Rishad Tobaccowala | The Omnicom IPG Merger - What it Means & What's Next | Part 1

0:00The CMO Confidential Podcast is a proud member of the I Hear Everything Podcast Network. Looking to launch or scale your podcast? I Hear Everything delivers podcast production, growth, and monetization solutions that transform your words into profit. Ready to give your brand a voice? Then visit IHearEverything.com. Welcome to CMO Confidential, the podcast that takes you inside the drama, decisions, and choices that go with being the head of marketing. Hosted by five-time CMO Mike Linton. Welcome marketers, advertisers, and those who love them to Chief Marketing Officer Confidential. CMO Confidential is a program that takes you inside the drama, the decisions, and the politics that go with being the head of marketing at any company in what is one of the most scrutinized jobs in the executive suite.

0:54I'm Mike Linton, the former Chief Marketing Officer of Best Buy, eBay, Farmers Insurance, and Ancestry.com, here today with my guest, Rashad Tabakawala. Today's topic, the Omnicom Interpublic Merger. What does this mean and what's next? Now, Rashad was the former chief strategist and growth officer of the Publicist Group. He's a bestselling author, an in-demand speaker, and the host of What's Next, a podcast that provides a wide-ranging look at the future. He has also recently published a new book titled Rethinking Work, which we will also discuss later today. This is his third time on the show.

1:37Welcome, Rashad. Thank you, Mike, and thank you for having me back. Yeah, well, it's always fun to have you on the show. Provocative, interesting, and wide-ranging. So let's start with the topic at hand, this massive merger. Omnicon and IPG, they're both huge holding companies, and they're going to have a company with over 100 ,000 employees. and more than$25 billion in revenue, if I'm reading everything right. Tell us your take on this whole thing. Well, I basically believe that what is happening is a recognition that, one, our industry is oversupplied. So this is one way of taking out some capacity.

2:25The second is that while there continues to be a significant amount of room for specialists and niche agencies and marketing service providers, the business is tending to consolidate and concentrate with the top three or four. I recently heard that approximately in the last 90 days, between 95 % and 100 % of all major pitches were won by the same three companies. Really? Yeah. So that's three companies just rolling. We're going to go back to oversupply. apply, but. Yeah. So basically what is steady to happen is you have WPP, Omnicom and Publicis. And now if you consider Omnicom IPG as one company, it's almost become very concentrated.

3:28Not that there isn't amazing talent and amazing people at other companies like a Densu, right? etc but it's almost like there are these three big companies then there's like a big gap then there are a number of other companies like which are roll-ups like stagwell and brand tech and and others and then there are like niche companies that clients also have around them but almost a lot of it is going through these big companies. And I believe that the reason that this acquisition or this merger, it's actually an acquisition very clearly of IPG by Omnicom is because one, there are benefits to scale in three areas of the world of marketing, which are the three areas that agencies are to need to grow it.

4:26One is media, without a doubt. The second is data. And the third is technology. And media and data and technology tend to be scale-based businesses. What many of these companies started as, which was creative, advertising, and communication, there are almost no benefits of scale. Right. Because creative is still... Right. So there are no benefits of scale. That doesn't mean creative isn't important to these companies or that creative does not require data and storytelling and a whole bunch of other stuff. But the reality of it is the returns on investment of these companies tend to come from data technology and particularly media.

5:15And if they can scale up, they do a few things. One is if you scale up, you basically have the ability to drive costs lower just through that. You get some benefits, obviously, from media and from data. And you also take out some capacity in the industry because the industry has been having a little bit of excess capacity. And that you see because one way that agencies win business is by cutting prices. Is this a race to the part of this? Are you going to lead with cost versus creative or are you going to lead with data and tech versus creative? I think you're going to lead with data and tech versus creative.

6:07But what would also tend to happen is when businesses now, for all practical purposes, have three choices. And usually businesses try to have a company and then someone else that they can also leverage against that company. Right. So in effect, now most, I think, clients are going to recognize that there isn't the demand supply initiative that they thought that there was, that there is less supply, especially relevant supply. If you want scale-based global media data and tech, and you want someone who happens to be on your side, you have to use some of these companies. Because you no longer can just go and say, okay, I'm going to use Google.

6:56Because Google will sell Google inventory utilizing Google technology and Google data. And they won't sell you any meta stuff. And they won't sell you any TikTok stuff. and they won't sell you any Amazon retail or Walmart Connect stuff. So what tends to basically happen is you will, we've come to this place where there was a moment in time when there was a lot of capacity in the industry, oversupply of agencies. And there was consolidation, it seemed, in the digital landscape to two or three players, Meta, Google, and that was about it. now what we're basically seeing is there's actually wild competition in there's much more consolidation actually especially post this acquisition if you really want to play in the big leagues you can't have a small creative agency doing your media your data and your tech ain't gonna happen you gotta go to these last players at the very same stage you no longer have the ability to say i'll do this in-house because i only have to deal with metta and google right Now you basically have to deal with the last I counted.

