solely based on that financial spreadsheet, you're not thinking too much about the customer. You're thinking more about how do I drive more returns, financial returns, so.

Here's the interesting, I spoke at Brussels, an event in Brussels called BAM, like, and one of the speakers that I met, or he set up the Bain London office, Bain Paris office, and Bain Munich office. So this guy's done really well. He's pretty much semi-retired and now he does consulting only for the holdcos and he does it for like the C-levels, all right? I'm talking about IPG, Omnicom, WPP, Dentsu, et cetera, right? He said something that's really interesting. Do you want to know the number one reason why acquisitions fail in holdcos?

No. I mean, yes, I do. I'm trying to set up a reel for you. Ask the question again.

Do you know the number one reason why acquisitions fail in hold calls?

No.

Oh, okay. You think you do. What is it?

No, I'm saying I don't.

I thought you do know.

I do know, but I'm trying to set up a reel for you.

No, no, no. Tell me what you think it is because you're probably right, but I'm curious. No.

Okay. So acquisitions fail, in my opinion, because of poor integration.

The number one reason they fail It's not actually integration. It's these holding companies are run by people on a spreadsheet, uh, financial people, and they look at these businesses as a spreadsheet. So from day one, they look at where they can optimize costs and they're looking to juice the numbers short term. So what happens in the short run?

Isn't that what I said earlier? I said they're operating like a spreadsheet. Yeah, yeah, yeah, yeah.

But previously, right?

But yeah, previously. I'm, I'm sorry, so I shouldn't change my answer, but it's like the two kind of go hand in hand in my mind. I've kind of thought ahead already. So that, yeah, well, integration is more how you integrate into But when you care about the financial spreadsheet, you don't care so much about the integration, and that's getting everyone together to work well. And it's such a people-oriented business that it just falls apart.

They care about the integration from day one because there's synergies from cross-selling and cost reduction.

Okay, continue.

So the integration, yes, they could do a better job on integration, but they love integrating because again, you can cross-sell throughout the whole network and you can cut costs.

You don't—

there's reduction of HR, reduction of legal, reduction of accounting, right? So the more they integrate, actually the better off they are for them.

Temporarily, but then it ends up not doing that well long-term because—

No, no, the integration is actually the right move. If you look at Publicis, which is the holding company that's doing the best, they pitch an integrated approach. They've done extremely well integrating. But the difference with a lot of the other holding companies, and maybe Publicis is guilty of this as well, is the main reason acquisitions fail is they operate it by a spreadsheet and often numbers, and they want to hit numbers at all costs, so they push hard on that. And it's not that they didn't necessarily integrate, it's, and in the first few years, a lot of them do well because they're about cost cutting, but it hurts the reputation and the brand in the long run and the service quality in the long run. And it causes the business not to perform as well years later.

Yeah.

But in the short run, they're making a killing. In the long run, they're just getting crushed. And they try to do that to hit their earnings calls, hit the stock numbers, but it's just really crushing them. But the integration side, to go back to that, When they don't integrate, it's harder to cross-sell. So they try to integrate when possible. And the sooner they can do it, the happier they are. Because if you only offer influencer marketing services and they offer everything else, they want to sell the crap out of your influencer marketing because it helps their overall numbers for the agency.

So what I'm saying is, I, I, I, you're right, right? I'm just saying from an integration piece, I'm not saying you shouldn't integrate. I'm saying absolutely you should integrate. I'm saying in the long run, I'm thinking about the long term here, the integration is poor. And when you have poor integration, things fall apart, right? And it's because of The main reason you gave, which I'm wrong on the main reason, right? But I think the main reason you gave on they're operating like a spreadsheet means that the people at the top, they're running it the wrong— and so you don't get to integrate well. But you've seen agencies that integrate well, right?

Yes.

It's because they're not thinking about the spreadsheets all the time. So we're— I'm kind of going around it a little bit. But yeah.

And the other issue is, is the reason Publicis was able to integrate well is they've done chunkier acquisitions. And they haven't done as many. But if you look at WPP, Dentsu, and a few of the other players, they've done so many acquisitions, it's hard to integrate all of those companies.

