If Google has its way, its program for buying newspaper and radio time will automate a process that is now handled by ad agencies. The process is fairly labor intensive. That is now at least.
As Google moves into the offline ad buying business it is being followed by Ebay, which has set up a TV buying service and Yahoo! which recently announced an online ad deal with 176 newspapers.
All of this could make life for public ad agency giants like Interpublic, Omnicom and WPP a little tough.
Selling advertising through online auction systems takes away a key ad agency function–selected and buying media for large marketing clients.
Some large advertisers are already jumping over the fence. When Ebay set up a TV buying service companies like Home Depot and Philip Electronics were early adopters.
The ad agency business is in enough trouble already. Although its stock has had a minor rally recently, shares in Interpublic has fallen from $34 in May 2002 to under $11 recently. Clients are already squeezing companies like Interpublic by demanding better fees for their services. Interpublic’s revenue has been fairly flat over the last several quarters.
Omnicom has dones better that Interpublic, which has had a history of financial reportsing problems. Over the last five years, Omnicom’s stock has matched the S&P 500 in performance.
Shares in WPP have not made much progress. In Februay 2004, its shares trade above $60. The now change hands at just below $65.
If advertisers turn increasingly to the internet giants for their ad buying service, the pressure on traditional ad agency shares will certainly continue.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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