On Monday, Publicis Groupe officially announced its plans to acquire marketing services agency and loyalty provider Epsilon-Conversant from Alliance Data Systems for US$4.4 billion. We predicted this acquisition months ago, since IPG’s purchase of Acxiom and Dentsu Aegis Network’s (DAN) purchase of Merkle left Publicis as the only holding company without a significant data management player in its portfolio. Here’s our initial analysis:
- Data is a means to an audience-activation end. The intent behind the purchase is to power Publicis’ audience activation platforms. The largest holding companies have built (or bought!) platforms to automate and scale “people-based marketing.” The power of this acquisition lies in the integration of Epsilon’s data-driven marketing capabilities with Publicis’ audience activation platforms, including Digitas, Starcom and Zenith. At this time, we don’t know if Publicis Groupe plans to fold its own People Cloud into Epsilon or if the two will operate separately — we hope it’s the former.
- The holding company will offer a proprietary PII-based identity graph. Identity resolution is central to Epsilon’s offerings, and in recent years, it has combined its massive offline PII-based identities with Conversant’s non-PII ones to create significant reach across nearly every channel that marketers care about. But here’s the rub: so have Acxiom, Merkle, and Wunderman. We predict that all of the holding companies will expand their proprietary identity graphs to be leveraged by the agencies in the network. This could actually benefit the industry by reducing dependence on the walled gardens, but it begs a question: If a brand is using multiple agencies across multiple holding groups, how will it decide which one’s ID graph to connect with its own first-party CRM systems?
- Publicis has waded into new privacy territory. This is especially significant for clients and consumers in the EU. Until recently, most agencies could stave off privacy and data regulation concerns by holding a position merely as a “data processor” — that is, they didn’t own the data they processed for their clients. All that’s changed now; the big four all own a major data asset, and that could put them in the crosshairs of the GDPR. Publicis will need to shore up its data privacy and data ethics teams immediately, and its clients should be asking their agencies how and when they’ll be leveraging Epsilon’s data, platforms, and services.
- Publicis just acquired adtech, whether it intended to or not. In the acquisition of Conversant, Publicis got more than just data: It got a scaled retargeting platform complete with creative capabilities, used by scores of brands. The holding company can’t sunset the platform without losing the data asset, which means Publicis is now in the adtech business. But history has shown that clients don’t like black boxes and are wary when their agencies favor their own tech platforms. And with regulators and platform owners cracking down on cookie-based tracking, Publicis faces a very real conundrum: Will it actually get the value it expects from its investment if clients don’t want to use the tech and if cookie data disappears?
- Epsilon’s own agency clients should be OK — for now. In a 2018 Forrester Wave™ evaluation, we noted that Epsilon investing heavily in making its offerings more self-service, which could eventually affect the clients who rely on it for high-touch “managed services” — remember, it acquired several full-service agencies over the past decade. While the Publicis acquisition shouldn’t have an immediate impact on those clients, it wouldn’t surprise us if, over the next 3–5 years, Epsilon’s agency services business was separated from the data and technology business to defend against category exclusivity and conflicts of interest.
- Email and loyalty are just along for the (bumpy?) ride. In recent days, Epsilon has faced some product problems: It has an extremely long sales cycle, tends to win deals that are pull-throughs from its services business, and doesn’t really know how to package, develop, and sell technology products. Unfortunately, neither does Publicis, and it’s had a rough time integrating other tech acquisitions — like Sapient — into its portfolio. We anticipate that the email and loyalty businesses will plod along, untouched, for now. While that’s good news for clients in the short term, it could mean underinvestment in those areas for the next several years.
Publicis’ purchase of Epsilon isn’t the first and won’t be the last in the highly competitive and distressed agency landscape. It’s no coincidence that Publicis made this announcement the same day as it reported meager Q1 2019 earnings. It’s clear that Publicis is trying to move further into technology and precision marketing to better its competitive positioning. It took DAN over a year to start successfully integrating Merkle’s M1 platform within its network — can Publicis afford to take that long to integrate Epsilon? That’s the question of the hour.