Have you ever wanted to target a bunch of accounts on LinkedIn at once and personalize them? Well, previously you couldn't do this. Let's say you wanted to target 500 enterprise companies and you wanted to hyper-personalize those ads. You can do that now. And LinkedIn has confirmed with us that nobody else can do this Only we can do it. The product is called Karrot. That's K-A-R-R-O-T. And it's Karrot account-based marketing. So if you go to karrot.ai, you can go learn more about it and we'll see you on the other side. You know, this is actually a lesson even when it comes to VC, for example, right? So for the product that we have, sure, we can raise probably $10, $15, $20 million or whatever. But the thing is, you start to bring in stakeholders, right? It starts to become this like Frankenstein. And same thing with IPG or Omnicom. When you start to— when you do too many of these things, you become like this Frankenstein. And you become this giant ship and it's hard to maneuver. And then what happens? Well, things start to fall apart really quickly. Like, let's use a good example here. So we talked to a couple of people from Accenture. We paid people for these calls, right? How many employees does Accenture have right now?

I think 600,000. Is it somewhere around there?

So that was in 2021. 2021, 624,000. 2022, 721,000. 2023, 733,000. Now it's 2024, 774,000 people. Okay. So I was like, I talked to one of the guys. He's like, he closed like, you know, $30 million this year in sales and AI sales. I was like, oh, that's fantastic. Right? I'm like, so I'm like, oh, but like, it seems like you, it seems like you want to leave, right? He's like, yeah, you know, I'm looking for my next thing. I'm like, but you're making good money. I'm like, so why do you want to leave? He's like, well, the thing is, there's a lot of politics. It takes too long to get anything done. There's a lot of redundancies as well. Um, and when it comes to selling this, this AI stuff, A lot of their entire— I was like, so what would you do if you were a CEO? That question again, right? He's like, honestly, I would train my entire staff on like what it is that we actually sell, right? And to be a lot more consistent there. So it's like, oh, communication is not a good thing. It's just like this. He's like, it's just hard to get anything done. And there's a lot of bureaucracy. And a lot of the things that we're selling are basic. I'm like, hey, so when you guys sell AI, like how does it work? It's staff augmentation. And I'm like, wait, that's like old school stuff. That doesn't sound very like you guys are innovating there. Um, and that's the part that— that's the problem when you have such a, I don't know, like a giant ship, it's hard to move. It is hard.

And companies of all sizes have different problems. Accenture, from the stock price perspective, has done pretty well over the last 5 years. I'm looking at their stock, they're up 75.6%.

What's their market cap?

Uh, $244 billion.

That's pretty good.

Yeah. So overall, they've done a good job. Accenture also, during the peak during COVID did you know they were acquiring a company a week?

Oh, were they?

Yeah, Company Week. Well, Accenture does really well with M&A. And I know I just talked about earlier how some of the advertising holding companies acquired too many agencies while publicists acquired the bigger media ones. What Accenture did that was really interesting is they acquired smaller agencies in specific regions that specialize in a service offering that they may be weak at. And then they integrate it really quick and they push in their partners to take it over and it just becomes part of Accenture. And the reason that is an easier their model is they're acquiring really tiny companies for the skillset, not really for the revenue or the profitability. And Accenture looks at some of the companies that we're acquiring. Like I've seen people send me their offers from Accenture and some of these companies are really tiny where they're only doing like $6, $7 million in revenue. I think that's good revenue, but when you're a company with a market cap of $244 billion.

Yeah.

And to put it in perspective, their quarterly revenue is around $16 billion. that's roughly $64 billion a year. A $5, $6, $7 million company doesn't really move the needle. But again, if you're just buying it for the employees and the talent and the skillset, and then you just integrate it into your business, that's not a bad approach. And then they have their partners take over the relationships and grow them, and they try to force people into the Accenture model and culture, and it's worked well for them. So, you know, hats off to them for that.

So that is it for today, guys. Please don't forget to rate, review, subscribe. Go to marketingschool.io/agency if you want to learn more about our little agency community to help you grow faster. I think, Neil, we're actually speaking in 10 days to the community. So that's that. And yeah, we'll see you tomorrow.

Bye.