Omnicom Group (NYSE:OMC) is the world's largest marketing and advertising conglomerate. It is organized as a holding company for a group of independent advertising and communication services firms. However, more than 50% of Omnicom's revenues come from sources other than traditional advertising, including public relations, industry-specific marketing, and its Customer Relationship Management program.
Focus on non-traditional advertising methods distinguishes Omnicom from competitors and protects revenues during periods of slow ad spend growth. The firm's structure and size also work to its advantage in a highly fragmented advertising market. As a holding company for three independent networks of agencies worldwide (BBDO, DDB, and TBWA), Omnicom can serve multiple clients in the same industry. When a customer becomes unhappy, Omnicom can retain the client with an offer to revamp the marketing plan at a different subsidiary agency.
Omnicom's earngs are threatened by factors such as a slowdown in advertising spending, a reliance on international sales, and acquisition risk. As a relatively discretionary portion of company expenses, advertising spending is directly correlated to GDP growth and general economic conditions; as a result, Omnicom's revenues are tied directly to the state of the economy. The shift of advertising dollars to the Internet has also had an impact on Omnicom's business model, forcing the company to invest in its digital marketing capabilities.
Omnicom is a holding company with three main divisions - the firms BBDO, DDB, and TBWA. This structure allows the firm to avoid conflicts of interest when serving different clients in the same industry. Omnicom’s agencies offer traditional media advertising, which accounted for 43% of revenues, as well as over 30 marketing services, which accounted for the balance. More specifically, the company generated 36.6% of revenue from Customer Relationship Management, 10.4% from Specialty (i.e. Niche) advertising, and 10.0% from Public Relations services.
Omnicom's clients include global companies such as Bayer , Chrysler, FedEx, Motorola, PepsiCo, Proctor & Gamble, and McDonald's (Omnicom's DDB was the agency behind the "I'm Lovin' It' campaign). The company's work also includes a global brand repositioning initiative for Clorox, in which the brand was marketed as the household cleaner that "enables healthy experiences that transcend the everyday," and the “In An ABSOLUT World” campaign for Absolut vodka, which combines print, broadcast, out-of-home, public relations, on-premise, and viral marketing.
===Business Financials===1 871 In 2009, OMC earned a total of $11.7 billion in total revenues. This was a significant decrease from its 2008 total revenues of $13.4 billion in total revenues. As a result, this had an adverse impact on OMC's net income. Between 2008 and 2009, OMC's net income declined from $1 billion in 2008 to $871 million in 2009.
Spending on advertising is highly volatile, correlated with general economic growth, which makes such macro factors as oil prices and the U.S. housing market key concerns for Omnicom. Therefore, OMC's earnings may be dependent on the overall economic condition of the economy.
Over the past few years, Internet advertising has become the fastest-growing segment of total ad spend, increasing the importance of mastering this medium for large holding companies like Omnicom. Small, nimble agencies focusing on digital advertising exclusively, as well as video hosting and community platform providers, have become serious competitors. Omnicom has responded to the threat by developing its digital arm Agency.com and emphasizing its capabilities in all marketing services, which provides clients with a one-stop advertising solution that specialty shops can't provide. Whether OMC can successfully expand and fend off the smaller online agencies remains to be seen.
Increasingly, clients are moving away from traditional print ads and TV spots to demand comprehensive ad campaigns that incorporate brand strategies, public relations, interactive marketing, online advertising, etc. Global advertising conglomerates like Omnicom are the natural providers of such full-service marketing; while smaller agencies focus on specific media or types of marketing, these firms' networks of agencies collaborate to provide marketing services in any format the client demands.
As an advertising agency, Omnicom relies on acquisitions to access innovations in the field of marketing and expand to new markets. Each acquisition, however, must be seamlessly integrated into the existing agency network, since Omnicom's business model requires collaboration between the many smaller agencies that comprise the firm - they must be able to combine their specialties to deliver comprehensive marketing services to each client. Rival advertising conglomerate Interpublic Group of Companies (IPG), which lost momentum in the 1990s after a string of acquisitions that it failed to integrate properly, exemplifies this danger - not too long ago, IPG held the same #1 spot in the advertising industry which Omnicom currently occupies. From 1996 to 2001, IPG racked up $2 billion of debt by buying dozens of small international agencies and also acquired True North Communications for $2.1 billion, resulting in accounting irregularities and subsequent poor performance from these companies. IPG has since sold off 51 of these acquisitions.
Even in a positive global economic environment, ad spend in developed markets is growing at a much slower rate than in developing regions - below 5% annually for the past few years in North America and Western Europe compared to rates higher than 10% in the Middle East and Asia or even 20% in Eastern Europe and Latin America. Omnicom's business, however, is heavily reliant on these mature and slowing markets - the firm received 53% of revenues from the US, 21% from Euro markets, 11% from the U.K., and only 15% from other locations.
Omnicom distinguishes itself from competitors through its acquisition strategy, product mix, and organizational structure. The company’s organic growth is higher than that of competitors, decreasing the necessity of constant acquisitions. Instead, the company portends to acquire only promising agencies that fit well into its network. Furthermore, Omnicom's revenue breakdown leaves it well positioned to take advantage of the advertising industry’s recent shift from conventional forms of advertising to more original, nontraditional media; while it receives almost 60% of revenue from providing such services, other global advertising agencies rarely exceed 50%. Finally, Omnicom's three-agency model combines three networks that are almost equally strong in reputation and revenue generation while competitors tend to rely on their strongest agency network for the majority of revenues.