8:08At minimum, there are at least 12 major platforms in the United States that you have to play with. Well, it's no longer two. So now when you have 12 platforms that you have to play with, besides a lot of other small people. This assumes TikTok still makes it through all the stuff. Yeah, TikTok makes this stuff. But, you know, the scale of Amazon in the advertising business or a Walmart Connect in the advertising business are huge, right? And that's what people don't realize. So besides all of these things, the other is things give it up for dead. They're not of the same scale. Like X is coming back.

8:45Like Amazon said they're putting a whole bunch of money in. So there's a whole bunch of money coming back. So it's no longer this whole idea of, hey, I got to deal with two people. I got to deal with 12 people. The other is no particular client actually now has the scaled base down to actually compete. Maybe there's a P &G, maybe there's a Walmart, right? But even that is going to be, I think, very, very hard. So in effect, I think this is recognizing in order to compete, you have to have some skill. This is what I think these folks are doing. And what we, so that's one. Now, there's another way that, so that's what I call the smart part of what they're doing.

9:28And all the people in both companies, and I know a little bit of their management, are very smart people. So I would not say that this is crazy people. These are actually smart people who know what they're doing. Now, some people basically say, okay, therefore they are in good standing and they will move forward. now recognize that I don't know what their strategies are I don't know exactly what they're going to do but they're going to have some significant challenges and those challenges are going to be I think threefold and I'm sure they're aware of it but I don't know if they recognize how deep those challenges are because I've actually gone through this adventure before so I think I don't know so one is we tried one of these little things.

10:22In 2013, Maurice Levy and John Wren tried to do a publicist Omnicom merger. Yep, I remember. That did not work for a variety of reasons, combination of control and culture. Okay, this time around, it's very clear who's controlling who, which is fine. But what basically begins to happen is you now have these two companies coming together and clearly there's going to be, they're talking about like$75 million of cost savings. I thought it was$750 million. $750,$750 million, sorry. It's a billion in cost savings now. A billion cost savings. So a lot of that is not going to come from like real estate costs.

11:04It's going to basically come from people. It's all got to be people. So one is that itself is very difficult. Second, there's going to be different systems coming together. which is very, very important. And the third, which is the thing that we've learned is what they're now trying to do, the best I can tell, is what Publicis Omnicom tried to do 12 years ago. But the world has changed. So from outside, even though these are very smart people, I'm beginning to wonder whether they're solving for yesterday's problems. So there's a few things. The first, to a great extent, I think, you know, to a great extent, if you're trying to catch up as they might be trying to catch up with Publicis, which has been doing particularly well the last three, four years, the best I can tell, and again, I don't work at Publicis anymore, that I don't think Publicis is standing still.

12:04They're going somewhere else. Okay? And so what happens is these people are trying to fill something that Publicis is running away from, primarily because I think they're beginning to see what the next frontiers might be. And I, again, don't work there. So one is this sounds a little bit like an older, older problem. But here's the big issue here. I think the biggest issue is this is to solve for companies like this. And I've learned this having had the opportunity to work at Publicis and be involved in things like Sapient and Epsilon and Digitas and Razorfish, which are not mergers. They were acquisitions.

12:44So this is like an acquisition. Technology changes really fast. People change really slow. Okay. And what basically begins to happen is you can have an amazing strategy. You can have amazing M &A plans. You can have amazing reorganization plans. But it won't work unless you bring the people along. And the people are going to say, tell us why this is good for us. And now many leaders are looking at the$750 million of cuts. and saying this could be good for us. We know it's going to be two years of amazing pain. But for publicists, because I guess we were sillier, it took us four years. Okay, assuming these people are twice as good, it'll take about two years of pain.

13:29So if you're world-class talent, you're looking around and saying, what am I going to go through? Two years of pain to figure out whether I'm on the right side of 750 million people. So they're going to have, I think, a massive talent flight problem. which is number one. Second is they're going to basically have to explain to everybody, including the young people, why is this good for me? I understand it's good for Omnicom and IPG shareholders, but why is it good for me? And when you tell people it's good for the holding company, they'll say, well, we don't have too much equity in the holding company.

14:06Yeah, and it's surely not necessarily great for your career. Right. So the second is, how are we going to be incented? And the whole question simply is, is will they be incented in today's goals or tomorrow's goals and what will they be? You know, world-class companies like Condé Nast are now a shell of themselves today, not because they weren't head smart people, but because for year after year, they incented the sale of magazine pages. So they kept talking about multimedia, but you got promoted by selling magazine pages. And then the last is, where is the training? Usually when you take out$750 million, you take out all your training.

