The New Advertising Super-Force?

Consequences of the Publicis – Razorfish Deal.

There has been speculation, now it’s confirmed: Publicis Groupe SA and Microsoft announced Sunday that they had come to an agreement over the acquisition of Razorfish by Publicis in a deal valued at about $530 million. The deal brings Razorfish organizationally under VivaKi, the Publicis unit that has at its core a deepening of relationships between the company and media vendors.

A couple of weeks ago I have been asked by a German Internet magazine to write a guest comment on the speculations. I have been writing about the value of such an acquisition and the terms Microsoft has been exploring including a long-term agreement to utilize Microsoft’s technology, software and advertising assets.

From a strategic point of view the deal makes sense, as Microsoft and Publicis entered into a broad strategic alliance cooperation in June 2009. Under the terms of the new deal this alliance will be deepened. Over the five-year term of the strategic alliance agreement between the companies, Publicis media agencies can purchase display and search advertising from Microsoft on favorable terms, in exchange for certain minimum guaranteed aggregate purchase levels. But can clients still expect to get an objective, independent media mix, if one of the largest advertising companies has a date with Microsoft? Just to be clear: the deal is expected to be paid in a combination of cash and delivery of 6.5 million Publicis Groupe treasury shares. When the deal does close, Microsoft will own about 3% of Publicis.

Maurice Lévy, chairman and CEO of Publicis Groupe said: “The acquisition of Razorfish is another step forward in realizing our strategic vision of building a world leader in digital communications – a critically important space for our clients.”

One of the key issues to be solved will be the integration of Razorfish. We have seen other agencies struggle with the integration if interactive services, trying to build a 360 degree company. It will be interesting to see how they blend in: Razorfish will continue to operate under its own name, but organizationally will fall under the VivaKi umbrella, similar to Digitas. David Kenny, managing director of VivaKi, believes that the addition will give them “a wider and more diverse platform of capabilities which will convert to optimal service offerings and other opportunities for our clients.”

At the end of the day I don’t believe this deal will dramatically change the advertising industry. The integration of Razorfish will lead to adjustments in the portfolio, as well as reduced headcounts. Publicis will gain additional interactive expertise, and maybe they are on their way to “digital leadership”. However, Razorfish is the loser of this deal: they loose independence and will be integrated in the advertising potpourri of a large network (under the umbrella of another company). They have to find their place first, before they can gain strength. What’s left? Just a normal company acquisition…

What do you think? Will this acquisition change the advertising industry?

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