• by Gavin O'Malley  @mp_gavin, January 27, 2012

From IPG to WPP, agency holding companies need not worry about Google getting in their way. In fact, “concern about the threat of disintermediation by the likes of Google is generally unwarranted,” according to a new report from Pivotal Research Group.

“Agencies offer unique services to their clients, namely ‘service’ itself in helping navigate ideas through marketers’ organizations,” according to Brian Wieser, senior research analyst at Pivotal, an independent equity research firm focusing on the media and communications industries. “This competency is not typically developed by media technology companies.”

“What agencies do uniquely well, and what they get paid for, is filtering ideas, socializing those ideas, and shepherding an idea around a client’s company to build buy-in,” Wieser continued. “This is not a competency that Google possesses.  It is, however, a competency that the management consultancies -- especially Accenture and IBM -- have developed well. I would argue that over the long term, IT services firms are more likely to extend into marketing services than are media owners.”

Meanwhile, Wieser also sees that ad agencies are the primary beneficiaries of the rise of digital, as increasing fragmentation of consumer media choices significantly expands the ways in which marketers can allocate budgets. 

“This makes an external filter increasingly important, and agencies are uniquely positioned to serve as this role,” said Wieser, who spent eight years as a top Madison Avenue economic forecaster at Interpublic before joining Pivotal.

If there is no threat from Google, why are some agencies investing so heavily in Google-like technology?

“Digital platforms such as those which WPP have invested in are fundamentally different from digital service providers -- such as digital agencies or trading desks -- which generally assemble technologies from third parties for the purposes of executing a campaign,”Wieser explained. “This is at the heart of the perceived risk from Google.

"If Google ends up dominating the advertising technology platform business, then potentially (but not necessarily likely), Google can extract all of the economic benefits of the marketing activity, which uses its platform.  WPP has hedged against this risk by owning its own technologies.”

Also working in their favor, holding ad companies are disproportionately exposed to markets outside of the United States, which will most likely lead to higher growth and lower risk, according to Pivotal. 

By contrast, among the global media conglomerates, only News Corp. comes close to this level of international focus, with less than half of revenues coming from abroad. Conversely, CBS, Disney, Time Warner, Viacom and Discovery only generate 15% to 33% of their revenues outside of the United States, according to Pivotal.