14:44And I truly believe that if you want to get from year to there, yes, strategy, M &A, and reorganizations are important. But if you haven't solved for the people, you haven't solved for the incentives, and you haven't solved for the trading, you're going to have an issue. So that's number one. So that's the first thing. The other is I've never seen the rate of change in the world's landscape as it is today. And as a result, if it takes you two years to get something together, the world you'll be facing will be completely different. And one of the, I think, so in effect, strategically what they're doing makes a lot of sense.

15:21The question is execution. And the execution is really about people. And if you actually look at a lot of their management, it's financial types. Okay. I have two follow-ups before we go further. So if the industry is actually, its oversupply is shrinking, does this say the other two already big players win more and the mid-sized agencies get, this is the beginning of the end for them or the little agencies get rolled up? What happens to everybody else? The two other bigs and then all the mid-sized small companies running around? So obviously with an asterisk, which is I used to work for many, many years at Publicis, and I continue to be an advisor to them.

16:19Therefore, anything I say about them is highly biased. So take that aside. I think they're probably the very best position right now because they've gone through all the pain. They're doing really well. And they're just, they're starting to work on all cylinders. So that's one of the two. And they're killing it on the data front too. On everything. Right now, they're doing really well. And everything I can sense is they're doing very well. So that's really good. I sense that WPP is prepping for a private equity sale. There's absolutely no way that model works anymore. Okay. And in effect, so that can be very powerful.

17:03A WPP with private equity can be very powerful, but I just don't know how they seem to be hemorrhaging and continue to hemorrhage. Omnicot has always been relatively strong compared to a lot of other people. They continue to belong with publicists. They were very strong these years. And IPG has a lot of assets, including Axie. and things like that. So I would expect they'll be fine. Now, Densu, I basically believe, will become primarily a Japanese company. It's, no one talks about Havas. Okay, remember all these companies, they're all basically gone, right? So right now it's like, okay, there's this Omnicom IPG thing and there's this publicist thing.

17:48They seem to be going to be doing okay. WPP is a work in progress. And then everybody else seems to be shrinking. And then the middle is no place to be. The middle is absolutely no place to be. And this, I said something five years ago and people thought like I was crazy. And I do say crazy shit all the time. And I am crazy. That's why we love you on the show. Right. But you know, when people said about S4 and Martin Sorrell and W, when he did the S4, I said, too small, too focused, too late. And everybody said, what are you talking about? I said, just watch. A year later, they called me and said, his stock price is whatever it is.

18:27I said, just watch. Okay. And now he's up for sale. His stock price is, I don't know, 15 cents on the dollar. Right. It's so small that if publicists decided to buy them, it would be like buying a shop or marketing agency, the entire S4. Right. I mean, it's ridiculous. Right. My whole stuff is how the hell do you become as focused on technology when the world is brooding? Right. at all of that. So all of these middle things are all, I mean, not that gone away, but there's no reason for them. So it's fair to say you've got to be big or you've got to be super specialized. Yes. So yes, what I basically believe, I basically believe, and it's one of the last, one of the chapters in my book where I say, what was the future of companies look like?

19:17Right? Because I'm thinking of, okay, the future of work. So where should I want to go work? So where will the future companies look like? I believe the ecosystem is going to be whales and plankton. And that's it. And somebody said maybe there'll be a squid euro there. Okay, it's whales and plankton. And a whale will be some dominant companies in every industry and some dominantly sized companies. And plankton will be people who are specialists, fast, provide a whole bunch of interesting things. And then everybody else is going to be whose middle size is going to have to be either helping the whales or the plankton.

19:57They'll be just enablers. So I'll give you an idea. People say, what is this whale and plankton model? I said, today, the whale and plankton model, for instance, think about the world of creative and creators. YouTube is a whale. A YouTube creator is a plankton. Okay. and a YouTube creator basically gets paid 70 % or 60 % of all the revenue that a YouTube gets from them. But YouTube basically provides them with a global audience infrastructure, underlying technology, and they feed off each other, YouTube. So similarly, it's not become a whale, But if you think about in the world of publishing, Substack, okay, is a wheel in the world of publishing like WordPress was, and I'm a plankton.

20:59So I publish a torter every Sunday. And I don't need any technology. I just use them. Because I don't charge anything. I use them for free because they charge 10 % of what I charge. And so I'm free. Right? And I reach 30 ,000 people every Sunday for free. And I couldn't do that before. It's a wheel and plankton thing. So my whole stuff is what's your specialty? What's your absolute world-class killer edge? Am I by the about saying nonsense on my sub-stack? But whatever that is, okay? And then you line up with plankton or with wheels. Everything else becomes very in between. And there are all kinds of new companies that are allowing a lot of stuff to happen.

