With Epsilon deal, Publicis bets on first-party data for survival
Publicis’ $4.4 billion (£5.1 billion) gamble to buy Epsilon is a sign of how far the holding groups are prepared to go to ease the fee pressures on agencies with a more profitable business like data. As costly as it is to manage the type of first-party data Epsilon collects, it’s a highly lucrative product compared to the commoditized media buying services of agencies.
The challenge, however, will be how well Publicis extracts the margin from the first-party data it will have after it becomes the owner of Epsilon in the third quarter of the year. The company is a smorgasbord of data given it has more than 250 million U.S. consumers in its database and sends over 71 billion personalized emails each year. Here’s what the deal says about the business.
Data ownership is a necessity for agencies
Of the major networks, Publicis is one of the few without a major data marketing arm, so it made sense for it to acquire a company like Epsilon.
“It won’t be easy to scale Epsilon but most of its tools are exportable,” said Publics CEO Arthur Sadoun told investors on April 15. “If you look at what we could do tomorrow in France, Germany and the U.K., for example, we could export Epsilon’s technology to put together first-party data around individual IDs is something we could export.”
Not only does Epsilon own reams of proprietary consumer data it could sell as third-party data, but it also handles swaths of first-party data that advertisers give it to develop loyalty initiatives and other data-driven marketing programs. The margin on both types of data is big and can scale well if Publicis figures out a way to do it — in a legal way. The bulk of both Publicis’ and Epsilon’s business comes from the U.S. where privacy laws are becoming increasingly strict. It’s the same story in Europe where ad market retrenches around first and second-party data 11 months after the arrival of the General Data Protection Regulation. The future of third-party data — and those companies looking to profit from it — is uncertain to say the least.
Bridging the data gap in CPG advertising
Perennial pressures on CPG advertisers to drive more growth with less spend on traditional advertising has squeezed the margin out of a sector that pretty much fueled the ad industry. Epsilon — and all the data management expertise it has — is a way for Publicis to start to claw back some of that spend at a time when the likes of Procter & Gamble, Unilever and Mars are scrambling to bulk out the limited out of data they own compared to the smaller DTC brands chipping away at their businesses. While Epsilon’s client base leans toward sectors like retail, automotive and financial where the marketers at them have a strong grasp of the data they own, Publicis believes it’s only a matter of time before the same thing happens at CPG marketers.
“DTC brands are getting around 10 percent of the market share today,” said Sadoun. “The big battle for tomorrow is how CPG brands have direct access to consumers because they have to go direct.This is why first-party data is becoming increasingly important for the CPG sector.”
The tug of war for data between agencies is on
Agencies are wising up to the margin they can make on data. Indeed, Publicis, IPG and Dentsu have all made big bets on their ability to do so over the last three years, while Sir Martin Sorrell spoke recently about wanting to acquire a first-party data firm for S4. If agencies want to own more data and subsequently put it at the heart of their offer then the wisest move is to partner with a business that has expertise in the space and with compliance baked into their approach, said Julie Langley, partner at Results, which advises agencies on merges and acquisitions.
“Data capabilities have been much in demand over the last few years and we’ve seen a huge buyer appetite for businesses with expertise in using the main tech platforms – particularly Adobe and Salesforce – to deliver data-driven marketing, said Langley.
Owning data, not renting it, brings new problems to the beleaguered agency model
The more Epsilon is woven into Publicis, the less data the agency will buy from outside vendors. Currently, the group is buying third-party data to bulk out its “PeopleCloud” platform. As Publicis Media CEO Steve King told analysts: “Once we’ve gone through an integration period, we can anticipate scale and some cost efficiencies to the way we can utilize our ability to reach consumers.”
Any agency that switches from renting data to buying it is going to face questions about neutrality. After all, now that Publicis is the owner of Epsilon there’s more of a financial incentive for it to use the data from a company it owns over outside data. It could make an already murky agency model murkier when it comes to whether the data sold to advertisers is down to it being right for their goals or right for Publicis’ profit margin.
All that glitters in the world of data isn’t gold
On the surface, the deal looks like a good one for Publicis. Epsilon may cost double what IPG forked out to buy the $2.3 billion-valued Acxiom last year — yet it’s getting so much more. Publicis got the data management chops of Acxiom, along with SaaS platforms, digital media businesses like Valueclick, an affiliate specialist and some other agency services.
But despite the depth of services, Epsilon can’t be seen as the boon Publicis needed just yet. Epsilon endured a tricky 2018 that saw revenues slip 4 percent, raising questions over the quality of the service. Furthermore, the $4.4 billion deal was much cheaper than the $5 billion forecasts, which points to slim competition for a business that may not have had enough valuable services to tempt others to stump up the cash.
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