21:43So for instance, there's a company that is now run by a friend of mine who used to work with me called Andrew Swinan called Inspired Thinking Girl. And he now basically will have, he's growing at an incredible, like 30 % a month nonsense. He's got 800 employees. And what they basically do is they use a technology called StoryTech and they basically help both the big agencies and everybody else who come up with what they call halo ideas, the big ideas. Yeah. to basically find a way to make 50 ,000 versions of that really cheaply and quickly. So let's keep the C metaphor going. Yeah. I got these whales.

22:26I got these plankton in there. I'm a client. I'm looking at all these whales. I'm looking at the plankton. How should I be thinking about the next set of years as a client when I look at this? or if I want to do a review or like, what should I be thinking about? So if I'm a client, I think the first thing I'd do is I would basically think about another C. And I'm talking about not the letter C versus the CC, right? I see what you just did there. Yeah. So the first thing that I would basically do if I were a client is I would tear up my calendar and put in an hour every day to learn. Which is, first, make sure you understand what the landscape looks like.

23:19So there are a lot of clients who basically say, we are hiring this company to help us on AI. And my whole basic belief is that is ridiculous. That is terrible because you've got to know how to use this yourself. So my whole stuff is, it could be AI or anything else. So spend an hour a day learning, get people to come and tell you, talk to every person you have, your existing agencies, new suppliers, understand the ecosystem. Because I'm no longer in the industry and I'm a seller and a buyer. I'm actually selling books. I don't even know what the hell's going on. So to a certain extent, get smart about the ecosystem by looking at both your existing partners, other partners, and everything else.

23:57That's number one. Cognition. You got to spend time figuring out the landscape. So with that, I think this is what they will see in the landscape. But again, you see it from the lens of your own eyes in your own company. I think what as a client, besides learning, I would, depending on the size of the client, but let's say Fortune 500 companies, right? So let's go with that. I would basically say, all right, I need to find a way to decide how much of my business do I handle inside versus outside. I'm not talking about agency services, et cetera. I have a feeling that it's going to end up being about 80 % outside, 20 % inside.

24:38It's not going to be 50-50. There were some people who were thinking 20 % outside, 80 % inside. The reason - Well, you can't keep up with the - Not only can't you keep up, but what happens is your economics will go to hell and you can't fire yourself. Right. It just is not going to work out. And what is basically happening is they're going to hire talent from anywhere in the world on the fly versus having in-house. It just won't work. You have to have some in-house, obviously. So I'd say 2080 is what most people will end up. Different people will end up with different things. But you have to basically say, okay, what am I keeping inside?

25:11What am I going outside? Then with the stuff that you've decided to go outside, I would, if you're a fortune, you know, big company, I would basically say my sort of base agency or base partner should be one or two of the big six or seven people. And the way I'm saying big six or seven, I'm not being completely loyal. I'm going to name some names that are not necessarily of the names we think about. So clearly, you know, look at a WPP, look at a IPG Opticom, look at a Publicis. I would look at those three for sure. But I would also basically look, though they don't have media operations, but they have other operations, at an Accenture, a Deloitte, okay, ETCS.

26:01So the thing you want to basically say is, okay, who is my lead agent? Not lead agency, one of my lead, the big partner, you know, mid partner that I have. And when you say lead, are you talking strategic or are you talking data or tech? Or when you say lead, what do you mean by lead? Help me transform my marketing. Okay, so that would be strategic and vision. Strategic vision, but also data, technology. Here's what basically happens is I can go and give somebody a vision, but I can't land the plane. So that's not who you should hire. Right, you need somebody who can actually run some of these things.

26:39Also initiative, but it's one of your big active, it's book. And so I'd go with one of them. And so if you're a very large client, you'd say, okay, I'm using the main one is this and I've got another one like this to keep the other one honest or whatever it is. So you got those two. And then after that, I'd go to all specialists. But whoever your main person is, I'd say, I expect you to plug and play with the other specialists. And if you don't, I'll go to the other person I've got on the side. Just plug and play. So the idea basically is, it's like master blaster. You basically need a big thing to blast all over the place, and then you need some additional.

27:19It's from Mad Max Beyond Thunderdome. There was a master blaster, so you did the master blaster model. Thank you for clarifying that. I was going to go. I thought it was, but I wasn't sure. Yeah, it's basically master blaster. So basically you need, if you're a large company, you need one of these big people to be a main partner, and then you have some other people with you. We had Oren Hoffman was on the show, And he would say one of the biggest skills over the next decade is going to be, and I think he's right along this plankton, vendor management, the ability to work with people to get that 80 % you're talking about right.

27:56This is the end of part one of our show. Join CMO Confidential next week for part two of our discussion with Rashad Tabakawala on the merger of Omnicom and IPG. If you are interested in diving deeper on any of our topics, visit YouTube for more shows and shorts. Until next time, hey all you marketers, stay safe out there. This is CMO Confidential, signing off.